annexes - trade sustainability impact assessment of...

ANNEXES - Trade Sustainability Impact Assessment of the Association Agreement to be negotiated between the EU and Central America TRADE08/C1/C14 & C15 - Lot 2

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ANNEXES – TSIA of the AA to be negotiated between the EU and Central America

Table of contents

List of Acronyms and Abbreviations 9

Annex I References 11

Annex II Overview Trends and Issues EU and Central America 21 II.1 European Union – Central America Current Trade & Investment 21

II.1.1 Trade in Goods 21 II.1.2 Trade in Services 25 II.1.3 Investment 27

II.2 European Union – Central American Relations and Relevant Agreements 27 II.3 Sustainability issues in the European Union 30

II.3.1 Main economic issues European Union 30 II.3.2 Main social issues European Union 31 II.3.3 Main environmental issues European Union 32

II.4 Sustainability issues in Central America 33 II.4.1 Main economic issues Central America 33 II.4.2 Main social issues Central America 34 II.4.3 Main environmental issues Central America 36

Annex III Modelling results 39 III.1 CGE related modelling 39 III.2 Additional quantitative analysis results 100 III.3 Poverty methodology 103

Annex IV Civil Society Consultations 105

Annex V In-depth Analyses 137

1. Fruits, vegetables and nuts 139 1.1. Introduction 139 1.2. Summarised results from the CGE model 139 1.3. Vertical dimension: main issues in the sector 142

1.3.1. European Union 142 1.3.2. Central America 146

1.4. Partial equilibrium modelling on bananas 150 1.5. Sustainability impact assessment 152

1.5.1. European impacts 152 1.5.2. Impacts Central America 154

1.6. Conclusions 158



1.7. Policy recommendations 158 1.7.1. European Union 159 1.7.2 Central America 159

2. Forestry 161 2.1. Introduction 161 2.2. Summarised results from the CGE model 161

2.2.1. CGE results for forestry sector 162 2.2.2. CGE output results for sectors impacting forests and land use 164

2.3. Vertical dimension: main issues in the sector 166 2.3.1. European Union 167 2.3.2. Central America 172

2.4. Sustainability impact assessment 178 2.4.1. European Union sustainability impacts 178 2.4.2. Central America sustainability impacts 179

2.5. Conclusions 183 2.5.1. European Union 183 2.5.2. Central America 183

2.6. Policy recommendations 184 2.6.1. Eurpean Union 184 2.6.2. Central America 185

3. Textiles and clothing 187 3.1. Introduction 187 3.2. Summarised results from the CGE model 188 3.3. Vertical dimension: main issues in the sector 192


3.4. Sustainability impact assessment 202 3.4.1. European Union sustainability impacts 203 3.4.2. Central America sustainability impacts 203


3.6. Policy recommendations 207 3.6.1. European Union 207 3.6.2. Central America 208

4. Electronics 209 4.1. Introduction 209 4.2. Summarised results from the CGE model 209 4.3. Vertical dimension: main issues in the sector 211


4.4. Sustainability Impact assessment 215 4.4.1. European Union impacts 215

4.4.2. Impacts Central America 217 4.5. Conclusions 220



5. Maritime transportation services 223 5.1. Introduction 223 5.2. Summarised results from the CGE model 223 5.3. Vertical dimension: main issues in the sector 226


5.4. Sustainability impact assessment 230 5.4.1. European Union impacts 230 5.4.2. Impacts Central America 232



6. Investment conditions 241 6.1. Introduction 241 6.2. Investment Climates and FDI Flows in the EU and Central America 241

6.2.1. European Union Investments and Investment Conditions 241 6.2.2. Central America 243

6.3. Impact Assessment 247 6.3.1. CGE modelling results 247 6.3.2. Gravity analysis 248 6.3.3. European Union Impacts 249 6.3.4. Central American Impacts 250



7. In focus: Labour Issues 257 7.1 Introduction 257 7.2 Main Labour Issues – European Union 258 7.3 Main Labour Issues – Central America 258 7.4 Labour and the AA 260 7.4 Conclusions 261

7.4.1 European Union 261


7.4.2 Central America 261 7.5 Policy Recommendations 262

7.5.1 AA-related 262 7.5.2 Flanking measures 263

8. In Focus: Environmental Issues 265 8.1. Multilateral Environmental Agreements (MEAs) 265

8.1.1 European Union 265 8.1.2 Central America 265

ANNEXES – TSIA of the AA to be negotiated between the EU and Central America 9

List of Acronyms and Abbreviations

Abbreviation Description

AA Association Agreement

AHM Maquila Association of Honduras

ALOP Asociación Latinoamericana de Organizaciones de Promoción

ATC Agreement on Textile and Clothing

CACM Central American Common Market

CAWN Central American Women’s Network

CCA Causal Chain Analysis

CDR Centro de Estudios para el Desarrollo Rural

CCAD Central American Commission

CGE Computational General Equilibrium

CMT Cut-make and trim

CSR Core Social Responsibility

DDA Doha Development Agenda

DR-CAFTA Dominican Republic-Central American Free Trade Agreement

DWA Decent Work Agenda

DWCP Decent Work Country Programme

EC European Commission

ECLAC Economic Commission for Latin America

EDF Economic Development Foundation

EEA European Environment Agency

EMSA European Maritime Safety Agency

ESF European Services Forum

ETS Emission Trading System

EU European Union

EURATEX European Apparel and Textile Organisation

FAO Food and Agriculture Organisation

FAP Forest Action Plan

FDI Foreign Direct Investment

FLEGT Forestry Law Enforcement, Governance and Trade

FMT Francois, Van Meijl, and Van Tongeren

FoEE Friends of the Earth Europe

FTA Free Trade Agreement

FTZs Free Trade Zones

FUDI Fundación de Desarrollo Integral

FVN Fruits, Vegetables and Nuts

GDP Gross Domestic Product

GHG Greenhouse Gas


Abbreviation Description

GSP Generalized System of Preferences

IEA International Energy Agency

IEAs International Environmental Agreements

ILO International Labour Organisation

IMO International Maritime Organisation

IPR Intellectual Property Rights

ITR Interim Technical Report

LULUFC Land Use, Land use Change and Forestry

MEAs Multilateral Environmental Agreements

MFA Multi Fibre Agreement

MT Make and trim

NTM Non Tariff Measure

NWFP Non-wood forest product

NWGS Non-wood goods and services

ODI Overseas Development Institute

OEM Original equipment manufacturers

PPP Purchasing Power Parity

R&D Research and Development

RMLIC Rest of Middle and Low Income Countries

RoHS Restriction on the Use of Hazardous Substances

ROW Rest of World

SFM Sustainable forest management

SICA Central American Integration System

SIECA Secretariat for Central American Economic Integration

SL Skilled labour

SMEs Small and Medium Enterprises

SPS Ssanitary and phytosanitary measures

SSS Short sea shipping

T&C Textiles and clothing

TEUs Twenty feet Equivalent Units

ToR Terms of Reference

TSIA Trade Sustainability Impact Assessment

UL Unskilled labour

UMIP Panama International Maritime University

UN United Nations

US United States

VA Value added

VPA Voluntary Partnership Agreements

WEEE Waste Electrical and Electronics Equipment Directive

WEI Water Exploitation Index

WTO World Trade Organisation


Annex I References

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Abrahamson, Peter (2008). ‘European Union influence on Central American Integration: The case of the coming Association Agreement’. Paper presented in the ISA RC 19th Annual Conference: The Future of Social Citizenship: Politics, Institutions and Outcomes, Stockholm, 4-6 September;

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CC-SICA (2007). Perspectivas hacia un Acuerdo de Asociación Propuestas para la negociación del Acuerdo de Asociación Europa Centroamérica, desde la Sociedad Civil Centroamericana. Resultados del II Foro Sociedad Civil Centroamérica Europa. Comité Consultivo – Sistema de la Integración Centroamericana: Tegucigalpa, Marzo;

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Electra, (2008), “Twenty Solutions for growth and investment to 2020 and beyond”

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European Commission, (1990), “Directive 90/219/EC on the contained use of genetically modified micro-organisms”, Official Journal of the European Union, No. C 96, 17. 4;

European Commission, (1991), “Directive 91/493/EEC laying down the health conditions for the production and the placing on the market of fishery products; Official Journal of the European Union, L 268, pp. 15-34;

European Commission, (2001), “Directive 2001/18/EC on the deliberate release into the environment of genetically modified organisms, Official Journal of the European Communities, L 106/1;


European Commission, (2003), “Directive 2003/30/EC of the European Parliament and of the Council on the promotion of the use of biofuels or other renewable fuels for transport”, Official Journal of the European Union, L 123/42;

European Commission, (2003), “Regulation (EC) 1829/2003 on genetically modified food and feed”, Official Journal of the European Union, L 268/1;

European Commission, (2003), “Regulation (EC) 1946/2003 on transboundary movements of genetically modified organisms”, Official Journal of the European Union, L 287/1;

European Commission, (2005), “Council Regulation (EC) No 2173/2005 of 20 December 2005 on the establishment of a FLEGT licensing scheme for imports of timber into the European Community”, Official Journal of the European Union, L 347/1;

European Commission, (2006), “COM (2006) 71 final, Report on equality between women and men – 2006”, Brussels;

European Commission, (2007), “Communication from the Commission on the Mid-term review of the Sixth Community Environment Action Programme, COM (2007) 225 final”, Brussels;

European Commission, (2009), “Com (2009) 8 final, Strategic Goals and Recommendations for the EU’s Maritime Transport Policy until 2018”, Brussels;

European Commission, (2009), “EU and Central America pursue negotiations for an AA; €15 million EC assistance package for regional integration announced”, EU press release accessed February 2009 at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/119&format=HTML&aged=0&language=EN&guiLanguage=en;

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European Environment Agency, (2007), “Europe’s Environment: The Fourth Assessment”, Copenhagen;

European Environment Agency, (2008), “Core Sustainability Indicators”;

European Monitoring Centre on Change, (2008), “Trends and drivers of change in the European textiles and clothing sector: Mapping report.”;

European Sustainable Energy Review, Issue 4, 2008 page 5;

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Eurostat, 2008, “Comext, Statistical Regime 4”, DG Trade;


Expertise Centrum voor Duurzame Ontwikkeling (ECDO), (2006), “Size does matter - The possibilities of cultivating Jatropha curcas for biofuel production in Cambodia”, Universiteit van Amsterdam

FAO, (2009), “State of the World’s Forests – 2009”;

FAOSTAT (2007), “Production of Fruits and Vegetables Shares in the World”;

FAOSTAT, website: http://faostat.fao.org/default.aspx;

Figini and Görg, (2006), “Does FDI Affect Wage Inequality? An Empirical Investigation”, Bonn: IZA Discussion Paper;

Framework Cooperation Agreement between the European Economic Community and the Republics of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, 22 February 1993;

Francois and Hall, (2003), “Global Simulation Analysis of Industry-level Trade Policy”, http://www.intereconomics.com/handbook/Models/Spreadsheet%20Models/GSIMpaper.pdf;

Francois, J.F, B. Hoekman, and J. Woerz (2007), ‘Does Gravity Apply to Nontangibles: Trade and FDI Openness in Services,’ plenary paper at the 2007 ETSG meetings, and an unpublished 2008 updated version; Francois, J.F. (1998), ‘Scale economies and imperfect competition in the GTAP model,’ GTAP consortium technical paper; Francois, J.F. (2001) The Next WTO Round: North-South stakes in new market access negotiations, CIES Adelaide and the Tinbergen Institute, Adelaide: CIES; Francois, J.F. and D.W. Roland-Holst (1997), ‘Scale economies and imperfect competition’, in J.F. Francois and K.A. Reinert, eds. (1997), Applied methods for trade policy analysis: a handbook, New York: Cambridge University Press; Francois, J.F., B. McDonald and H. Nordstrom (1996), ‘Trade liberalization and the capital stock in the GTAP model’, GTAP consortium technical paper; Francois, J.F., B.J. McDonald, and H. Nordstrom (1997), ‘Capital Accumulation in Applied Trade Models,’ in J.F. Francois, and K.A. Reinert, eds. (1997), Applied methods for trade policy analysis: a handbook, New York: Cambridge University Press; Francois. J.F., H. van Meijl and F. van Tongeren (2005), ‘Trade Liberalization in the Doha Development Round,’ in Economic Policy April: 349-391; Freedom Index, Heritage foundation and WSJ (2009) at www.heritage.org;


Gereffi, G.; Humphrey, J.; Kaplinsky, R. & Sturgeon, T.J., (2001), “Introduction: Globalisation, Value Chains and Development”, Special Issue IDS Bulletin, 32(2), pp.1-8;

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http://rainforests.mongabay.com/20neotropical.htm

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Annex II Overview Trends and Issues European Union and Central America

II.1 European Union – Central America Current Trade & Investment

II.1.1 Trade in Goods

The EU is the second biggest importer in the world, after the United States (US). In 2007, EU merchandise imports constituted 18.2 percent of world imports. In terms of exports, the EU is the world’s largest exporter, accounting for 16.5 percent of merchandise exports, followed by China and the US. In terms of total trade (imports + exports), the EU is the largest player, accounting for 17.4 percent of global total trade1. Figure II.1 presents developments during the last couple of years in EU trade with the rest of the world.

Imports, exports and total trade grew with almost 50 percent from 2003 - 2007. The EU trade balance is slightly negative and increased somewhat over past years (see Table II.1).

Table II.2 and Figure II.2 show the development of Central America (including Panama) merchandise trade with the world. Trade has more than doubled during recent years. In 2003, total merchandise trade was worth €40.3 billion and in 2007, this had reached €83.3 billion. Exports from Central America almost doubled during this time, but this increase was still lower than the increase in imports, implying that the negative trade balance increased considerably between 2003 and 2007.

Figure II.1 EU’s merchandise trade with the world, Mio Euro

-500000

0

500000

1000000

1500000

2000000

2500000

3000000

2003 2005 2007

Mio

Eur

o

Imports Exports Balance Total Trade

1 Source of the data: DG Trade Statistics.


Source: EUROSTAT (Comext, Statistical regime 4), DG Trade, 10 September 2008.

Table II.1 EU merchandise trade with the world, € Billions

2003 2005 2007 Growth rate 2003-2007

Imports 935.3 1,179.6 1,426.0 52%

Exports 869.2 1,052.7 1,239.9 43%

Balance -66.0 -126.8 -186.1 182%

Total Trade 1,804.5 2,232.3 2,665.9 48%

Source: EUROSTAT (Comext, Statistical regime 4), DG Trade, 10 September 2008 and own calculations.

Figure II.2 Central America merchandise trade with the world, Mio Euro

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20000

40000

60000

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100000

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Source: IMF (Dots), from EUROSTAT (Comext, Statistical regime 4), DG Trade, 10 September 2008.

Table II.2 Central America merchandise trade with the world, € Billions

2003 2005 2007 Growth rate 2003-2007

Imports 25.9 32.3 57.1 121%

Exports 14.5 18.0 26.2 81%

Balance -11.4 -14.3 -30.9 171%

Total Trade 40.3 50.3 83.3 106%


Figure II.3 provides an overview of the trade balance between the EU and Central America. An overview of trade flows between EU and Central America, and what these constitute as a share of world trade flows, is presented in Table II.3.

The EU’s imports from Central America amount to € 4.77 billion, or 0.33 percent of total EU imports. EU exports to Central America amount to € 5.30 billion, 0.43 percent of total EU exports. For Central America, these trade volumes with the EU represent a share of 9 percent of total Central America imports, and 18 percent of total exports.


Figure II.3 EU trade balance with Central America, Mio euro, 2007

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Table II.3 EU- Central America trade as share of total EU/ Central America trade

Share of total trade

Flow EU from/to Central America Central America from/to EU

Imports 0.33% 9.28%

Exports 0.43% 18.20%

Total trade 0.38% 12.08%


Whereas the EU’s and Central America’s total trade with the world increased by 48 and 107 percent respectively from 2003 – 2007 (Table II.1 and Table II.2), total trade between the EU and Central America increased by just 28 percent over the same period. For Central America, the EU is the fourth major import partner, the second major export partner and the second major total trade partner, after the US. For the EU, Central America does not belong to its top 20 major import, export or total trade partners.

Costa Rica and Panama At country-level, Costa Rica and Panama are the EU’s main trading partners (see Table II.4 and Figure II.4). In 2007, Costa Rica was the main import partner for the EU, accounting for 63 percent of Central America’s imports into the EU. Panama was the largest export partner, accounting for 49 percent of total.

Table II.4 EU merchandise trade with Central America countries in Mio euro, 2007

Costa Rica El Salvador Guatemala Honduras Nicaragua Panama Total

Imports 2,998 196 333 434 144 660 4,765

Exports 966 557 667 349 130 2,629 5,298

Trade balance -2,032 360 334 -85 -14 1,969 532

Total trade 3,963 753 1,000 783 273 3,289 10,061



Note: Due to rounding, the last column (total) could be different from the statistics in Figure II.3.

Figure II.4 Trade balance of the EU with Central America countries, 2007

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Products Figure II.5 shows that the major imports from Central America to the EU are agricultural products. The transport equipment sector constitutes the largest share of EU exports to Central America, followed by chemical products. Costa Rica, accounting for the majority of Central America’s imports into the EU, is a large exporter of agricultural products (42.9 percent of the total exports of Costa Rica to the EU). It mainly imports machinery from the EU (14.4 percent of total EU imports into Costa Rica). For Panama, accounting for half of the EU’s export to the region, transport equipment is the biggest import product from the EU (57.3 percent of total). Agricultural products are the most important export product to the EU (54.3 percent).


Figure II.5 EU merchandise trade with Central America by product, 2007

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II.1.2 Trade in Services

Table II.5 shows the value of trade in services between Central America and the EU. The EU generally exports slightly fewer services than it imports, although the difference has reduced since 2004. In 2007, the EU trade deficit in services was € 0.5 billion.

Table II.5 Trade in services EU with Central America in € Billions, 2007

Credit Debit Net

Transportation 3.48 4.08 -0.61

Travel 1.40 5.81 -4.42

Other services 14.17 9.73 4.44

Of which:

o Communication services 0.17 1.19 -1.02

o Construction services 0.36 0.18 0.18

o Insurances services 0.96 0.51 0.46

o Financial services 4.37 0.67 3.70

o Computer and information services 0.53 0.07 0.46

o Royalties and license fees 1.79 4.28 -2.49

o Other business services 5.79 2.64 3.15

o Personal, cultural and recreational services 0.08 0.05 0.03

o Government services 0.12 0.16 -0.04

Services not allocated 0.01 0.001 0.006

Total services 19.04 19.61 -0.58

Eurostat, extracted March 2009.


In 2007, Central America accounted for 1.8 percent of EU trade (imports + exports) in services; see Figure II.6 and Table II.6. Intra-EU trade (accounting for by far the largest part of EU services trade) is included in Others.

Figure II.6 Central America share of EU 27 total (imports + exports) trade in services, 2007

US Sw itzerland Latin America Central America Japan Others

Source: Eurostat, extracted March 2009-03-31

Table II.6 EU’s trade in services with partners, € Billions, 2007

Credit Debet Net

Total (credit +

debet)

Percentage

(total trade)

US 139.1 127.7 11.4 266.9 12.1%

Switzerland 61.5 44.0 17.5 105.5 4.8%

Latin America 23.3 17.4 5.9 40.6 1.8%

Central America 19.0 19.6 -0.6 38.7 1.8%

Japan 19.4 13.8 5.6 33.2 1.5%

Others 915.8 814.5 101.3 1,730.3 78.1%

World 1,178.1 1,037.0 141.1 2,215.1 100.0%

Source: Eurostat, extracted March 2009-03-31

It is also important to mention the current account deficits which the Central American countries currently have. In the case of Nicaragua in particular, the deficit is considered to be unsustainable (see Table II.7).


Table II.7 Central American current account deficits as percentage of GDP

Current account deficits 2007 2008

Belize -4,0% -7,6%

Costa Rica -6,2% -8,1%

El Salvador -0,9% -4,6%

Guatemala -5,1% -4,6%

Honduras -9,9% -11,8%

Nicaragua -18,3% -25,8%

Panama -7,3% -9,1%

Source: ECLAC.

II.1.3 Investment

Table II.8 below shows the levels of foreign direct investment (FDI) between the EU and Central America. EU outflows are much higher than inflows and fluctuate vastly from year to year. In recent years, inflows into the EU have risen substantially.

Table II.8 EU FDI with Central America, Bn. Euros

Year Inflows Outflows Balance

2004 -0.6 36.1 36.7

2005 2.4 8.5 6.2

2006 17.8 30.2 12.4

Source: EUROSTAT.

II.2 European Union – Central American Relations and Relevant Agreements

The EU and Latin America have had enhanced links since the 1960s and today, their relationship is important for both regions, politically as well as economically. Below, a short overview is given of the EU- Central America AA under consideration here and its aims, as well as some other agreements relevant in this context.

Box II.1 AA EU – Central America republics

Plans for an EU-Central America AA were formed at the 2006 EU-Latin America Summit in Vienna, Austria.2 It

was decided that the agreement would encompass the three pillars of political dialogue, cooperation

programmes and a FTA, and negotiations on these pillars began in mid-2007 with Guatemala, El Salvador,

Nicaragua, Honduras and Costa Rica. Panama is not included in these negotiations due to the fact that the

country is not yet a member of the SIECA (Secretariat for Central American Economic Integration).

2 Declaration of Vienna from the IV EU-LAC Summit, Vienna, Austria, 12 May 2006.


Political Dialogue pillar

The San José Dialogues between the EU and Central America started in 1984 with the aim of reaching a

peaceful end to the civil conflicts in the region, by way of dialogue and negotiations mediated by Europe. The

last San José Dialogue meeting took place in 2007.3 Now, the EU holds a summit with the Latin American and

Caribbean countries every two years, and in the other year, the EU meets with the Rio Group. There is a new

EU-Central America Political Dialogue and Cooperation Agreement4 which must be ratified by the EU Member

States. This aim of the agreement is to deepen relations between the regions and set the stage for an effective

AA.

Cooperation Programmes pillar

Aside from the San José Dialogues’ political dialogue component, a cooperation programme was also created

at that time to help with the economic effects of the conflicts. The 1993 Framework Cooperation Agreement5

focused on human rights and democracy, rural development, disaster reconstruction, social development and

regional integration. €145 million was granted by the EU for this purpose between 1995 and 2005. Other EU

cooperation initiatives have included a reconstruction programme after Hurricane Mitch, support for Small and

Medium Enterprise (SME) development, and support for food security, environmental conversation and human

rights. In 2001, a five-year regional programme of cooperation was signed by the EU and Central America for a

total of €655 million with a strong focus on regional integration. In 2008, the EU launched a second ‘Programme

of Support to Central American Regional Integration’ with the aim of strengthening the Central American

Integration System (SICA) institutional system by making it more transparent and open, and increasing civil

society participation and information dissemination to the public. A Joint Committee and Sub-Committee for

Cooperation also meet regularly to discuss these various issues.6

Trade Agreement pillar

A FTA is currently being negotiated between the EU and the Central American countries with the aim of going

beyond World Trade Organisation (WTO) rules. The two sides have been meeting to discuss several issues in

twelve sub-groups. It is hoped that the negotiations will be completed within 2009. An important part of the AA in

general and the FTA in particular is Sustainable Development. A Trade and Sustainable Development Chapter

is envisaged within the FTA, which will reflect International Labour Organisation (ILO) core labour standards;

facilitate and promote trade in environmentally-friendly goods and services, integrate environmental, labour and

social considerations into the FTA and encourage a transparent and cooperative agreement.7

Box II.2 Other agreements relevant for EU – Central America relations

The model incorporates all trade agreements which have been implemented by both regions to date. What

follows is a selection of these.

3 San José Dialogue Ministerial Meeting between the European Union Troika and the Ministers of the Countries of Central

America, Santo Domingo, Dominican Republic, 19 April 2007. 4 Political Dialogue and Cooperation Agreement between the European Community and its Member States for the one part,

and the Republics of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama for the other part, Rome, Italy, 15 December 2003.

5 Framework Cooperation Agreement between the European Economic Community and the Republics of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, 22 February 1993.

6 EU and Central America pursue negotiations for an AA; €15 million EC assistance package for regional integration announced, EU press release accessed February 2009 at http://europa.eu/rapid/pressReleasesAction.do?reference=IP/09/119&format=HTML&aged=0&language=EN&guiLanguage=en

7 Discussion Paper on Sustainable Development for the Association Agreement between the EU and Central America.


Doha Development Agenda (DDA)

The Doha Development Agenda is the current WTO negotiation round which started in November 2001. The

round has met several obstacles as the developed and developing world clash over issues such as agriculture,

pharmaceuticals patenting, special and differential treatment for developing countries and the difficulties

developing countries have had in implementing trade agreements. Recent negotiations in July 2008 also broke

down but talks are expected to resume in 2009. The Central American countries would stand to gain

substantially, if subsidies on agricultural products such as sugar were to be reduced by the developed world.8

For its part, the EU has included the abolition of farming export subsidies completely and has campaigned for

the inclusion of a package of development measures in the final round agreement.

EU – LAC Summit

A summit between the European Union and the Latin American and Caribbean countries has taken place every

two years since 1999. The main issues to be tackled at these summits include social cohesion, drugs, migration

and relations with civil society. Results of the talks include for example the 2005 Communication on a Stronger

Partnership between the European Union and Latin America and the Regional Strategy Paper 2007-2013 which

defines regional development cooperation programmes.

GSP (Plus)

Commercial relations between the EU and the Central America are dominated by the Generalised System of

Preferences (GSP) which was introduced by the EU in 1971. This arrangement provides duty-free access to EU

markets for all industrial products from Central America as well as some agricultural products. It also has a

provision for combating drug production and trafficking. A new GSP Plus regime came into effect in 2005 aimed

at poorly diversified economies. It also demanded the ratification and effective implementation of several

international (social, labour, environmental, good governance) conventions in order to qualify.

CAFTA

The Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) is between the US and

Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and the Dominican Republic. Negotiations took

place from January 2003 – March 2004 and the agreement was ratified and implemented by most countries in

2006 (2008-9 in Costa Rica). Although it is early days, the first indications by a World Bank Report9 are that

there are some positive effects of this agreement for the Central American countries given their increased

market access to the US (particularly for the food processing industry10), and the US has also benefited through

expanded export markets for food, petroleum products and machinery.11 As a result of DR-CAFTA negotiations,

a White Paper was published in 2005 by the Ministers responsible for trade and labour in DR-CAFTA countries

in which they identified key areas for improving workers rights, enhancing capacity and promoting compliance

with labour standards.12 Similar commitments will be part of the EU- Central America AA Sustainable

Development Chapter.

8 The Doha Development Agenda Impacts on Trade and Poverty accessed February 2009 at

http://www.odi.org.uk/resources/specialist/doha-briefings/collection.pdf 9 Jaramillo, Carlos Felipe and Daniel Lederman (2006) Challenges of CAFTA, Washington DC: World Bank. 10 Red Regional de Monitoreo DR-CAFTA (2007), Impactos del TLC: Informe Preliminar. 11 Source: United States of America Department of Commerce available at www.buyusa.gov 12 The Labor Dimension in Central America and the Dominican Republic available at

http://www.centristpolicynetwork.org/pages_2005/06/white_paper_summary.pdf.


II.3 Sustainability issues in the European Union

This section highlights the main economic, social and environmental issues for the EU that are most relevant in the context of this EU – Central America AA, taking the sustainability indicators into account.

II.3.1 Main economic issues European Union

• Real income o With a GDP of €12,353 billion (at market prices), the EU is the largest economy in the

world. GDP per capita in the EU27 is €24,900 (2007, at market prices). There are some differences between Members States: while Luxembourg’s GDP per capita is three times higher than EU average, Bulgaria has a value of €3,800. In 2007, the growth rate of GDP per capita in the EU27 was 2.7 percent;

o The inflation rate in the EU is low and rather stable; it fluctuated around 2 percent since 2000. In 2007, the inflation rate was 2.3 percent;

o The tertiary sector accounts for the largest part of value added generated by the EU economy; all EU Member States have a services value added of more than 50 percent of GDP in 2006, ranging from 52 percent (Romania) to 85 percent (Luxembourg). This share has been growing substantially over the past years. Agriculture value added (as a percentage of GDP) in 2006, ranged from 0 percent in Luxembourg to 11 percent in Romania. For Industry value added (as a percentage of GDP) again Luxembourg had the lowest value of 15 percent (2006) and in Czech Republic the highest value added was observed, 39 percent (2006).13

• Investment o Total investment in the EU27 amounted to 21.3 percent of GDP in 2007, the largest share

coming from business investment (18.7 percent), while public investment accounted for the rest;

o While the lion share of EU investment is done inside the EU, the average value of inward and outward FDI flows stood at 3.4 percent of GDP in 2007, which makes the EU the largest foreign investor worldwide, followed by the US.

• Trade o Trade is of significant importance for an open economy like the EU. Merchandise imports

amounted to €1,426 billion in 2007 and merchandise export to €1,234 billion, implying that the EU is running a trade deficit for merchandise;

o Trade in services accounted for a large share of total trade and this share has been growing in importance in the trade decomposition for the EU. In 2007, the EU27 had a positive (and increasing) trade balance in services of €147 billion, with imports of services amounting to €1,073 billion and exports to €1,221 billion.

13 Source: World Development Indicators


II.3.2 Main social issues European Union

• Employment and labour issues o The unemployment rate in the EU-27 decreased from 9 percent in 2003 to 7 percent in

2008. The long term unemployment rate in the EU-27 was 3 percent in 2007. Participation in the labour force has risen since the mid-1980s from just under 66 percent to 70.1 percent in 2006. Self-employment in the EU27 decreased from 18.2 percent in 1995 to 14.1 percent in 2007;

o The labour productivity growth rate in the EU15 is modest (i.e. compared to the US). Yet the labour cost and wages and salaries in the EU25 have been increasing since 2000 (both by around 28 percent);

o In only 8 Member States more than 50 percent of the employed population is member of a trade union. The objectives of the ILOs Decent Work Agenda are prevalent in Europe at the moment. The EU has recently had discussions with the ILO on creating a regional minimum wage in these times of crisis, as well as extending social security.14

• Poverty and (gender) equality o 16 percent of the households in the EU lives with 60 percent of the EU median income

(defined as households at-risk-of poverty). This share varies between the Member States. In 2007, the income inequality (Gini-index) was 0.30 for the EU, ranging between 0.23 and 0.37 for individual Member States;

o With respect to gender equality, the employment rate gap between men and women declined to 14.2 points in 2007. Women are involved more in traditional “female” activities, work more in part-time and there is still a significant pay gap between men and women. Generally, women are at greater risk of social exclusion and poverty than men. Yet, enrolment in primary and secondary education is 90 percent or higher within the EU both for boys and girls and enrolment in tertiary education is higher for females.

• Health o Life expectancy at birth equals 78.4 years for the EU27 (2005). In general, life

expectancy is lower in the Eastern European countries. Both infant and maternal mortality rates in the EU have declined steadily over the past decades;

o The coverage and access to health care services are broadly guaranteed to all inhabitants in most Member States. However, the situation for disadvantaged groups is a point of interest in the EU. Most of the EU population also has access to good quality water and sanitation. The main focus of the EU nutritional policy is ‘overweight’ and ‘obesities’.

• Education o The enrolment in primary and secondary education is over ninety percent. In general in

Northern and Western Europe enrolment is close to hundred percent. In 2004, a little more than 15 percent of all those enrolled in education were in tertiary education in the EU27;

o Between 10-20 percent of the population in the EU is functional illiterate; in the New Member States functional illiteracy is a bit higher (up to 30 percent). 14 ILO Brussels Newsletter, November 2008.


II.3.3 Main environmental issues European Union15

• Atmosphere o Regarding climate change mitigation, the EU in 2007 made a firm independent

commitment to achieve at least 20 percent reduction of greenhouse gas (GHG) emissions by 2020 compared to 1990. In addition to substantial emissions reductions at home, the countries can also use Kyoto Mechanisms like CDM for off-setting;

o With respect to adaptation to climate change, some extremes of heat and drought, rain and flooding are affecting parts of Europe. Draughts and consecutive water shortages especially in Spain, Italy and Greece are growing;

o Issues of air pollution and accumulation of hazardous substances in the atmosphere directly link to health concerns; this also holds for drinking water quality, contamination of soil and food security.

• Biodiversity, Land & Fresh and waste water o Concerns with respect to maintaining Europe’s biodiversity and carrying capacity of

ecosystems are growing. Increased attention is present for the issue of sustainability of production, consumption and trade in the globalized economy;

o Similarly, with respect to the use of natural resources, an increased urgency regarding the need to reduce the ecological footprint in order to regain long term sustainable development is perceived;

o Although 80 percent of Europeans live in big cities, towns or urban settlements, the rural landscape has a large significance in terms of providing food, raw materials, fuel and recreational opportunities. Farmers manage half of the EU's land area and agriculture uses half of the water available in southern Europe. In magnitude, farming causes almost half of the nitrogen pollution in rivers, 94 percent of ammonia emissions and 9 percent of total GHG emissions;

o With respect to the marine environment, overuse of marine resources, considerable pollution and extinction of species has become a continuous point of concern in many coastal waters of Europe.

• Environmental quality o Energy is an important strategic issue at present for the EU. Key drivers are security of

supply, efficient use of energy, promotion of energy saving and increasing the share of renewable energy production. In 2008 the EU set targets to increase the share of renewable energy by 20 percent and improve energy efficiency by 20 percent by 2020. However, the switch from fossil fuels to bio-energy bears considerable environmental risks, mainly in terms of land-use change and overall balance of GHG emissions;

o An eco-efficient economy can not be reached without reducing the amount of raw materials used and waste generated during the life cycle of products. Responsible consuming requires recycling of materials; however, global transfers of waste streams are a concern.

15 The environmental issues and trends for the EU27 reflect the current state of the environment in the EU and are prioritized

in line with the relevance to the current environmental policy debate in Europe. See: EEA Signals 2009/3 Key Environmental Issues Facing Europe, EEA Copenhagen 2009.


II.4 Sustainability issues in Central America

This section highlights the main economic, social and environmental issues for the Central American republics that are most relevant in context of this EU – Central America AA.

II.4.1 Main economic issues Central America

• Real income o Costa Rica and Panama are considered upper-middle income countries; El Salvador,

Guatemala, Honduras and Nicaragua are lower middle income countries.16; GNI per capita is highest in Costa Rica and Panama ($5,560 and $5,510; Nicaragua has the lowest GNI per capita ($980). In PPP terms, GDP per capita is also highest in Costa Rica, followed by Panama. Nicaragua and Honduras have the lowest GDP per capita in PPP ($3,674 and $3,430).

o For Costa Rica, Panama, El Salvador and Guatemala, the secondary and tertiary sectors represent the major part of the value added in the economy17, while for Honduras and Panama, the agricultural sector still has a relatively more important economic weight. For example in Costa Rica, the structural transformations from the agro-export model to a new economic model since the 1980s has diminished dependence of on agriculture significantly, while in contrast, in Nicaragua and Honduras e.g. lack of technology dissemination, human capital and labour opportunities has inhibited a similar process;

o Reduction of inflation, roughly around 10 percent in the Central American republics, is considered one of the main issues for the governments, especially in Honduras, Nicaragua and Guatemala, considering their high levels of poverty (and inflation affecting consumer purchasing power). The Panama and El Salvador monetary system are dollarized which kept inflation relatively low, until food and other import goods started rising from 2007 onwards. Monetary policy in most republics is closely linked with internal debt issues and fiscal management.

• Investment o Though few reliable data are available, fixed capital formation (from National Accounts)

is roughly around 25 percent in the region; o CAFTA has stimulated productive investment in the export sectors. Yet, issues like

security concerns, lack of skilled workers and poor infrastructure hamper FDI in reaching the expected or desired levels;

o Especially Panama and Costa Rica received significant amounts of FDI in recent years ($2.57 billion and $1.47 billion in 2006, respectively), mainly directed to services and linked to a skilled labour force. Nicaragua’s low levels of FDI ($0.28 billion) suggest that the country’s lower levels of human capital and less attractive business environment make the country less attractive for FDI.

16 According to the World Bank classification. 17 For example, in Costa Rica the service sector represents 60 percent of the economy (mainly driven by tourism), in Panama

77 percent (mainly financial and transport services).


• Trade o The EU is the second most important external trade partner for the Central American

region, after the US. From the six countries, Costa Rica and Panama are most internationally oriented trade partners, both towards the EU and the US. These countries generally have a relatively more diversified (yet still poorly) export package, and have better terms of trade18 than the other countries;

o Regional economic integration remains a crucial factor in stimulating trade potential for the region, but does not go without difficulties. For example, as of yet Panama has not signed the Protocol for Central American Economic Integration (SIECA), which was considered by the EC as a sine qua non for Panama as a cosignatory in an AA between the two blocks. In addition, even without this country in SIECA, not all Central American countries apply uniform external import tariffs in trading with the world;

o In addition to trade in goods and services, family remittances are fairly important in the balance of payments of the Central American economies. For most countries, they represent more than half the value of total exports (in El Salvador even 83 percent). Remittances only play a minor role in the external sector of Costa Rica (5 percent of exports). The main source of remittances in Nicaragua is unskilled migrants working in Costa Rica’s agriculture, construction or service sectors. Due to the general economic crisis, especially in the United States and Spain, which receive most of the Latin-American immigrants, these remittances are decreasing , which will have a direct impact during the next years on families that depend on remittances for satisfying their basic needs.

II.4.2 Main social issues Central America

• Employment and labour issues o Official unemployment rates in the region vary, roughly between 3 percent and 10

percent. Real unemployment is however substantially higher, but remains mainly hidden, as unskilled or laid off workers have to make a living in the informal sector, mostly in the countryside. Self-employment rates for Central America6 vary between 20 percent (Costa Rica) to 38 percent (Honduras). Unemployment is a chronically unresolved problem in Central America, in particular for the poorest countries in the region with abundant low skilled workers and with a productive sector poorly diversified. Both factors have directly contributed to significant underemployment, and indirectly to labour migration, mostly to the US;

o At country-level, Costa Rica’s and Panama’s (formal) labour markets are more capable of absorbing labour supply than the other Central American countries. Informality rates are therefore much higher in e.g. Nicaragua and Guatemala (82 and 69 percent) than in Costa Rica (26 percent). Productivity is higher and unemployment rates lower in Costa Rica, as compared to Panama;

o Migration has become a major social issue, especially for countries where the lack of prospects lacking for a lasting improvement in employment opportunities is perceived high. For example in Nicaragua, a net outflow was recorded of 210,000 people over

18 The terms of trade effects show how many imports a country’s export can buy (in value terms); see Table III.0.11.


2000-2005. In contrast, Costa Rica and Panama received net inflows over the same period (84,000 and 8,000 people, respectively).

• Poverty and income inequality o Poverty is a problem throughout the Central American region, though some countries

clearly perform better than others. The percentage shares of the population living on less than $2 a day range between almost 20 percent and 70 percent. Costa Rica and Panama perform relatively well in terms of poverty levels when compared to the other countries in the region (e.g. Nicaragua and Honduras);

o Generally, the levels of poverty (and ranking of the Central American countries) are also reflected in other social indicators, such as the level of unemployment, or access to sanitary facilities, especially in rural areas;

o Income inequality has been on the rise on the Central American region over the last decades (in line with the often observed phenomenon of economic growth going accompanied by rising income inequality in some stages of growth). The Gini coefficient is high in all six Central American countries, ranging between 0.48 (Costa Rica) and 0.61 (Honduras).19

• Equality o With respect to gender equality in the Central American region, women tend to have less

access to the labour market and earn less when in the labour force than men. They either remain more often in the informal sector than men (e.g. in Nicaragua), or encounter horizontal and vertical segregation (as represented by the low rates of female directors and managers). They tend to have less access to social services than men (save primary and secondary education). While this is the region-wide picture, some country-level differences exist, roughly correlating to poverty (vulnerability) levels. For example, Costa Rica women have better access to pensions and health care than in other Central American countries;

o A recent report published by the Central American Women’s Network (CAWN), analyses the potential impacts of the AA on Central American women. There is a risk that women’s employment opportunities may be limited and the report therefore recommends promoting the inclusion of women in policy decisions and thereby creating more employment and reducing their vulnerability as a Group;20

o According to the EC’s new regional strategy, there is ample scope for improving the record in the region with regard to the strength of social and human resource development, democratic institutions and labour rights, including health, safety standards and the activities of trade unions. Some civil society actors consider the EC technical cooperation as a mechanism to protect the interests of weaker segments, especially SMEs, ethnic minorities and rural property owners in coastal areas, in the context of exposure to increased openness and transatlantic trade and investments.

• Health

19 ECLAC (2006). 20 El Acuerdo de Asociación entre la UE y Centro América: Su Posible Impacto en la Vida de las Mujeres Centroamericanas,

CAWN, January 2009.


o One important health-related issue in the region is the increase in drug trafficking and related crimes. Common and violent crimes have as a result been on the rise in the region, aggravated by a feeling of corruption with police authorities and impunity. For example, El Salvador and Guatemala have homicide rates of 55.3 and 45.2 homicides /100,000 inhabitants respectively, 21 which is extremely high in comparison to the world average (7.6 homicides /100,000 inhabitants)22 and especially the Latin American average (25.6 homicides /100,000 inhabitants);23

o Differences in social investments between the countries are reflected in various social indicators, including health. Costa Rica has a relatively long history of high social investment by the State compared to the other countries (public social investment represents 17.5 percent of PIB, or a $772 per capita, compared to e.g. Nicaragua where these numbers are 10.8 percent, or $90 per capita). Differences in access to healthcare (in comparison e.g. relatively high in Costa Rica) in turn reflect in differences in maternal and child mortality rates and life expectancy at birth (76 years for men and 81 for women in Costa Rica, compared to e.g. 70 and 76 years in Nicaragua).

• Education o The primary enrolment rate of the region lies close to 95 percent (ranging at country level

between 87 and 98 percent). In contrast, secondary enrolment rates are much lower and vary more between the six countries (between 30 and 64 percent). For example in Honduras, the primary enrolment rate is 96 percent, whereas secondary enrolment in only 30 percent. This directly affects the qualification of young people, negatively affecting their employment opportunities and increasing crime rates (the increased presence of gangs - “maras”- pose a real problem, for the general population, the economy and investment climate;

o Generally, the differences in educational enrolment rates between the countries are roughly in line with the differences in literacy rates.

II.4.3 Main environmental issues Central America

• Atmosphere o CO2 emissions per capita in the region varied (at country level) between 0.8 (Nicaragua)

to 1.9 (Panama) metric tons per capita in 2004; the differences can partly be attributed to the transport sector and use of personal vehicles. Compared to EU per capita emission levels (around 10 tons), this is relatively low, but emission levels have increased considerably since 1990 (e.g. Honduras has a 2004 index of almost 194 against 1990);

o With respect to other GHG emission, Guatemala stands out for a high level of S02 emissions (8.4 kg/person in 2004 versus e.g. only 0.4 in Honduras);

o It should be noted that air quality monitoring networks are not well developed in any of the countries in the region.

• Land and biodiversity 21 Observatorio Centroamericano de la Violencia (2007), Tasas de Homicidios Dolosos en Centroamérica y República

Dominicana por 100,000 habitantes (1999 -2007). 22 Geneva Declaration on Armed Violence and Development (2008), Global Burden of Armed Violence Report. 23 II Foro Iberoamericano sobre Seguridad Ciudadana, Violencia y Políticas Públicas (2008).


o Deforestation is one of the main environmental concerns throughout the Isthmus. A combination of population pressure, secularly high timber prices in the construction sector, low agricultural productivity, land demanded for cattle raising, together with highway construction projects to the Atlantic Coast had serious impacts;

o At present, land covered by forest varies between 14 percent in El Salvador, up to 46 percent in Costa Rica and 57 percent in Panama. The two most prosperous countries share most of the forest resources remaining on the Isthmus, whereas the poorest countries Honduras, Nicaragua and Guatemala face the highest rates of deforestation. Primary forest resources have virtually vanished in El Salvador, and dramatically dwindled in Guatemala (Petén), Honduras (Olancho), Nicaragua (RAAN and RAAS) and Panama (Darién);

o In Costa Rica, approximately 20,000 acres of land are still being deforested annually. Next to the lasting efforts of the ‘Fundación de Parques Nacionales’, the Ministry of Environment, Energy and Telecommunications (MINAET) now promotes conservation to the agriculture industry by offering financial incentives to farmers for their efforts in protecting primary and secondary forests on their land. Costa Rica’s pioneering public policies in forest resources date back to the 1970s, with now 9.3 percent of its total land area under public management, with additional and valuable community initiatives Panama and Nicaragua follow with 6.5 and 6 percent, respectively, under public management. Contrasting, Costa Rica has about 56 percent of its land area in use for agriculture, Nicaragua 44 percent and Panama 30 percent, and the latter two countries have a much larger area of forests (51.9 percent and 42.9 percent, respectively) than Costa Rica (23.9 percent);

o Biodiversity is closely related to the issue of deforestation. The region is extremely rich in biodiversity, which presents a strong asset for the tourism industry. For example in Costa Rica and Panama, there are over a 1,000 animal species, of which each over 400 bird species, and around 10,000 plant species;

o Urbanisation rates in the region are quite high, generally close to 60 percent of the population lives in urban areas (Panama being most urbanised with a rate of 66 percent, Guatemala lowest with 40 percent). The urbanisation rates are expected to increase further, with subsequent effects of e.g. decrease in use of agricultural land and increase in urban pollution.

• Environmental quality o Total energy production in thousands of metric tons petroleum equivalent is around 1,500

in Costa Rica and Panama, and about half of that in Nicaragua. However, with high oil prices in 2007, it became clear that these countries are highly dependent on fossil energy and that renewable sources of energy have yet to be fully exploited. In a related context, trade in carbon emission rights has received government attention, especially in Costa Rica. El Salvador is the country with the highest geothermal energy production in Central America.

• Fresh and waste water o In the Central American region, lack of waste water treatment, relatively low levels of

access to safe drinking water (overall ranging from 63 percent in rural areas in Nicaragua to 99 percent of population in urban areas in Costa Rica) and sewage systems in some


parts as well as water pollution are an issue, especially in rural areas and for the poorer parts of population. Considerable regional disparities exist;

o The increasing urbanisation rates pose challenges to municipalities being strained in their present systems of sewage and drinking water supply;

o Guatemala today has the second largest water reserves of the American continent after Brazil. Soil and surface water pollution is particularly a problem in Costa Rica. For Panama, the impact of Canal expansion is relevant.


Annex III Modelling results

III.1 CGE related modelling

Table III.0.1 GDP breakdown, 2004, Mio Euros

consumption investment government exports imports Total

EU 27 6,177,855 2,057,398 2,177,122 3,364,364 -3,410,186 10,366,554

CRI 9,130 2,446 1,999 9,216 -7,142 15,649

GTM 20,148 3,958 931 4,245 -7,218 22,064

NIC 2,868 979 387 1,408 -2,118 3,525

PAN 6,838 1,924 1,643 2,864 -3,139 10,130

XCA 16,194 3,587 2,225 7,762 -10,358 19,412

Table III.0.2 Employment Shares for Unskilled labour by sector

EU 27 CRI GTM NIC PAN XCA

grains 0.28 0.29 3.22 4.09 2.30 1.55

vegetables, fruit, nuts 0.93 6.12 5.93 3.94 2.96 3.44

Other primary food 1.23 3.71 5.82 8.61 4.84 3.46

Other agriculture 0.85 3.94 2.95 3.01 0.36 2.84

forestry 0.18 0.12 0.62 1.96 0.59 0.84

primary fishing 0.05 0.31 0.09 0.37 2.16 0.58

primary mining 0.31 0.09 1.13 0.02 0.07 0.60

processed foods, bevs, tobacco 3.50 6.48 9.30 6.32 1.63 4.92

textiles 0.74 0.97 0.60 2.96 0.08 5.20

wearing apparel 0.74 1.75 2.54 9.13 1.26 4.73

leather products 0.29 0.16 0.69 0.61 0.41 0.48

Wood products 0.73 0.59 0.98 2.56 0.05 0.88

paper products, publishing 2.09 2.06 0.92 0.46 0.29 0.84

Petroleum, coal products 0.04 0.03 0.00 0.05 0.01 0.03

chemicals, rubber, and plastic products 3.10 3.23 2.44 0.54 0.30 1.03

mineral products nec 1.18 1.15 1.26 0.80 0.05 0.88

ferrous metals 0.73 0.18 0.30 0.02 0.05 0.05

metals nec 0.41 0.11 0.09 0.16 0.02 0.05

metal products 2.37 0.81 1.32 0.20 0.10 0.20

motor vehicles and parts 2.38 0.28 0.06 0.02 0.13 0.06

Other transport equipment 0.66 0.13 0.03 0.01 0.04 0.07

electronic equipment 1.07 6.56 0.03 0.01 0.05 0.07

Other machinery and equipment 4.50 3.06 0.20 0.14 0.13 0.42



manufactures nec 1.03 3.32 1.96 0.00 0.07 0.74

utilities 1.09 2.38 1.41 1.03 2.32 0.64

construction 7.52 9.61 7.04 8.52 21.50 7.23

distribution 16.50 9.05 19.70 22.20 11.80 20.40

Other transport 4.94 2.75 0.56 5.83 2.32 13.60

maritime 0.55 0.17 0.03 0.31 11.20 0.78

air transport 0.54 0.43 0.05 0.67 1.61 2.18

communications 1.68 0.38 0.73 1.03 0.90 0.58

financial services 2.52 2.32 1.78 1.74 3.77 2.43

insurance 0.86 0.47 0.36 0.33 1.42 0.89

business services nec 9.58 6.13 8.20 0.95 4.20 3.76

recreation and other services 2.65 3.47 4.47 2.29 3.26 1.02

public services and dwellings 22.20 17.40 13.20 9.11 17.70 12.50

CGDS 0.00 0.00 0.00 0.00 0.00 0.00

Total 100.00 100.00 100.00 100.00 100.00 100.00

Table III.0.3 Employment Shares for Skilled labour by sector


grains 0.03 0.02 0.29 0.17 0.37 0.15

vegetables, fruit, nuts 0.09 0.17 0.22 0.17 0.08 0.12

Other primary food 0.12 0.10 0.22 0.37 0.13 0.12

Other agriculture 0.08 0.11 0.11 0.13 0.01 0.10

forestry 0.01 0.00 0.02 0.08 0.02 0.03

primary fishing 0.00 0.01 0.00 0.02 0.06 0.02

primary mining 0.20 0.03 0.49 0.01 0.02 0.24

processed foods, bevs, tobacco 1.54 2.59 5.34 3.78 0.57 2.49

textiles 0.26 0.31 0.26 1.49 0.03 2.19

wearing apparel 0.22 0.53 1.06 4.32 0.38 1.87

leather products 0.09 0.05 0.30 0.30 0.13 0.20

Wood products 0.23 0.16 0.36 1.06 0.01 0.30

paper products, publishing 1.23 0.84 0.51 0.29 0.11 0.44

petroleum, coal products 0.06 0.01 0.00 0.03 0.00 0.02

chemicals, rubber, and plastic products 2.47 1.55 1.60 0.41 0.14 0.64

mineral products nec 0.53 0.41 0.61 0.44 0.02 0.40

ferrous metals 0.36 0.06 0.14 0.01 0.02 0.02

metals nec 0.18 0.04 0.05 0.10 0.01 0.03

metal products 1.07 0.30 0.68 0.12 0.04 0.10

motor vehicles and parts 1.29 0.12 0.04 0.01 0.05 0.03

Other transport equipment 0.35 0.05 0.02 0.01 0.02 0.04

electronic equipment 0.89 3.29 0.02 0.01 0.02 0.05

Other machinery and equipment 3.74 1.53 0.14 0.11 0.06 0.27

manufactures nec 0.44 0.89 0.72 0.00 0.02 0.26

utilities 1.82 2.36 1.92 1.60 2.28 0.83

construction 3.28 3.48 3.49 4.81 7.69 3.41



distribution 8.35 3.83 11.40 14.70 4.92 11.30

Other transport 2.47 1.17 0.33 3.85 0.97 7.50

maritime 0.28 0.07 0.02 0.20 4.69 0.43

air transport 0.28 0.18 0.03 0.44 0.67 1.20

communications 2.69 0.59 1.59 2.53 1.40 1.20

financial services 4.04 3.68 3.87 4.31 5.89 5.01

insurance 1.38 0.74 0.79 0.81 2.23 1.84

business services nec 15.40 9.72 17.80 2.34 6.56 7.76

recreation and other services 4.25 5.51 9.70 5.67 5.09 2.11

public services and dwellings 40.30 55.50 35.80 45.40 55.30 47.30

CGDS 0.00 0.00 0.00 0.00 0.00 0.00

Total 100.00 100.00 100.00 100.00 100.00 100.00

Table III.0.4 EU trade weighted tariffs on the Central American Countries

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

Costa Rica Guatemala Nicaragua

grains 1 0.0 0.0 3 0.0 0.0 0 0.0 0.0

vegetables, fruit, nuts 576 50.1 50.1 28 6.4 6.4 2 8.8 7.8

Other primary food 2 0.0 0.0 11 0.0 0.0 16 0.2 0.1

Other agriculture 105 1.6 1.6 129 0.0 0.0 60 0.1 0.1

forestry 50 2.2 2.2 44 0.0 0.0 4 0.0 0.0

primary fishing 0 0.0 0.0 0 0.0 0.0 0 0.0 0.0

primary mining 0 0.0 0.0 1 0.4 0.4 0 0.0 0.0

processed foods, bevs, tobacco 124 6.4 6.4 69 4.8 4.8 21 3.3 3.2

textiles 6 0.1 0.1 6 0.0 0.0 1 0.0 0.0

wearing apparel 10 0.0 0.0 14 0.0 0.0 2 0.0 0.0

leather products 7 0.3 0.3 9 0.0 0.0 3 0.1 0.1

Wood products 4 0.0 0.0 4 0.0 0.0 2 0.0 0.0

paper products, publishing 12 0.0 0.0 4 0.0 0.0 1 0.0 0.0

petroleum, coal products 3 0.0 0.0 0 0.0 0.0 1 0.0 0.0

chemicals, rubber, and plastic products 34 0.0 0.0 16 0.2 0.2 1 0.1 0.1

mineral products nec 4 0.0 0.0 1 0.0 0.0 2 0.0 0.0

ferrous metals 0 0.0 0.0 0 0.0 0.0 1 0.0 0.0

metals nec 1 0.1 0.1 0 0.4 0.4 0 0.0 0.0

metal products 6 0.0 0.0 1 0.0 0.0 0 0.0 0.0

motor vehicles and parts 4 0.0 0.0 3 0.0 0.0 0 0.0 0.0

Other transport equipment 1 0.0 0.0 0 0.0 0.0 0 0.0 0.0

electronic equipment 1,854 0.0 0.0 1 0.0 0.0 0 0.0 0.0

Other machinery and equipment 86 0.0 0.0 2 0.0 0.0 1 0.0 0.0

manufactures nec 43 0.0 0.0 9 0.0 0.0 0 0.0 0.0


2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

Total 2,932 10.2 10.2 357 1.5 1.5 119 0.8 0.8

Panama

Honduras and Other

Central America

Total for

Region

grains 1 0.0 0.0 2 7.1 2.6 8 2.0 0.7




forestry 0 0.0 0.0 4 0.0 0.0 103 1.1 1.1

primary fishing 2 0.0 0.0 1 0.0 0.0 3 0.0 0.0

primary mining 0 0.0 0.0 23 0.5 0.5 24 0.5 0.5


textiles 1 0.0 0.0 39 0.0 0.0 54 0.0 0.0

wearing apparel 10 0.0 0.0 14 0.0 0.0 50 0.0 0.0


Wood products 1 0.0 0.0 10 0.0 0.0 20 0.0 0.0





ferrous metals 0 0.0 0.0 1 0.0 0.0 3 0.0 0.0

metals nec 0 0.0 0.0 0 0.0 0.0 1 0.1 0.1

metal products 0 0.0 0.0 2 0.0 0.0 10 0.0 0.0



electronic equipment 1 0.0 0.0 30 0.0 0.0 1886 0.0 0.0



Total 460 64.0 64.0 639 14.8 4.7 4,507 15.4 14.0

Table III.0.5 Central American trade weighted tariffs on the EU

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

Costa Rica

tariffs on the EU

Guatemala

tariffs on the EU

Nicaragua

tariffs on the EU

grains 0 7.8 7.8 0 5.2 5.2 0 13.3 13.3





2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

forestry 0 3.8 3.8 1 0.0 0.0 0 0.0 0.0

primary fishing 0 3.2 3.2 0 0.2 0.2 0 0.0 0.0

primary mining 3 1.4 1.4 1 1.4 1.4 0 0.1 0.1


textiles 7 8.8 8.8 26 8.7 8.7 2 8.4 8.4

wearing apparel 5 14.5 14.5 7 14.5 14.5 1 12.5 12.5


Wood products 11 12.0 12.0 8 12.4 12.4 1 11.7 11.6





ferrous metals 22 1.4 1.4 15 4.0 4.0 0 2.2 2.2

metals nec 5 3.6 3.6 4 2.0 2.0 0 1.6 1.6

metal products 20 5.0 5.0 11 4.9 4.9 4 4.8 4.8






Total 462 5.8 5.8 621 5.2 5.2 146 3.9 3.9

Panama

tariffs on the EU

Honduras and Other

Central America

Total for

Region

grains 0 0.0 0.0 0 8.6 5.2 0 7.4 6.8




forestry 0 1.0 1.0 0 0.3 0.3 1 0.6 0.6

primary fishing 0 0.0 0.0 0 4.9 4.9 1 3.0 3.0

primary mining 0 5.6 5.6 1 2.8 2.8 4 1.6 1.6


textiles 3 8.1 8.1 17 14.0 10.1 55 10.3 9.1

wearing apparel 6 11.8 11.8 10 19.0 15.6 30 15.4 14.2


Wood products 0 10.2 10.2 5 12.6 12.6 25 12.2 12.2





ferrous metals 1 4.4 4.4 17 2.9 2.9 55 2.6 2.6

metals nec 0 1.1 1.1 30 0.2 0.2 39 0.8 0.8


2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

2004

EU

imports

million

euros

2004

applied

tariffs

post-

Doha

tariffs

metal products 1 8.5 8.5 22 6.4 5.9 57 5.6 5.4






Total 71 7.9 7.9 941 3.7 3.3 2.241 4.7 4.5

Explanation to the above two Tables: Policy data are from many sources. In the GTAP database, tariffs are based on HS tariff line data, from

MacMAPS, the WTO, and WITS as implemented in the GTAP7 database. Post-Doha tariff estimates are based

on the range of coefficients in the recent (2008) set of Doha modalities texts (NAMA and agriculture. The

problems in defining the post-Doha baseline for tariffs relate to agriculture rather than NAMA. Sensitive and

special products are one of the most complex issues in the WTO negotiations. WTO members are allowed to

freely choose the products they classify as sensitive, which causes considerable uncertainty about the outcome

of this selection process and makes them very difficult to handle in simulations. The data we work with for the

DDA in agriculture come from the German Federal Agriculture Research Institute -- the Johann Heinrich von

Thünen Institute (vTI). It follows the procedure outlined by Brockmeier and Pelikan (2008). 1/ An advantage of

the 2018 baseline is that it moves us past uncertainty about when the DDA will end, and about short-run

assumptions about macroeconomic conditions. It also important to note that some of the countries involved

already receive significant preferences from the EU. These preferences are included in the baseline. Critically,

we also assume the implementation of DDA tariff modalities on sensitive products by the EU in agriculture

(bananas and sugar in particular) based direct guidance from the EC on a likely outcome. The baseline scenario

therefore represents a “most likely” scenario.

1/ Brockmeier, M. and J. Pekikan (2008), "Agricultural marketaccess: A moving target in the WTO negotiations?" Food Policy 33: 250–259.

Table III.0.6 Imports from EU, c.i.f. basis, 2004 Mio Euros

EU 27 CRI GTM NIC PAN XCA Total

grains 6,628 0 0 0 0 0 8,436

vegetables, fruit, nuts 19,010 1 1 0 1 3 21,873

Other primary food 8,762 1 1 0 0 0 11,851

Other agriculture 8,210 10 2 0 1 1 11,488

forestry 2,239 0 1 0 0 0 2,710

primary fishing 3,520 0 0 0 0 0 3,954

primary mining 23,089 3 1 0 0 1 38,080

processed foods, bevs, tobacco 134,312 49 39 17 11 68 184,862

textiles 50,728 9 26 2 3 17 72,574

wearing apparel 33,110 6 7 1 6 10 46,406

leather products 20,399 3 5 0 6 3 31,367

Wood products 45,787 7 8 1 0 5 65,050



paper products, publishing 63,929 41 30 7 2 42 90,460

petroleum, coal products 31,244 65 17 7 8 12 49,444

chemicals, rubber, and plastic products 323,914 151 180 30 7 143 494,643

mineral products nec 30,295 22 15 4 0 16 48,097

ferrous metals 64,783 21 15 0 1 17 90,061

metals nec 37,288 4 4 0 0 30 52,303

metal products 55,164 44 11 4 1 22 79,979

motor vehicles and parts 279,510 41 64 9 5 44 384,133

Other transport equipment 44,258 77 4 1 0 153 85,111

electronic equipment 130,103 90 53 11 3 56 198,806

Other machinery and equipment 276,554 204 129 46 13 285 506,940

manufactures nec 25,660 9 8 3 3 12 47,874

utilities 10,140 6 1 1 0 7 14,685

construction 11,021 1 2 0 1 22 19,581

distribution 35,671 43 18 6 24 32 58,162

Other transport 31,522 34 35 8 20 48 57,396

maritime 15,122 1 2 0 1 4 32,334

air transport 31,822 47 26 23 53 92 62,822

communications 16,235 28 4 3 8 23 25,279

financial services 30,374 6 13 1 102 35 47,418

insurance 13,902 30 50 5 29 46 39,381

business services nec 147,878 81 51 29 62 125 242,975

recreation and other services 24,538 20 19 4 12 30 39,521

public services and dwellings 17,189 19 24 8 19 32 45,066

Total 2,103,908 1,171 866 235 402 1,437 3,311,126

Table III.0.7 EU Bilateral Imports c.i.f. basis, 2004, Mio Euros


grains 6,628 1 3 0 1 2 9,611

vegetables, fruit, nuts 19,010 576 28 2 379 110 34,292

Other primary food 8,762 2 11 16 1 7 17,406

Other agriculture 8,210 105 129 60 2 217 19,891

forestry 2,239 50 44 4 0 4 4,470

primary fishing 3,520 0 0 0 2 1 6,020

primary mining 23,089 0 1 0 0 23 196,680

processed foods, bevs, tobacco 134,312 124 69 21 37 133 175,133

textiles 50,728 6 6 1 1 39 86,202

wearing apparel 33,110 10 14 2 10 14 69,510

leather products 20,399 7 9 3 12 4 37,825

Wood products 45,787 4 4 2 1 10 63,218

paper products, publishing 63,929 12 4 1 1 3 78,114

petroleum, coal products 31,244 3 0 1 0 5 54,444

chemicals, rubber, and plastic products 323,914 34 16 1 3 9 438,673



mineral products nec 30,295 4 1 2 0 1 39,621

ferrous metals 64,783 0 0 1 0 1 85,367

metals nec 37,288 1 0 0 0 0 69,221

metal products 55,164 6 1 0 0 2 73,916

motor vehicles and parts 279,510 4 3 0 3 3 330,039

other transport equipment 44,258 1 0 0 0 8 89,421

electronic equipment 130,103 1,854 1 0 1 30 281,302

other machinery and equipment 276,554 86 2 1 1 5 411,945

manufactures nec 25,660 43 9 0 2 10 53,875

utilities 10,140 16 6 2 6 3 15,693

construction 11,021 1 6 0 1 7 18,032

distribution 35,671 109 44 4 39 27 75,251

other transport 31,522 72 9 32 35 213 71,367

maritime 15,122 19 4 4 457 46 26,970

air transport 31,822 74 26 10 92 126 56,555

communications 16,235 19 15 13 28 128 27,284

financial services 30,374 9 5 0 94 14 53,261

insurance 13,902 5 20 1 18 18 21,321

business services nec 147,878 158 59 6 78 30 231,924

recreation and other services 24,538 135 55 8 43 7 44,486

public services and dwellings 17,189 67 67 8 48 46 41,849

Total 2,103,908 3,617 674 207 1,399 1,302 3,410,187

Table III.0.8 Composition of trade with EU, 2004, Mio Euros

CRI GTM NIC PAN XCA Regio

EU

imports

imports

from

EU

EU

imports

imports

from

EU

EU

imports

imports

from

EU

EU

imports

imports

from

EU

EU

imports

imports

from

EU

EU

impor

grains 1 0 3 0 0 0 1 0 2 0 0

vegetables, fruit, nuts 576 1 28 1 2 0 379 1 110 3 15

other primary food 2 1 11 1 16 0 1 0 7 0 0

other agriculture 105 10 129 2 60 0 2 1 217 1 7

forestry 50 0 44 1 4 0 0 0 4 0 1

primary fishing 0 0 0 0 0 0 2 0 1 0 0

primary mining 0 3 1 1 0 0 0 0 23 1 0

processed foods, bevs, tobacco 124 49 69 39 21 17 37 11 133 68 5

textiles 6 9 6 26 1 2 1 3 39 17 0

wearing apparel 10 6 14 7 2 1 10 6 14 10 0

leather products 7 3 9 5 3 0 12 6 4 3 0

wood products 4 7 4 8 2 1 1 0 10 5 0

paper products, publishing 12 41 4 30 1 7 1 2 3 42 0

petroleum, coal products 3 65 0 17 1 7 0 8 5 12 0

chemicals, rubber, and plastic products 34 151 16 180 1 30 3 7 9 143 0


CRI GTM NIC PAN XCA Regio

EU

imports

imports

from

EU

EU

imports

imports

from

EU

EU

imports

imports

from

EU

EU

imports

imports

from

EU

EU

imports

imports

from

EU

EU

impor

mineral products nec 4 22 1 15 2 4 0 0 1 16 0

ferrous metals 0 21 0 15 1 0 0 1 1 17 0

metals nec 1 4 0 4 0 0 0 0 0 30 0

metal products 6 44 1 11 0 4 0 1 2 22 0

motor vehicles and parts 4 41 3 64 0 9 3 5 3 44 0

other transport equipment 1 77 0 4 0 1 0 0 8 153 0

electronic equipment 1,854 90 1 53 0 11 1 3 30 56 26

other machinery and equipment 86 204 2 129 1 46 1 13 5 285 1

manufactures nec 43 9 9 8 0 3 2 3 10 12 0

utilities 16 6 6 1 2 1 6 0 3 7 0

construction 1 1 6 2 0 0 1 1 7 22 0

distribution 109 43 44 18 4 6 39 24 27 32 3

other transport 72 34 9 35 32 8 35 20 213 48 5

maritime 19 1 4 2 4 0 457 1 46 4 7

air transport 74 47 26 26 10 23 92 53 126 92 4

communications 19 28 15 4 13 3 28 8 128 23 2

financial services 9 6 5 13 0 1 94 102 14 35 1

insurance 5 30 20 50 1 5 18 29 18 46 0

business services nec 158 81 59 51 6 29 78 62 30 125 4

recreation and other services 135 20 55 19 8 4 43 12 7 30 3

public services and dwellings 67 19 67 24 8 8 48 19 46 32 3

Total 3,617 1,171 674 866 207 235 1,399 402 1,302 1,437 100.00

Table III.0.9 Summary of macro-economic changes

Scenario / variable CRI NIC GTM ES HON PAN EU-27 LDC ROW

Scenario 1a: Comprehensive FTA (short run, including Panama)

National income (%

change) 1.3 0.5 0.1 0.4 0.6 1.5 0.0 0.0 0.0

National income (€ million) 333.2 45.9 54.2 133.3 112.1 436.6 625.7 28.9 -93.8

Unskilled wages (%

change) 0.6 0.8 0.2 0.0 0.0 0.0 0.0

Skilled wages (% change) 0.2 0.6 -0.1 -0.4 0.0 0.0 0.0

Total exports (% change) 6.7 2.3 2.8 2.4 4.7 11.3 0.0 0.0 0.0

Total imports (% change) 8.0 1.2 1.6 8.0 0.0 0.0 0.0

Scenario 1b: Comprehensive FTA (short run, excluding Panama)

National income (%

change) 1.3 0.5 0.1 0.4 0.6 0.0 0.0 0.0 0.0

National income (€ million) 335.6 47.5 58.8 134.3 112.9 -6.2 621.8 11.2 -243.9

Unskilled wages (%

change) 0.6 0.8 0.2 0.0 0.0 0.0 0.0



Skilled wages (% change) 0.2 0.7 -0.1 0.0 0.0 0.0 0.0

Total exports (% change) 6.8 2.5 3.0 2.5 4.9 -0.1 0.0 0.0 0.0

Total imports (% change) 8.2 1.3 1.6 -0.1 0.0 0.0 0.0

Scenario 1c: Comprehensive FTA (long run, including Panama)

National income (%

change) 1.7 0.2 0.3 0.9 1.3 0.8 0.0 0.0 0.0


Unskilled wages (%

change) 1.0 0.5 0.4 -0.6 0.0 0.0 0.0

Skilled wages (% change) 0.7 0.3 0.1 -0.9 0.0 0.0 0.0



Scenario 1d: Comprehensive FTA (long run, excluding Panama)

National income (%

change) 1.7 0.2 0.3 0.9 1.3 0.0 0.0 0.0 0.0


Unskilled wages (%

change) 1.0 0.6 0.4 0.0 0.0 0.0 0.0

Skilled wages (% change) 0.7 0.4 0.1 0.0 0.0 0.0 0.0



Scenario 2a: Very comprehensive FTA (short run, including Panama)

National income (%

change) 1.6 0.8 0.2 0.7 1.0 1.9 0.0 0.0 0.0


Unskilled wages (%

change) 0.9 1.3 0.3 0.2 0.0 0.0 0.0

Skilled wages (% change) 0.4 1.0 -0.2 -0.2 0.0 0.0 0.0



Scenario 2b: Very comprehensive FTA (short run, excluding Panama)

National income (%

change) 1.6 0.8 0.2 0.7 1.0 0.0 0.0 0.0 0.0


Unskilled wages (%

change) 0.9 1.3 0.3 0.0 0.0 0.0 0.0

Skilled wages (% change) 0.4 1.1 -0.2 0.0 0.0 0.0 0.0



Scenario 2c: Very comprehensive FTA (long run, including Panama)

National income (%

change) 3.5 0.5 0.6 1.6 2.2 1.3 0.0 0.0 0.0


Unskilled wages (%

change) 3.2 0.9 0.7 -0.5 0.0 0.0 0.0



Skilled wages (% change) 2.8 0.6 0.2 -0.8 0.0 0.0 0.0



Scenario 2d: Very comprehensive FTA (long run, excluding Panama)

National income (%

change) 3.5 0.5 0.6 1.6 2.2 0.0 0.0 0.0 0.0


Unskilled wages (%

change) 3.2 0.9 0.7 0.0 0.0 0.0 0.0

Skilled wages (% change) 2.8 0.6 0.2 0.0 0.0 0.0 0.0



Table III.0.10 Labour displacement standard deviation of sector changes in employment

Comprehensive FTA Short Run Comprehensive FTA Long Run

All countries No Panama All countries No Panama

UL SL UL SL UL SL UL SL

EU27 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Costa Rica 6.2 6.2 6.3 6.3 6.3 6.3 6.3 6.3

Guatemala 2.0 2.0 2.1 2.1 2.1 2.1 2.2 2.2

Nicaragua 3.6 3.6 3.5 3.5 3.5 3.5 3.4 3.4

Panama 15.0 15.0 0.3 0.3 15.2 15.2 0.3 0.3

Rest of CA (ES, Hon) 4.4 4.4 4.4 4.4 4.9 4.9 4.9 4.9

ROW 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Very Comprehensive FTA Short Run Very Comprehensive FTA Long Run

All countries No Panama All countries No Panama


EU27 0.3 0.3 0.2 0.2 0.3 0.3 0.2 0.2

Costa Rica 10.6 10.7 10.7 10.7 11.2 11.2 11.3 11.3

Guatemala 2.7 2.7 2.7 2.7 2.7 2.7 2.8 2.8

Nicaragua 5.2 5.2 5.1 5.1 5.1 5.1 5.1 5.1

Panama 17.1 17.1 0.3 0.3 17.4 17.4 0.4 0.4

Rest of CA (ES, Hon) 7.2 7.2 7.2 7.2 8.2 8.2 8.2 8.2

ROW 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Table III.0.11 Terms of trade effects

Comprehensive FTA

Short Run

Comprehensive FTA

Long Run

Very Comprehensive

FTA Short Run

Very Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

EU – 27 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CRI 2.4 2.4 2.3 2.3 3.0 3.0 2.4 2.4


Comprehensive FTA

Short Run

Comprehensive FTA

Long Run

Very Comprehensive

FTA Short Run

Very Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

GTM -0.5 -0.4 -0.5 -0.4 -0.6 -0.5 -0.6 -0.5

NIC -0.3 -0.3 -0.2 -0.2 -0.4 -0.4 -0.3 -0.3

PAN 7.7 7.9 9.3 9.4

XCA -0.1 -0.1 -0.2 -0.2 -0.1 -0.1 -0.2 -0.2

LDC 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

ROW 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Table III.0.12 Change in annual CO2 emissions (thousands of metric tonnes)*

Comprehensive FTA

Short Run

Comprehensive FTA

Long Run

Very Comprehensive

FTA Short Run

Very Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

EU - 27 313.7 199.2 741.9 547.7 378.4 244.0 966.0 731.9

CRI -0.5 -0.8 34.0 34.5 2.4 2.0 171.2 171.8

GTM 27.5 26.7 61.5 55.4 46.7 45.9 105.2 98.3

NIC 26.5 26.8 13.2 14.2 43.2 43.5 24.7 25.8

PAN 4.1 -39.4 12.9 -31.9

XCA 75.6 75.3 171.3 170.9 125.6 125.2 278.4 277.9

ROW -44.4 -66.7 -177.8 -133.3 0.0 -44.4 22.2 66.7

Total 402.3 260.5 804.7 689.4 609.1 416.2 1,535.7 1,372.5

Global

total (%) 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Table III.0.13 Percentage change in annual resource use (long run, comprehensive scenario)

Land for grains

Land for

vegetables,

fruit

Land for

livestock

Fish

production

EU - 27 0.4 -0.9 0.3 0.0

CRI -12.8 13.9 -12.0 -0.5

GTM -0.3 0.2 0.1 0.1

NIC -1.2 2.0 -0.2 0.2

PAN -14.3 40.4 -15.0 -0.7

XCA -1.7 3.8 -0.7 0.2

Low income developing countries 0.0 0.0 0.0 0.0

ROW 0.0 0.0 0.0 0.0


Table III.0.14 Percentage change in annual resource use (long run, very comprehensive scenario)

Land for grains

Land for

vegetables,

fruit

Land for

livestock

Fish

production

EU - 27 0.4 -1.0 0.3 0.0

CRI -14.8 15.8 -14.0 -0.7

GTM -0.5 0.2 0.2 0.2

NIC -1.7 2.3 -0.3 0.4

PAN -16.1 44.3 -16.9 -0.8

XCA -2.2 4.1 -0.6 0.4

Low income developing countries 0.0 0.0 0.0 0.0

ROW 0.0 0.0 0.0 0.0

Table III.0.15 Percentage change in output - EU-27

Comprehensive FTA

Short Run

Comprehensive FTA

Long Run

Very Comprehensive

FTA Short Run

Very Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

grains 0.2 0.1 0.2 0.1 0.2 0.1 0.2 0.1

Vegetables, fruit,

nuts -1.2 -0.8 -1.2 -0.8 -1.4 -1.0 -1.4 -1.0

other primary food 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

other agriculture 0.2 0.1 0.2 0.1 0.2 0.2 0.2 0.2

forestry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary fishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary mining 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

processed Foods,

bevs, tobacco 0.0 0.0 0.1 0.0 0.1 0.0 0.1 0.0

textiles 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1

wearing apparel 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

leather products 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0

wood products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

paper products,

publishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Petroleum, coal

products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Chemicals, rubber,

and plastic products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

mineral products

nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

ferrous metals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metals nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metal products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

motor vehicles and

parts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Comprehensive FTA

Short Run

Comprehensive FTA

Long Run

Very Comprehensive

FTA Short Run

Very Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

other transport

equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1

electronic

equipment -0.1 -0.1 -0.1 -0.1 -0.4 -0.4 -0.4 -0.4

other machinery

and equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

manufactures nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

utilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

distribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

maritime 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

air transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

communications 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

financial services 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

insurance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

business services

nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

recreation and other

services 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

public services and

dwellings 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Table III.0.16 Percentage change in output – Costa Rica

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

grains -8.9 -8.9 -8.9 -9.0 -11.1 -11.2 -11.2 -11.3

vegetables, fruit,

nuts 20.0 20.2 19.8 20.1 22.7 23.0 22.1 22.4

other primary food -9.8 -10.1 -9.7 -9.9 -12.4 -12.7 -11.9 -12.2

other agriculture -13.4 -13.5 -13.5 -13.6 -15.7 -15.9 -16.1 -16.3

forestry 0.2 0.2 0.2 0.2 0.0 0.0 0.2 0.2

primary fishing -0.5 -0.4 -0.5 -0.4 -0.7 -0.7 -0.7 -0.6

primary mining -0.4 -0.4 -0.4 -0.4 -1.0 -1.0 -1.0 -1.0

processed foods,

bevs, tobacco -5.2 -5.5 -4.9 -5.2 -7.4 -7.8 -6.3 -6.6

textiles -7.1 -7.1 -7.5 -7.6 -16.3 -16.3 -18.2 -18.2

wearing apparel -7.8 -7.7 -8.4 -8.4 -17.3 -17.3 -20.2 -20.2


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

leather products -14.5 -14.5 -14.2 -14.2 -32.9 -32.9 -32.0 -32.0

wood products -7.5 -7.5 -7.6 -7.6 -13.1 -13.1 -13.6 -13.5

paper products,

publishing -3.0 -3.0 -2.7 -2.7 -7.1 -7.1 -5.7 -5.7

petroleum, coal

products -6.2 -6.3 -5.8 -5.9 -10.2 -10.2 -8.1 -8.2

chemicals, rubber,

and plastic

products -4.9 -5.2 -4.0 -4.3 -15.8 -16.1 -11.7 -12.0

mineral products

nec -5.8 -5.9 -5.0 -5.2 -12.7 -12.8 -9.3 -9.4

ferrous metals -4.3 -4.3 -3.8 -3.8 -9.7 -9.7 -7.7 -7.7

metals nec -2.6 -2.5 -1.7 -1.6 -6.0 -5.9 -2.0 -1.9

metal products -4.1 -4.3 -3.8 -4.0 -8.2 -8.5 -6.7 -6.9

motor vehicles

and parts -10.4 -10.4 -9.6 -9.6 -16.9 -16.8 -13.0 -12.9

other transport

equipment -3.9 -3.9 -3.9 -3.8 -10.0 -10.0 -9.8 -9.8

electronic

equipment 10.1 10.4 12.3 12.6 31.2 31.5 42.5 42.9

other machinery

and equipment -10.4 -10.3 -10.2 -10.1 -25.1 -25.0 -24.9 -24.8

manufactures nec -0.5 -0.5 -0.1 -0.1 -1.9 -1.9 0.0 0.0

utilities -0.7 -0.8 -0.3 -0.4 -2.5 -2.5 -0.6 -0.6

construction 0.6 0.6 0.8 0.8 2.9 2.9 4.1 4.1

distribution -0.8 -0.8 -0.1 -0.1 -1.5 -1.6 1.6 1.6

other transport -2.6 -2.6 -2.0 -2.1 -6.1 -6.2 -3.8 -3.8

maritime -0.2 -0.2 0.3 0.3 -2.4 -2.4 -0.2 -0.3

air transport 1.6 1.6 2.0 2.1 0.6 0.7 2.6 2.6

communications -1.4 -1.4 -0.8 -0.8 -4.0 -4.0 -1.3 -1.3


insurance -5.3 -5.2 -4.8 -4.8 -8.5 -8.5 -6.5 -6.4

business services

nec -0.5 -0.5 0.0 0.0 -1.9 -1.9 0.3 0.3

recreation and

other services 0.3 0.3 0.7 0.8 -1.1 -1.1 1.0 1.1

public services

and dwellings 0.6 0.6 0.7 0.7 0.4 0.4 0.9 0.9


Table III.0.17 Percentage change in output Guatemala

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

grains 0.0 0.1 0.0 0.1 0.0 0.1 0.0 0.1

vegetables, fruit,

nuts 0.5 0.6 0.5 0.6 0.6 0.7 0.6 0.7


other agriculture -0.1 0.0 -0.3 -0.2 0.2 0.3 -0.1 0.0

forestry 0.2 0.2 0.2 0.2 0.5 0.5 0.5 0.6

primary fishing 0.0 0.0 0.1 0.1 0.0 0.1 0.2 0.2

primary mining 0.3 0.3 0.2 0.3 0.3 0.4 0.3 0.4

processed foods,

bevs, tobacco 0.2 0.2 0.4 0.4 0.3 0.3 0.6 0.6

textiles 4.3 6.0 4.7 6.4 6.7 8.6 7.6 9.4

wearing apparel 1.3 1.7 1.4 1.8 2.2 2.6 2.3 2.7

leather products -0.5 -0.3 -0.2 -0.1 -0.3 -0.1 0.2 0.3

wood products -2.9 -2.7 -2.8 -2.6 -4.1 -3.9 -3.9 -3.7

paper products,

publishing 0.2 0.4 0.4 0.6 0.2 0.4 0.7 0.8

petroleum, coal

products 0.4 0.7 0.9 1.2 0.4 0.8 1.4 1.6

chemicals, rubber,

and plastic

products 5.2 2.8 5.8 3.2 7.4 4.6 8.2 5.3

mineral products

nec -0.8 -0.7 -0.5 -0.5 -1.0 -0.9 -0.4 -0.4

ferrous metals 0.5 0.8 1.0 1.3 1.0 1.3 2.0 2.3

metals nec 1.5 1.8 1.8 2.1 2.0 2.4 2.6 2.9

metal products 0.3 0.4 0.5 0.6 0.4 0.6 0.8 0.9

motor vehicles

and parts -8.3 -7.5 -7.5 -6.8 -10.7 -9.7 -9.3 -8.5

other transport

equipment -2.4 -2.0 -2.1 -1.7 -3.2 -2.8 -2.6 -2.3

electronic

equipment 3.6 5.1 4.5 5.9 0.7 2.4 2.4 4.0

other machinery

and equipment 2.7 4.8 3.9 6.0 1.4 3.8 4.2 6.4

manufactures nec -1.0 -0.8 -0.8 -0.6 -1.2 -1.1 -0.9 -0.7

utilities 0.3 0.2 0.5 0.5 0.4 0.3 0.9 0.8

construction 0.2 0.2 0.5 0.4 0.4 0.3 0.8 0.7

distribution 0.1 0.1 0.4 0.3 0.0 0.1 0.6 0.5

other transport -2.2 -2.2 -1.9 -1.9 -3.5 -3.5 -3.0 -3.0

maritime transport 0.2 0.2 0.3 0.4 0.1 0.1 0.4 0.4


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

air transport 2.1 2.2 2.2 2.3 3.1 3.2 3.3 3.5

communications 0.1 0.2 0.4 0.4 0.2 0.2 0.7 0.7

financial services -1.0 -0.9 -0.7 -0.7 -1.5 -1.5 -1.0 -1.1

insurance -4.3 -4.1 -3.9 -3.8 -6.5 -6.3 -5.9 -5.8

business services

nec -1.3 -1.3 -1.0 -1.0 -2.1 -2.0 -1.6 -1.6

recreation and

other services -1.6 -1.5 -1.4 -1.4 -2.5 -2.4 -2.2 -2.1

public services

and dwellings 0.1 0.1 0.4 0.4 0.2 0.2 0.8 0.8

Table III.0.18 Percentage change in output Nicaragua

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

grains -0.6 -0.5 -0.6 -0.5 -0.9 -0.7 -1.0 -0.9

vegetables, fruit,

nuts 2.7 2.8 2.7 2.8 3.2 3.3 3.3 3.4


other agriculture -0.5 -0.3 -0.4 -0.2 0.5 0.7 0.6 0.8

forestry 0.2 0.2 0.1 0.1 0.6 0.6 0.4 0.5

primary fishing 0.3 0.5 0.2 0.4 0.6 0.7 0.4 0.6

primary mining 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1

processed foods,

bevs, tobacco 1.2 1.3 0.6 0.8 1.6 1.7 0.9 1.0

textiles 0.8 1.0 1.1 1.3 0.8 1.0 1.3 1.5

wearing apparel -0.1 0.1 0.2 0.4 -0.4 -0.2 0.0 0.2


wood products -1.3 -1.3 -1.3 -1.3 -1.7 -1.7 -1.6 -1.5

paper products,

publishing -0.2 -0.2 -0.3 -0.3 0.1 0.1 0.1 0.0

petroleum, coal

products -0.8 -0.8 -1.1 -1.1 -0.7 -0.8 -1.1 -1.2

chemicals, rubber,

and plastic

products 6.9 5.6 3.7 2.4 15.1 13.6 9.1 7.7

mineral products

nec -1.3 -1.4 -1.4 -1.4 -1.1 -1.1 -1.1 -1.1

ferrous metals 1.6 1.6 1.6 1.5 3.5 3.4 3.8 3.8


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

metals nec 2.3 2.3 2.1 2.1 3.0 3.0 2.8 2.8

metal products 0.0 -0.4 0.0 -0.4 0.3 -0.1 0.3 -0.1

motor vehicles

and parts -9.5 -9.5 -11.0 -11.0 -10.8 -10.8 -12.9 -12.8

other transport

equipment -1.0 -1.0 -1.1 -1.1 -1.7 -1.7 -1.8 -1.8

electronic

equipment 1.1 0.2 -1.6 -2.3 -7.4 -8.3 -11.3 -12.0

other machinery

and equipment 17.5 17.4 16.1 16.1 24.0 23.8 22.9 22.8


utilities 0.9 0.8 0.4 0.4 1.6 1.5 1.0 1.0

construction -0.8 -0.8 -0.8 -0.8 -1.1 -1.1 -1.2 -1.1

distribution 1.3 1.2 0.7 0.7 1.9 1.8 1.2 1.1

other transport -0.9 -0.9 -1.0 -1.0 -1.4 -1.4 -1.6 -1.6


air transport -3.1 -3.1 -3.1 -3.1 -4.6 -4.6 -4.6 -4.6

communications -0.7 -0.7 -1.1 -1.0 -1.1 -1.1 -1.6 -1.6


insurance -6.1 -6.1 -6.5 -6.5 -9.2 -9.2 -9.7 -9.7

business services

nec -2.4 -2.4 -3.0 -3.0 -3.6 -3.6 -4.5 -4.4

recreation and

other services -2.2 -2.2 -2.6 -2.6 -3.4 -3.3 -3.9 -3.9

public services

and dwellings 0.4 0.4 0.3 0.4 0.7 0.7 0.6 0.6

Table III.0.19 Percentage change in output Panama

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

grains -1.0 0.1 -1.2 0.1 -1.3 0.1 -1.5 0.1

vegetables, fruit,

nuts 58.0 -0.7 58.7 -0.7 64.4 -0.9 65.1 -0.8

other primary food -8.5 0.1 -8.9 0.1 -9.7 0.2 -10.2 0.2

other agriculture -19.0 0.6 -19.0 0.7 -21.5 0.7 -21.4 0.8

forestry -1.3 0.0 -1.4 0.0 -1.5 0.0 -1.6 0.0

primary fishing -0.6 0.0 -0.7 0.0 -0.7 0.0 -0.8 0.0

primary mining -0.6 0.0 -0.8 0.0 -0.8 0.0 -1.0 0.0


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

processed foods,

bevs, tobacco -6.0 0.3 -6.3 0.3 -6.8 0.4 -7.0 0.4

textiles -5.1 0.2 -10.5 0.3 -5.4 0.1 -10.9 0.3

wearing apparel -2.5 0.0 -5.6 0.0 -2.5 -0.1 -5.7 0.0

leather products -3.6 0.1 -7.5 0.1 -2.1 0.2 -6.2 0.1

wood products -2.1 0.1 -2.2 0.1 -2.7 0.1 -2.8 0.0

paper products,

publishing -3.3 0.0 -4.1 0.0 -3.8 0.1 -4.4 0.2

petroleum, coal

products -2.7 0.0 -3.9 0.1 -2.8 0.0 -4.0 0.0

chemicals, rubber,

and plastic

products -33.3 -1.1 -34.5 -1.2 -38.5 -1.3 -39.8 -1.5

mineral products

nec -7.0 -0.3 -7.6 -0.2 -8.1 -0.3 -8.7 -0.2

ferrous metals -7.4 0.2 -8.0 0.2 -8.7 0.2 -9.3 0.3

metals nec -11.4 0.2 -11.9 0.2 -13.2 0.1 -13.7 0.2

metal products -12.8 0.2 -13.4 0.2 -14.5 0.6 -15.1 0.8

motor vehicles

and parts -6.4 0.1 -7.7 0.1 -7.2 0.1 -8.5 0.1

other transport

equipment -21.5 0.3 -21.7 0.3 -24.8 0.3 -25.1 0.3

electronic

equipment -23.4 0.5 -26.6 0.5 -27.0 0.5 -30.3 0.5

other machinery

and equipment -19.6 0.4 -21.7 0.4 -23.8 0.4 -26.0 0.4

manufactures nec -31.3 0.6 -32.1 0.6 -37.1 0.8 -38.0 0.6

utilities -1.4 0.0 -2.3 0.0 -1.7 0.0 -2.5 0.0

construction -1.0 0.0 -1.6 0.0 -1.0 0.0 -1.6 0.0

distribution -5.5 0.0 -6.5 0.0 -6.5 0.1 -7.5 0.0

other transport -3.0 0.0 -3.7 0.0 -4.4 0.0 -5.2 0.0


air transport 2.1 0.0 1.6 0.0 3.2 0.0 2.6 0.0

communications 1.1 0.0 0.2 0.0 1.5 0.0 0.6 0.0

financial services -1.7 0.0 -2.6 0.0 -2.7 0.0 -3.6 0.0

insurance -1.5 0.0 -2.1 0.0 -2.5 0.0 -3.1 0.0

business services

nec -0.4 0.0 -1.4 0.0 -0.7 0.0 -1.7 0.0

recreation and

other services 0.7 0.0 0.0 0.0 0.7 0.0 0.0 0.0

public services 1.7 0.0 1.0 0.0 2.2 0.0 1.4 0.0


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

and dwellings

Table III.0.20 Percentage change in output Honduras and El Salvador

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

grains -0.3 -0.3 -0.1 -0.1 -0.4 -0.4 0.0 0.0

vegetables, fruit,

nuts 5.4 5.5 5.4 5.4 6.3 6.4 6.2 6.3

other primary food -0.1 -0.1 0.3 0.2 0.3 0.3 0.8 0.8


forestry -0.1 -0.1 0.4 0.4 0.1 0.0 0.8 0.8

primary fishing 0.1 0.1 0.2 0.2 0.2 0.2 0.4 0.4

primary mining 0.6 0.6 0.8 0.8 1.3 1.3 1.6 1.6

processed foods,

bevs, tobacco 0.2 0.1 0.5 0.5 0.8 0.8 1.4 1.3

textiles 3.0 3.3 4.3 4.6 3.3 3.6 5.4 5.7

wearing apparel 1.5 1.6 2.4 2.5 1.3 1.6 2.8 3.0


wood products -0.7 -0.6 -0.3 -0.3 -0.7 -0.7 -0.1 -0.1

paper products,

publishing -0.3 -0.3 0.4 0.3 -0.3 -0.4 0.8 0.7

petroleum, coal

products 0.5 0.5 1.7 1.6 1.0 0.9 2.8 2.7

chemicals, rubber,

and plastic

products 1.3 0.1 3.1 1.9 2.2 0.9 4.8 3.4

mineral products

nec -1.8 -2.0 -1.2 -1.3 -2.3 -2.5 -1.3 -1.5

ferrous metals -0.6 -0.6 0.3 0.3 -1.1 -1.1 0.5 0.5

metals nec -0.6 -0.6 -0.1 -0.1 -2.3 -2.4 -1.5 -1.5

metal products -0.1 -0.2 0.5 0.5 0.0 0.0 1.1 1.1

motor vehicles

and parts -3.4 -3.4 -0.7 -0.7 -3.6 -3.6 0.7 0.7

other transport

equipment -19.4 -19.4 -18.8 -18.8 -22.7 -22.7 -21.9 -21.9

electronic

equipment 16.9 16.9 23.3 23.3 39.0 39.1 50.6 50.6

other machinery 0.8 0.8 3.6 3.7 -1.3 -1.2 3.3 3.4


and equipment


utilities 0.2 0.1 1.1 1.0 0.4 0.4 1.8 1.7

construction 0.3 0.3 0.9 0.9 0.4 0.4 1.4 1.4

distribution 0.1 0.1 1.0 1.0 0.3 0.3 1.7 1.7

other transport -0.9 -0.9 -0.4 -0.4 -1.5 -1.5 -0.5 -0.5


air transport -0.9 -0.9 -0.6 -0.5 -1.6 -1.6 -1.1 -1.1

communications 1.1 1.1 2.0 2.0 1.6 1.7 3.2 3.2


insurance -5.4 -5.4 -5.5 -5.5 -8.1 -8.1 -8.2 -8.2

business services

nec -6.5 -6.5 -5.8 -5.8 -9.8 -9.8 -8.7 -8.7

recreation and

other services -6.5 -6.5 -6.4 -6.4 -9.9 -9.8 -9.6 -9.6

public services

and dwellings 0.5 0.5 1.1 1.1 0.8 0.8 1.8 1.8

Table III.0.21 Percentage change in output LDC

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

grains 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

vegetables, fruit,

nuts -0.1 0.0 -0.1 0.0 -0.1 0.0 -0.1 0.0



forestry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary fishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary mining 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

processed foods,

bevs, tobacco 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

textiles 0.1 0.0 0.1 0.0 0.1 0.0 0.1 0.0

wearing apparel 0.1 0.0 0.1 0.0 0.1 0.0 0.1 0.0


wood products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

paper products,

publishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

petroleum, coal

products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

chemicals,

rubber, and

plastic products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

mineral products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

nec

ferrous metals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metals nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metal products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

motor vehicles

and parts 0.0 0.0 0.1 0.1 -0.1 0.0 0.0 0.0

other transport

equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

electronic

equipment 0.0 0.0 0.0 0.0 0.0 0.1 0.1 0.1

other machinery

and equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


utilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

distribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


air transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

communications 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


insurance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

business services

nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

recreation and

other services 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

public services

and dwellings 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Table III.0.22 Percentage change in output ROW

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

grains 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

vegetables, fruit,

nuts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other primary

food 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0



Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

forestry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary fishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary mining 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

processed foods,

bevs, tobacco 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

textiles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

wearing apparel 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


wood products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

paper products,

publishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

petroleum, coal

products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

chemicals,

rubber, and


mineral products

nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

ferrous metals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metals nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metal products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

motor vehicles

and parts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport

equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

electronic

equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other machinery

and equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


utilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

distribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


air transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

communications 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


insurance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

business services

nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

recreation and

other services 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

public services

and dwellings 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Table III.0.23 Percentage change in prices EU-27

Comprehensive FTA

Short Run

Comprehensive FTA

Long Run

Very

Comprehensive FTA

Short Run

Very

Comprehensive FTA

Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

Land -1.2 -0.8 -1.2 -0.8 -1.4 -1.0 -1.4 -0.9

UL 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

SL 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

NatRes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

grains -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1

vegetables, fruit,

nuts

-0.5 -0.3 -0.5 -0.3 -0.6 -0.4 -0.5 -0.4



forestry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary fishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary mining 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

processed foods,

bevs, tobacco

-0.1 0.0 -0.1 0.0 -0.1 0.0 -0.1 0.0

textiles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

wearing apparel 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


wood products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

paper products,

publishing

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

petroleum, coal

products

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

chemicals, rubber,

and plastic

products

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

mineral products

nec

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

ferrous metals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metals nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Comprehensive FTA

Short Run

Comprehensive FTA

Long Run

Very

Comprehensive FTA

Short Run

Very

Comprehensive FTA

Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

metal products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

motor vehicles and

parts

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport

equipment

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

electronic

equipment

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other machinery

and equipment

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


utilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

distribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


air transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

communications 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


insurance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

business services

nec

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

recreation and

other services

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

public services and

dwellings

0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CGDS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Table III.0.24 Percentage change in prices Costa Rica

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

Land 39.5 39.6 39.4 39.5 45.0 45.1 44.3 44.4

UL 1.8 1.8 2.3 2.3 3.2 3.2 5.6 5.6

SL 1.4 1.4 1.9 1.9 2.7 2.7 5.2 5.2

Capital 0.8 0.8 0.6 0.6 2.6 2.6 1.8 1.8

NatRes -5.0 -4.6 -4.6 -4.2 -7.2 -6.8 -5.6 -5.1

grains 3.6 3.6 3.7 3.7 4.6 4.6 5.0 5.0

vegetables, fruit,

nuts 17.5 17.6 17.6 17.7 21.0 21.2 21.3 21.4


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama



forestry 1.3 1.3 1.3 1.3 2.5 2.5 2.5 2.5

primary fishing -4.9 -4.5 -4.6 -4.1 -6.5 -6.1 -5.1 -4.6

primary mining -0.2 -0.3 -0.2 -0.2 -0.7 -0.7 -0.3 -0.3

processed foods,

bevs, tobacco 4.0 4.1 4.0 4.1 5.8 5.9 5.7 5.8

textiles 1.4 1.3 1.5 1.5 3.5 3.5 4.2 4.2

wearing apparel 1.5 1.5 1.7 1.7 3.8 3.8 4.7 4.7


wood products 0.7 0.7 0.8 0.8 1.8 1.8 2.2 2.2

paper products,

publishing 0.7 0.7 0.7 0.7 1.9 1.9 2.1 2.1

petroleum, coal

products -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.2

chemicals,

rubber, and


mineral products

nec 0.6 0.6 0.6 0.6 2.0 2.0 1.9 1.9

ferrous metals 0.5 0.5 0.5 0.5 1.7 1.7 1.7 1.7

metals nec 0.7 0.7 0.7 0.7 2.0 2.0 2.0 2.0

metal products 0.6 0.6 0.6 0.6 1.8 1.8 1.9 1.9

motor vehicles

and parts 2.2 2.2 2.0 2.0 4.4 4.4 3.5 3.4

other transport

equipment 0.2 0.1 0.2 0.2 0.5 0.5 0.6 0.6

electronic

equipment -0.8 -0.8 -1.0 -1.1 -2.0 -2.1 -3.1 -3.1

other machinery

and equipment 1.7 1.7 1.7 1.7 4.7 4.7 4.7 4.7


utilities 0.7 0.7 0.8 0.8 2.1 2.1 2.3 2.3

construction 0.9 0.9 1.1 1.1 2.4 2.4 3.2 3.2

distribution 1.0 1.0 0.9 0.9 2.5 2.5 2.2 2.2

other transport 0.4 0.4 0.3 0.3 1.7 1.7 1.3 1.3

maritime transport -0.4 -0.4 -0.5 -0.5 0.2 0.2 -0.1 -0.1

air transport -0.4 -0.4 -0.4 -0.4 0.2 0.2 0.0 0.0

communications 0.6 0.6 0.5 0.5 2.2 2.2 1.7 1.7


insurance 0.4 0.4 0.4 0.4 1.4 1.4 1.7 1.7

business services 0.8 0.8 0.8 0.8 2.4 2.4 2.4 2.4


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

nec

recreation and

other services 0.8 0.8 0.8 0.8 2.3 2.3 2.3 2.3

public services

and dwellings 1.6 1.6 1.9 1.9 2.9 2.9 4.8 4.8

CGDS 0.5 0.5 0.6 0.6 1.4 1.4 1.8 1.8

Table III.0.25 Percentage change in prices Guatemala

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

Land 1.3 1.5 1.6 1.7 2.0 2.2 2.5 2.6

UL -0.2 -0.3 0.0 -0.1 -0.2 -0.3 0.1 0.0

SL -0.5 -0.6 -0.3 -0.5 -0.7 -0.8 -0.4 -0.5

Capital -0.2 -0.3 -0.4 -0.5 -0.2 -0.3 -0.6 -0.7

NatRes 1.2 1.4 1.7 1.8 2.8 3.1 3.8 3.9

grains 0.0 0.0 0.1 0.1 0.1 0.1 0.3 0.2

vegetables, fruit,

nuts 0.2 0.2 0.3 0.3 0.3 0.3 0.5 0.5

other primary

food 0.1 0.1 0.3 0.2 0.3 0.3 0.6 0.5


forestry -0.1 -0.1 0.1 0.1 0.6 0.6 0.9 0.8

primary fishing -0.2 -0.1 0.4 0.4 -0.1 0.0 0.9 0.9

primary mining 0.0 -0.1 0.0 0.0 0.0 -0.1 0.0 0.0

processed foods,

bevs, tobacco -0.3 -0.3 -0.3 -0.4 -0.3 -0.4 -0.4 -0.5

textiles -0.9 -1.2 -0.9 -1.2 -1.3 -1.6 -1.4 -1.7

wearing apparel -0.6 -0.7 -0.5 -0.7 -0.8 -0.9 -0.8 -0.9


wood products -0.4 -0.5 -0.4 -0.5 -0.4 -0.5 -0.3 -0.4

paper products,

publishing -0.3 -0.4 -0.3 -0.4 -0.4 -0.5 -0.4 -0.5

petroleum, coal

products -0.3 -0.4 -0.4 -0.5 -0.5 -0.5 -0.6 -0.6

chemicals,

rubber, and

plastic products -1.1 -0.9 -1.3 -1.0 -1.6 -1.3 -1.7 -1.5

mineral products -0.4 -0.4 -0.4 -0.5 -0.5 -0.5 -0.5 -0.6


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

nec

ferrous metals -0.4 -0.4 -0.4 -0.4 -0.5 -0.5 -0.5 -0.5

metals nec -0.3 -0.4 -0.3 -0.4 -0.4 -0.4 -0.4 -0.5

metal products -0.3 -0.4 -0.3 -0.4 -0.4 -0.5 -0.4 -0.5

motor vehicles

and parts 1.4 1.1 1.2 1.0 1.8 1.5 1.5 1.2

other transport

equipment -0.4 -0.5 -0.4 -0.5 -0.5 -0.6 -0.6 -0.7

electronic

equipment -0.8 -1.1 -1.0 -1.2 -0.6 -0.9 -0.8 -1.1

other machinery

and equipment -0.7 -1.1 -0.9 -1.2 -0.7 -1.1 -1.1 -1.4


utilities -0.3 -0.4 -0.4 -0.5 -0.4 -0.5 -0.5 -0.6

construction -0.4 -0.5 -0.4 -0.5 -0.5 -0.6 -0.4 -0.5

distribution -0.4 -0.5 -0.4 -0.5 -0.5 -0.6 -0.5 -0.6

other transport -0.3 -0.4 -0.4 -0.4 -0.5 -0.5 -0.5 -0.5

maritime

transport -0.3 -0.3 -0.3 -0.4 -0.4 -0.5 -0.5 -0.5

air transport -0.3 -0.3 -0.3 -0.3 -0.3 -0.4 -0.4 -0.4

communications -0.4 -0.5 -0.5 -0.6 -0.5 -0.6 -0.7 -0.8


insurance -0.8 -0.9 -0.9 -1.0 -1.2 -1.3 -1.3 -1.4

business services

nec -0.5 -0.6 -0.5 -0.6 -0.7 -0.8 -0.7 -0.8

recreation and

other services -0.6 -0.7 -0.5 -0.6 -0.8 -0.9 -0.6 -0.7

public services

and dwellings -0.3 -0.4 -0.4 -0.5 -0.3 -0.4 -0.5 -0.6

CGDS -0.4 -0.5 -0.4 -0.5 -0.6 -0.7 -0.6 -0.7

Table III.0.26 Percentage change in prices Nicaragua

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

Land 3.6 3.3 3.3 3.0 5.1 4.7 4.8 4.5

UL 0.3 0.3 0.1 0.1 0.6 0.6 0.3 0.3

SL 0.1 0.1 -0.1 -0.1 0.3 0.3 0.0 0.0

Capital -0.7 -0.7 -0.3 -0.3 -0.9 -0.9 -0.4 -0.4


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

NatRes 2.0 2.9 1.3 2.3 3.8 4.8 3.1 4.2

grains 0.5 0.4 0.4 0.4 0.7 0.7 0.6 0.6

vegetables, fruit,

nuts 1.4 1.4 1.4 1.3 1.9 1.9 1.9 1.8

other primary

food 0.9 0.7 0.8 0.7 1.3 1.1 1.2 1.1


forestry 0.1 0.1 0.0 0.0 0.4 0.4 0.3 0.3

primary fishing 0.5 0.9 0.4 0.8 1.0 1.4 0.9 1.4

primary mining 0.0 0.0 0.1 0.1 0.3 0.3 0.4 0.4

processed foods,

bevs, tobacco -0.2 -0.3 0.0 -0.1 -0.3 -0.3 0.0 -0.1

textiles -0.1 -0.2 -0.2 -0.2 -0.1 -0.2 -0.2 -0.3

wearing apparel -0.1 -0.1 -0.1 -0.2 0.0 -0.1 -0.1 -0.1

leather products 0.0 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1

wood products -0.2 -0.2 -0.2 -0.2 -0.2 -0.1 -0.2 -0.2

paper products,

publishing -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3

petroleum, coal

products -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1

chemicals,

rubber, and

plastic products -1.4 -1.2 -0.8 -0.6 -2.7 -2.4 -1.7 -1.5

mineral products

nec -0.3 -0.3 -0.3 -0.3 -0.4 -0.4 -0.3 -0.4

ferrous metals -0.4 -0.4 -0.3 -0.3 -0.5 -0.5 -0.4 -0.4

metals nec -0.3 -0.3 -0.2 -0.2 -0.3 -0.3 -0.3 -0.3

metal products -0.2 -0.2 -0.2 -0.2 -0.2 -0.3 -0.2 -0.3

motor vehicles

and parts 1.8 1.8 2.2 2.2 2.0 2.0 2.5 2.5

other transport

equipment -0.3 -0.3 -0.2 -0.2 -0.3 -0.3 -0.3 -0.3

electronic

equipment -0.3 -0.2 0.0 0.1 0.7 0.9 1.3 1.4

other machinery

and equipment -2.5 -2.4 -2.3 -2.3 -3.2 -3.2 -3.1 -3.1

manufactures nec 0.0 0.0 0.2 0.2 -0.3 -0.3 0.0 0.0

utilities -0.4 -0.4 -0.3 -0.3 -0.5 -0.5 -0.3 -0.3

construction -0.3 -0.3 -0.3 -0.3 -0.4 -0.4 -0.3 -0.3

distribution -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1

other transport -0.3 -0.3 -0.3 -0.3 -0.4 -0.4 -0.5 -0.5

maritime -0.7 -0.7 -0.7 -0.7 -1.0 -1.0 -1.0 -1.0


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

transport

air transport -0.8 -0.8 -0.8 -0.8 -1.1 -1.1 -1.1 -1.1

communications -0.6 -0.6 -0.5 -0.5 -0.9 -0.9 -0.7 -0.7


insurance -1.0 -1.0 -0.9 -0.9 -1.4 -1.4 -1.3 -1.3

business services

nec -0.7 -0.7 -0.3 -0.3 -0.9 -0.9 -0.5 -0.5

recreation and

other services -0.6 -0.6 -0.5 -0.5 -0.8 -0.8 -0.6 -0.6

public services

and dwellings -0.3 -0.3 -0.5 -0.4 -0.4 -0.4 -0.6 -0.6

CGDS -0.3 -0.3 -0.3 -0.3 -0.4 -0.4 -0.4 -0.4

Table III.0.27 Percentage change in prices Panama

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

Land 96.8 -1.0 95.8 -1.0 115.7 -1.2 114.7 -1.2

UL 0.9 0.0 0.4 0.0 1.1 0.0 0.6 0.0

SL 0.5 0.0 0.0 0.0 0.7 0.0 0.2 0.0

Capital -0.6 0.0 0.1 0.0 -0.6 0.0 0.2 0.0

NatRes -8.4 -0.1 -9.0 0.0 -9.6 -0.1 -10.0 0.0

grains 10.2 -0.1 9.9 -0.1 11.9 -0.1 11.7 -0.1

vegetables, fruit,

nuts 51.0 -0.6 50.8 -0.6 60.2 -0.7 60.0 -0.7

other primary food 18.8 -0.2 18.2 -0.2 22.1 -0.2 21.5 -0.2


forestry -0.9 0.0 -1.3 0.0 -0.9 0.0 -1.3 0.0

primary fishing -4.3 -0.1 -4.6 -0.1 -4.8 -0.1 -5.1 0.0

primary mining -2.2 0.0 -2.8 0.0 -2.7 0.0 -3.3 0.0

processed foods,

bevs, tobacco 7.8 -0.2 7.7 -0.2 9.2 -0.2 9.1 -0.2

textiles 1.0 -0.1 1.9 -0.1 1.1 -0.1 2.1 -0.1

wearing apparel 0.7 0.0 1.4 0.0 0.8 0.0 1.6 0.0


wood products 0.4 -0.1 0.3 0.0 0.6 -0.1 0.5 0.0

paper products,

publishing 1.6 -0.1 1.7 0.0 1.9 -0.1 2.0 0.0

petroleum, coal 0.1 0.0 0.2 0.0 0.1 0.0 0.2 0.0


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

products

chemicals,

rubber, and


mineral products

nec 2.7 -0.1 2.7 -0.1 3.2 -0.1 3.2 -0.1

ferrous metals 1.3 0.0 1.4 0.0 1.6 0.0 1.7 0.0

metals nec 1.6 0.0 1.6 0.0 1.9 -0.1 2.0 0.0

metal products 2.7 -0.1 2.7 -0.1 3.2 -0.1 3.2 0.0

motor vehicles

and parts 3.0 -0.1 3.4 -0.1 3.5 -0.1 3.9 -0.1

other transport

equipment 4.7 -0.1 4.7 -0.1 5.6 -0.1 5.5 -0.1

electronic

equipment 4.7 -0.1 5.3 -0.1 5.5 -0.1 6.2 -0.1

other machinery

and equipment 4.6 -0.1 5.0 -0.1 5.6 -0.1 6.1 -0.1

manufactures nec 9.1 -0.2 9.3 -0.2 11.2 -0.2 11.4 -0.2

utilities -0.4 0.0 0.0 0.0 -0.3 0.0 0.0 0.0

construction -0.1 0.0 0.0 0.0 -0.1 0.0 0.0 0.0

distribution 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.0

other transport -0.2 0.0 -0.1 0.0 -0.3 0.0 -0.1 0.0


air transport -0.1 0.0 0.0 0.0 -0.1 0.0 0.0 0.0

communications -0.2 0.0 0.1 0.0 -0.1 0.0 0.2 0.0

financial services -0.7 0.0 -0.5 0.0 -0.9 0.0 -0.8 0.0

insurance -0.5 0.0 -0.3 0.0 -0.6 0.0 -0.5 0.0

business services

nec -0.3 0.0 0.0 0.0 -0.3 0.0 0.0 0.0

recreation and

other services 0.2 0.0 0.3 0.0 0.3 0.0 0.3 0.0

public services

and dwellings 0.2 0.0 0.3 0.0 0.4 0.0 0.4 0.0

CGDS 0.0 0.0 0.1 0.0 0.1 0.0 0.2 0.0


Table III.0.28 Percentage change in prices XCA

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

Land 7.9 8.0 8.6 8.6 11.1 11.1 12.2 12.2

UL 0.0 0.0 0.6 0.6 0.1 0.1 1.0 1.0

SL -0.4 -0.4 0.2 0.2 -0.5 -0.5 0.5 0.5

Capital 0.0 0.0 -0.6 -0.6 0.1 0.1 -0.9 -0.9

NatRes 1.3 1.4 3.9 4.0 3.8 3.9 8.0 8.2

grains 0.9 0.9 1.0 1.0 1.3 1.2 1.4 1.4

vegetables, fruit,

nuts 3.2 3.3 3.5 3.5 4.2 4.2 4.6 4.6



forestry -0.1 -0.2 0.1 0.1 0.0 -0.1 0.4 0.4

primary fishing 0.6 0.7 2.2 2.3 2.0 2.1 4.6 4.7

primary mining 0.4 0.3 0.4 0.4 1.0 1.0 1.1 1.1

processed foods,

bevs, tobacco 0.3 0.3 0.3 0.3 0.4 0.4 0.4 0.4

textiles -0.5 -0.5 -0.7 -0.7 -0.5 -0.5 -0.8 -0.8

wearing apparel -0.3 -0.3 -0.4 -0.5 -0.3 -0.3 -0.5 -0.5


wood products -0.2 -0.2 -0.2 -0.2 -0.2 -0.2 -0.1 -0.2

paper products,

publishing -0.3 -0.3 -0.3 -0.4 -0.4 -0.4 -0.4 -0.4

petroleum, coal

products -0.3 -0.3 -0.4 -0.4 -0.4 -0.4 -0.6 -0.6

chemicals, rubber,

and plastic

products -0.5 -0.3 -0.8 -0.6 -0.7 -0.5 -1.2 -1.0

mineral products

nec -0.2 -0.2 -0.2 -0.3 -0.2 -0.2 -0.2 -0.2

ferrous metals -0.2 -0.2 -0.2 -0.2 -0.1 -0.1 -0.2 -0.2

metals nec -0.1 -0.1 -0.1 -0.1 0.1 0.1 0.1 0.1

metal products -0.4 -0.4 -0.4 -0.4 -0.5 -0.5 -0.5 -0.5

motor vehicles

and parts 0.0 0.0 -0.7 -0.7 -0.2 -0.2 -1.3 -1.3

other transport

equipment -2.4 -2.4 -2.4 -2.4 -3.0 -3.0 -3.0 -3.0

electronic

equipment -2.1 -2.1 -2.8 -2.8 -4.2 -4.2 -5.2 -5.2

other machinery

and equipment -0.4 -0.4 -0.7 -0.8 -0.2 -0.2 -0.8 -0.8

manufactures nec 0.0 0.0 -0.1 -0.1 0.0 0.0 0.0 -0.1


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

utilities -0.3 -0.3 -0.4 -0.5 -0.3 -0.4 -0.6 -0.6

construction -0.2 -0.2 -0.2 -0.2 -0.1 -0.2 -0.2 -0.2

distribution -0.2 -0.2 -0.2 -0.2 -0.2 -0.3 -0.3 -0.3

other transport -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.3 -0.4

maritime transport -0.7 -0.7 -0.7 -0.8 -1.0 -1.0 -1.0 -1.0

air transport -1.0 -1.0 -1.0 -1.0 -1.3 -1.3 -1.3 -1.3

communications -0.5 -0.5 -0.9 -0.9 -0.7 -0.7 -1.3 -1.3


insurance -1.5 -1.5 -1.2 -1.2 -2.1 -2.2 -1.7 -1.7

business services

nec -0.8 -0.8 -0.8 -0.8 -1.2 -1.2 -1.1 -1.2

recreation and

other services -1.1 -1.1 -0.8 -0.8 -1.6 -1.6 -1.1 -1.1

public services

and dwellings -0.2 -0.3 -0.1 -0.1 -0.3 -0.3 -0.1 -0.1

CGDS -0.6 -0.6 -0.6 -0.6 -0.8 -0.8 -0.9 -0.9

Table III.0.29 Percentage change in prices LDC

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

Land -0.1 0.0 -0.1 0.0 -0.1 -0.1 -0.1 0.0

UL 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

SL 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

NatRes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

grains 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

vegetables, fruit,

nuts 0.0 0.0 0.0 0.0 -0.1 0.0 0.0 0.0



forestry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary fishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary mining 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

processed foods,

bevs, tobacco 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

textiles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

wearing apparel 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0



Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

wood products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

paper products,

publishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

petroleum, coal

products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

chemicals, rubber,

and plastic

products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

mineral products

nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

ferrous metals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metals nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metal products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

motor vehicles

and parts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport

equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

electronic

equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other machinery

and equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


utilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

distribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


air transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

communications 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


insurance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

business services

nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

recreation and

other services 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

public services

and dwellings 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CGDS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Table III.0.30 Percentage change in prices ROW

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

Land 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

UL 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

SL 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

NatRes 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

grains 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

vegetables, fruit,

nuts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0



forestry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary fishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary mining 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

processed foods,

bevs, tobacco 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

textiles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

wearing apparel 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


wood products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

paper products,

publishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

petroleum, coal

products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

chemicals, rubber,

and plastic

products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

mineral products

nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

ferrous metals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metals nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metal products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

motor vehicles

and parts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport

equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

electronic

equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other machinery

and equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0



Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

All

countries

without

Panama

utilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

distribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


air transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

communications 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


insurance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

business services

nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

recreation and

other services 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

public services

and dwellings 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CGDS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Table III.0.31 Percentage change in Employment – EU-27, comprehensive FTA

Short Run Long Run

All countries Excl. Panama All countries Excl. Panama


grains 0.1 0.1 0.0 0.0 0.1 0.1 0.0 0.0

vegetables, fruit, nuts -1.3 -1.3 -0.9 -0.9 -1.3 -1.3 -0.9 -0.9



forestry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary fishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary mining 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

processed foods, bevs, tobacco 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

textiles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

wearing apparel 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


wood products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

paper products. publishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

petroleum. coal products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

chemicals. rubber. and plastic products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

mineral products nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

ferrous metals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metals nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metal products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

motor vehicles and parts 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Short Run Long Run



other transport equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

electronic equipment -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1 -0.1

other machinery and equipment 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


utilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

distribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


air transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

communications 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


insurance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

business services nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

recreation and other services 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

public services and dwellings 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

CGDS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

standard dev 0.2 0.2 0.2 0.2 0.2 0.2 0.2 0.2

Table III.0.32 Percentage change in employment - Costa Rica, Comprehensive FTA

Short Run Long Run



grains -6.8 -6.7 -6.8 -6.7 -6.9 -6.8 -7.0 -6.9

vegetables, fruit, nuts 24.9 25.0 25.1 25.2 24.6 24.7 24.9 25.0



forestry 0.1 0.1 0.1 0.1 0.0 0.1 0.0 0.1

primary fishing -2.0 -2.0 -1.9 -1.9 -2.1 -2.0 -1.9 -1.8

primary mining -0.8 -0.7 -0.8 -0.7 -0.9 -0.8 -0.9 -0.8

processed foods, bevs, tobacco -5.2 -4.8 -5.4 -5.1 -5.3 -5.0 -5.6 -5.3

textiles -7.1 -6.7 -7.0 -6.7 -7.6 -7.3 -7.6 -7.3

wearing apparel -7.7 -7.3 -7.6 -7.3 -8.4 -8.1 -8.4 -8.1


wood products -7.4 -7.0 -7.4 -7.0 -7.6 -7.3 -7.6 -7.3

paper products, publishing -3.2 -2.9 -3.3 -2.9 -3.3 -3.0 -3.4 -3.0

petroleum, coal products -6.1 -5.7 -6.1 -5.8 -6.1 -5.8 -6.1 -5.8

chemicals, rubber, and plastic products -4.9 -4.6 -5.2 -4.8 -4.6 -4.2 -4.8 -4.5

mineral products nec -5.7 -5.3 -5.8 -5.4 -5.4 -5.1 -5.6 -5.2

ferrous metals -4.4 -4.0 -4.4 -4.0 -4.1 -3.8 -4.1 -3.8

metals nec -2.8 -2.4 -2.7 -2.4 -2.1 -1.8 -2.1 -1.7

metal products -4.2 -3.9 -4.4 -4.1 -4.3 -3.9 -4.5 -4.1

motor vehicles and parts -9.7 -9.3 -9.6 -9.3 -9.4 -9.1 -9.3 -9.0


Short Run Long Run



other transport equipment -4.1 -3.7 -4.0 -3.7 -4.4 -4.1 -4.4 -4.1

electronic equipment 7.6 8.0 7.9 8.3 8.8 9.2 9.1 9.5

other machinery and equipment -9.7 -9.3 -9.6 -9.3 -9.9 -9.6 -9.9 -9.6


utilities -1.4 -1.0 -1.4 -1.0 -1.5 -1.1 -1.5 -1.2

construction 0.1 0.5 0.1 0.5 0.0 0.4 0.0 0.4

distribution -1.7 -1.3 -1.7 -1.3 -2.0 -1.5 -2.0 -1.6

other transport -3.1 -2.6 -3.1 -2.7 -3.4 -3.0 -3.5 -3.1


air transport 0.1 0.6 0.1 0.6 -0.3 0.1 -0.3 0.1

communications -2.0 -1.7 -2.0 -1.7 -2.2 -1.9 -2.2 -1.9

financial services -0.2 0.2 -0.1 0.2 0.0 0.3 0.0 0.3

insurance -5.3 -4.9 -5.2 -4.9 -5.3 -5.0 -5.2 -4.9

business services nec -1.2 -0.9 -1.2 -0.9 -1.3 -1.0 -1.3 -1.0

recreation and other services -0.6 -0.2 -0.6 -0.2 -0.7 -0.4 -0.7 -0.4


CGDS 0.4 0.7 0.4 0.7 0.4 0.7 0.4 0.7

standard dev 6.2 6.2 6.3 6.3 6.3 6.3 6.3 6.3

Table III.0.33 Percentage change in employment - Guatemala, comprehensive FTA

Short Run FTA Long Run



grains 0.1 0.3 0.2 0.3 0.1 0.2 0.2 0.3



other agriculture 0.0 0.1 0.1 0.2 -0.2 -0.1 -0.1 0.0

forestry 0.4 0.4 0.4 0.5 0.4 0.5 0.5 0.5

primary fishing 0.0 0.1 0.1 0.2 0.2 0.3 0.2 0.3

primary mining 0.3 0.4 0.4 0.5 0.3 0.4 0.4 0.4


textiles 3.9 4.3 5.5 5.8 4.2 4.5 5.7 6.0

wearing apparel 1.2 1.5 1.6 1.9 1.2 1.5 1.5 1.9

leather products -0.4 -0.1 -0.3 0.1 -0.4 -0.1 -0.3 0.0

wood products -2.7 -2.4 -2.5 -2.2 -2.8 -2.5 -2.6 -2.3

paper products, publishing 0.1 0.5 0.3 0.6 0.2 0.5 0.3 0.7

petroleum, coal products 0.3 0.6 0.5 0.9 0.4 0.7 0.6 0.9

chemicals, rubber, and plastic products 4.5 4.9 2.4 2.7 4.8 5.1 2.5 2.9


ferrous metals 0.4 0.8 0.7 1.0 0.6 1.0 0.9 1.2

metals nec 1.3 1.6 1.6 1.9 1.3 1.6 1.6 1.9

metal products 0.2 0.6 0.3 0.7 0.2 0.6 0.3 0.7



Short Run FTA Long Run







utilities 0.2 0.5 0.1 0.5 0.1 0.4 0.1 0.4

construction 0.2 0.5 0.1 0.5 0.2 0.6 0.1 0.5

distribution 0.0 0.4 0.0 0.4 0.0 0.4 0.0 0.4

other transport -1.9 -1.5 -1.9 -1.5 -2.0 -1.6 -2.0 -1.5

maritime transport 0.1 0.5 0.1 0.5 -0.1 0.3 -0.1 0.4

air transport 1.7 2.1 1.8 2.2 1.5 1.9 1.6 2.0

communications 0.1 0.4 0.1 0.4 0.0 0.3 0.0 0.3


insurance -3.7 -3.3 -3.5 -3.2 -3.7 -3.4 -3.5 -3.2




CGDS 0.2 0.5 0.1 0.4 0.3 0.5 0.2 0.5

standard dev 2.0 2.0 2.1 2.1 2.1 2.1 2.2 2.2

Table III.0.34 Percentage change in employment - Nicaragua, Comprehensive FTA

Short Run Long Run



grains -0.4 -0.4 -0.3 -0.3 -0.4 -0.4 -0.4 -0.3



other agriculture -0.4 -0.3 -0.2 -0.2 -0.2 -0.2 -0.1 0.0

forestry 0.1 0.2 0.2 0.2 0.1 0.1 0.1 0.1

primary fishing 0.4 0.4 0.6 0.6 0.3 0.3 0.5 0.6

primary mining 0.1 0.1 0.1 0.1 0.1 0.2 0.1 0.1


textiles 0.5 0.7 0.7 0.9 1.0 1.2 1.2 1.4

wearing apparel -0.3 -0.1 -0.1 0.1 0.1 0.3 0.3 0.5


wood products -1.6 -1.4 -1.5 -1.4 -1.3 -1.1 -1.3 -1.1





ferrous metals 1.2 1.4 1.2 1.4 1.4 1.6 1.3 1.5

metals nec 1.8 2.0 1.8 2.0 1.9 2.1 1.9 2.1

metal products -0.2 0.0 -0.6 -0.4 -0.1 0.1 -0.5 -0.3



Short Run Long Run




electronic equipment 0.5 0.7 -0.2 -0.1 -1.6 -1.4 -2.3 -2.1



utilities 0.0 0.2 -0.1 0.1 0.1 0.3 0.0 0.2

construction -1.3 -1.1 -1.2 -1.0 -0.9 -0.7 -0.9 -0.7

distribution 0.5 0.8 0.5 0.7 0.4 0.7 0.4 0.6

other transport -1.1 -0.9 -1.1 -0.9 -1.1 -0.8 -1.1 -0.9


air transport -3.2 -3.0 -3.2 -3.0 -3.1 -2.8 -3.1 -2.8

communications -1.3 -1.1 -1.3 -1.1 -1.2 -1.0 -1.2 -1.0


insurance -6.0 -5.8 -6.0 -5.8 -6.0 -5.8 -6.0 -5.8




CGDS -1.1 -1.0 -1.1 -0.9 -0.8 -0.7 -0.8 -0.7

standard dev 3.6 3.6 3.5 3.5 3.5 3.5 3.4 3.4

Table III.0.35 Percentage change in employment - Panama, Comprehensive FTA

Short Run Long Run



grains 2.5 2.6 0.0 0.0 2.4 2.5 0.0 0.0

vegetables, fruit, nuts 71.4 71.5 -0.9 -0.9 72.2 72.4 -0.9 -0.9

other primary food -3.9 -3.8 0.1 0.1 -4.3 -4.3 0.1 0.1

other agriculture -15.7 -15.6 0.6 0.6 -15.6 -15.5 0.7 0.7

forestry -1.8 -1.8 0.0 0.0 -1.9 -1.9 0.0 0.0

primary fishing -1.9 -1.8 0.0 0.0 -1.9 -1.8 0.0 0.0

primary mining -1.4 -1.3 0.0 0.0 -1.6 -1.6 0.0 0.0

processed foods, bevs, tobacco -6.2 -5.9 0.2 0.2 -5.6 -5.3 0.2 0.2

textiles -5.4 -5.1 0.2 0.2 -9.2 -8.9 0.3 0.3

wearing apparel -3.2 -2.9 0.0 0.0 -5.0 -4.6 0.0 0.0

leather products -4.2 -3.8 0.1 0.1 -6.6 -6.3 0.1 0.1

wood products -2.9 -2.6 0.1 0.1 -2.1 -1.7 0.1 0.1

paper products, publishing -4.0 -3.6 0.0 0.0 -3.7 -3.3 0.0 0.0

petroleum, coal products -3.4 -3.1 0.0 0.0 -3.5 -3.2 0.0 0.0



ferrous metals -7.4 -7.1 0.2 0.2 -7.0 -6.6 0.2 0.2

metals nec -10.7 -10.4 0.1 0.1 -10.3 -9.9 0.2 0.2

metal products -12.0 -11.7 0.2 0.2 -11.8 -11.5 0.2 0.2

motor vehicles and parts -6.5 -6.2 0.1 0.1 -6.8 -6.4 0.1 0.1


Short Run Long Run



other transport equipment -19.7 -19.4 0.3 0.3 -19.2 -18.9 0.3 0.3

electronic equipment -21.0 -20.7 0.5 0.5 -23.0 -22.7 0.4 0.4

other machinery and equipment -17.9 -17.6 0.3 0.3 -19.0 -18.8 0.3 0.3

manufactures nec -27.9 -27.7 0.5 0.5 -27.9 -27.7 0.5 0.5

utilities -2.4 -2.1 0.0 0.0 -2.1 -1.8 0.0 0.0

construction -1.7 -1.4 0.0 0.0 -1.6 -1.2 0.0 0.0

distribution -5.7 -5.3 0.0 0.0 -6.0 -5.5 0.0 0.0

other transport -3.6 -3.2 0.0 0.0 -3.4 -2.9 0.0 0.0


air transport 0.6 1.1 0.0 0.0 1.1 1.6 0.0 0.0

communications -0.1 0.2 0.0 0.0 0.0 0.3 0.0 0.0

financial services -2.4 -2.1 0.0 0.0 -2.5 -2.1 0.0 0.0

insurance -2.2 -1.8 0.0 0.0 -2.1 -1.7 0.0 0.0

business services nec -1.5 -1.1 0.0 0.0 -1.4 -1.1 0.0 0.0

recreation and other services -0.2 0.2 0.0 0.0 -0.2 0.1 0.0 0.0


CGDS -1.1 -0.8 0.0 0.0 -1.2 -0.9 0.0 0.0

standard dev 15.0 15.0 0.3 0.3 15.2 15.2 0.3 0.3

Table III.0.36 Percentage change in employment - XCA, Comprehensive FTA

Short Run Long Run



grains 0.2 0.4 0.2 0.4 0.3 0.5 0.3 0.5




forestry -0.1 0.0 -0.1 0.0 0.4 0.4 0.3 0.4

primary fishing 0.2 0.3 0.3 0.3 0.6 0.7 0.7 0.7

primary mining 0.7 0.8 0.7 0.8 0.8 0.9 0.8 0.9

processed foods, bevs, tobacco 0.1 0.5 0.1 0.5 -0.3 0.0 -0.4 0.0

textiles 2.6 3.1 2.9 3.3 3.1 3.5 3.4 3.8

wearing apparel 1.3 1.7 1.4 1.9 1.5 1.9 1.6 2.0


wood products -0.6 -0.2 -0.6 -0.2 -0.9 -0.5 -0.9 -0.5

paper products, publishing -0.3 0.1 -0.4 0.1 -0.3 0.1 -0.4 0.0




ferrous metals -0.6 -0.1 -0.6 -0.2 -0.4 -0.1 -0.5 -0.1

metals nec -0.5 -0.1 -0.6 -0.1 -0.8 -0.4 -0.9 -0.5

metal products -0.2 0.3 -0.2 0.2 0.0 0.4 0.0 0.4


Short Run Long Run








utilities 0.1 0.6 0.1 0.5 -0.1 0.3 -0.2 0.2

construction 0.2 0.7 0.2 0.7 0.0 0.4 0.0 0.4

distribution 0.1 0.6 0.0 0.6 0.0 0.5 -0.1 0.4

other transport -0.9 -0.3 -0.9 -0.3 -1.1 -0.7 -1.1 -0.7


air transport -0.8 -0.3 -0.8 -0.3 -1.3 -0.8 -1.3 -0.8

communications 0.8 1.3 0.8 1.3 0.5 0.9 0.5 0.9


insurance -5.5 -5.0 -5.5 -5.0 -5.6 -5.3 -5.6 -5.3




CGDS 0.8 1.2 0.8 1.2 0.9 1.3 0.9 1.3

standard dev 4.4 4.4 4.4 4.4 4.9 4.9 4.9 4.9

Table III.0.37 Percentage change in employment - ROW, Comprehensive FTA

Short Run Long Run



grains 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0




forestry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary fishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary mining 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


textiles 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

wearing apparel 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


wood products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0





ferrous metals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metals nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Short Run Long Run



metal products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0






utilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

distribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


air transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

communications 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


insurance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0




CGDS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

standard dev 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Table III.0.38 Percentage change in employment – EU-27, Very Comprehensive FTA

Short Run Long Run



grains 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1

vegetables, fruit, nuts -1.5 -1.5 -1.1 -1.1 -1.5 -1.5 -1.0 -1.0



forestry 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary fishing 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

primary mining 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


textiles 0.0 0.0 0.0 0.0 0.1 0.1 0.1 0.1

wearing apparel 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


wood products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0





ferrous metals 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Short Run Long Run



metals nec 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

metal products 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0






utilities 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

construction 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

distribution 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

other transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


air transport 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

communications 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


insurance 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0




CGDS 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

standard dev 0.3 0.3 0.2 0.2 0.3 0.3 0.2 0.2

Table III.0.39 Percentage change in employment - Costa Rica, Very Comprehensive FTA

Short Run Long Run



grains -9.0 -8.8 -9.0 -8.9 -9.5 -9.4 -9.6 -9.5




forestry 0.0 0.1 0.0 0.1 -0.3 -0.2 -0.3 -0.2

primary fishing -3.0 -2.9 -2.9 -2.8 -3.0 -2.9 -2.9 -2.8

primary mining -2.0 -1.9 -2.0 -1.9 -2.3 -2.2 -2.3 -2.2

processed foods, bevs, tobacco -6.9 -6.5 -7.2 -6.8 -7.7 -7.3 -8.0 -7.6

textiles -15.6 -15.2 -15.6 -15.2 -18.2 -17.8 -18.2 -17.9

wearing apparel -16.7 -16.3 -16.7 -16.3 -20.1 -19.7 -20.1 -19.8


wood products -12.5 -12.1 -12.5 -12.1 -13.8 -13.5 -13.8 -13.4






Short Run Long Run



ferrous metals -9.3 -8.9 -9.3 -8.8 -8.4 -8.0 -8.3 -8.0

metals nec -5.8 -5.4 -5.8 -5.3 -3.1 -2.7 -3.1 -2.7

metal products -7.6 -7.2 -7.8 -7.4 -8.0 -7.6 -8.2 -7.8




other machinery and equipment -22.4 -22.0 -22.3 -21.9 -23.9 -23.6 -23.8 -23.5


utilities -2.5 -2.1 -2.6 -2.1 -3.1 -2.7 -3.1 -2.7

construction 2.4 3.0 2.4 3.0 2.2 2.6 2.2 2.6

distribution -1.8 -1.2 -1.8 -1.2 -3.0 -2.5 -3.0 -2.5

other transport -5.4 -4.8 -5.4 -4.8 -7.0 -6.5 -7.1 -6.6


air transport -0.1 0.5 -0.1 0.5 -2.3 -1.8 -2.3 -1.8

communications -3.8 -3.3 -3.8 -3.3 -4.5 -4.1 -4.5 -4.2


insurance -7.9 -7.4 -7.8 -7.4 -7.9 -7.5 -7.9 -7.5




CGDS 2.9 3.4 3.0 3.4 2.8 3.1 2.8 3.2

standard dev 10.6 10.7 10.7 10.7 11.2 11.2 11.3 11.3

Table III.0.40 Percentage change in employment - Guatemala, Very comprehensive FTA

Short Run Long Run



grains 0.2 0.3 0.3 0.4 0.2 0.3 0.3 0.4




forestry 1.0 1.1 1.0 1.1 1.1 1.2 1.1 1.2

primary fishing 0.1 0.2 0.2 0.3 0.4 0.5 0.4 0.5

primary mining 0.4 0.5 0.5 0.6 0.4 0.5 0.5 0.6


textiles 6.1 6.6 7.9 8.4 6.6 7.1 8.3 8.9

wearing apparel 2.0 2.5 2.4 2.9 1.9 2.4 2.3 2.8

leather products -0.3 0.2 -0.1 0.4 -0.3 0.2 -0.1 0.4

wood products -3.8 -3.3 -3.6 -3.1 -3.9 -3.5 -3.7 -3.2





Short Run Long Run




ferrous metals 0.8 1.3 1.1 1.6 1.3 1.8 1.6 2.1

metals nec 1.7 2.3 2.0 2.6 1.8 2.3 2.1 2.6

metal products 0.4 0.9 0.5 1.0 0.4 0.9 0.5 1.0






utilities 0.3 0.8 0.2 0.7 0.2 0.7 0.1 0.6

construction 0.3 0.8 0.2 0.8 0.3 0.9 0.3 0.8

distribution 0.0 0.6 0.0 0.6 -0.1 0.5 -0.1 0.5

other transport -3.0 -2.4 -3.0 -2.4 -3.1 -2.5 -3.1 -2.5


air transport 2.5 3.2 2.6 3.3 2.1 2.8 2.3 2.9

communications 0.1 0.6 0.1 0.6 -0.1 0.4 -0.1 0.4


insurance -5.6 -5.1 -5.4 -4.9 -5.6 -5.1 -5.4 -4.9




CGDS 0.3 0.8 0.3 0.7 0.5 0.9 0.4 0.8

standard dev 2.7 2.7 2.7 2.7 2.7 2.7 2.8 2.8

Table III.0.41 Percentage change in employment - Nicaragua, Very Comprehensive FTA

Short Run Long Run



grains -0.7 -0.6 -0.6 -0.5 -0.7 -0.6 -0.6 -0.5




forestry 0.6 0.6 0.6 0.6 0.5 0.5 0.5 0.6

primary fishing 0.7 0.7 0.9 0.9 0.6 0.6 0.8 0.9

primary mining 0.2 0.3 0.2 0.3 0.3 0.3 0.3 0.3


textiles 0.4 0.6 0.6 0.9 1.0 1.3 1.3 1.5

wearing apparel -0.8 -0.5 -0.5 -0.3 -0.2 0.1 0.0 0.3


wood products -2.1 -1.8 -2.0 -1.8 -1.7 -1.4 -1.7 -1.4

paper products, publishing -0.2 0.0 -0.3 -0.1 -0.1 0.2 -0.1 0.1



Short Run Long Run





ferrous metals 2.8 3.1 2.8 3.0 3.4 3.7 3.4 3.6

metals nec 2.3 2.6 2.3 2.6 2.5 2.7 2.4 2.7

metal products 0.0 0.2 -0.4 -0.2 0.2 0.5 -0.3 0.0






utilities 0.2 0.5 0.2 0.4 0.4 0.7 0.3 0.6

construction -1.8 -1.5 -1.7 -1.5 -1.4 -1.1 -1.4 -1.1

distribution 0.8 1.1 0.7 1.0 0.6 1.0 0.6 0.9

other transport -1.7 -1.4 -1.7 -1.4 -1.7 -1.4 -1.7 -1.4


air transport -4.8 -4.5 -4.7 -4.5 -4.6 -4.3 -4.6 -4.3

communications -2.0 -1.7 -2.0 -1.7 -1.9 -1.6 -1.9 -1.6


insurance -9.0 -8.8 -9.0 -8.8 -9.0 -8.8 -9.0 -8.8




CGDS -1.6 -1.4 -1.5 -1.3 -1.2 -1.0 -1.2 -1.0

standard dev 5.2 5.2 5.1 5.1 5.1 5.1 5.1 5.1

Table III.0.42 Percentage change in employment - Panama, Very Comprehensive FTA

Short Run Long Run



grains 2.8 2.9 0.0 0.0 2.7 2.8 0.0 0.0

vegetables, fruit, nuts 80.5 80.6 -1.0 -1.0 81.4 81.5 -1.0 -1.0

other primary food -4.4 -4.4 0.1 0.1 -4.9 -4.9 0.1 0.1

other agriculture -17.8 -17.7 0.8 0.8 -17.6 -17.6 0.8 0.8

forestry -2.1 -2.1 0.1 0.1 -2.2 -2.1 0.1 0.1

primary fishing -2.1 -2.1 0.0 0.0 -2.1 -2.1 0.0 0.0

primary mining -1.7 -1.7 0.0 0.0 -2.0 -1.9 0.0 0.0

processed foods, bevs, tobacco -7.0 -6.7 0.3 0.3 -6.4 -6.1 0.3 0.3

textiles -5.8 -5.5 0.1 0.1 -9.6 -9.3 0.3 0.3

wearing apparel -3.4 -3.0 -0.1 -0.1 -5.2 -4.8 0.0 0.0

leather products -3.0 -2.7 0.1 0.1 -5.6 -5.3 0.1 0.1

wood products -3.5 -3.2 0.1 0.1 -2.7 -2.4 0.0 0.0

paper products, publishing -4.5 -4.2 0.1 0.1 -4.1 -3.8 0.2 0.2


Short Run Long Run



petroleum, coal products -3.6 -3.3 0.0 0.0 -3.7 -3.4 0.0 0.0



ferrous metals -8.6 -8.3 0.2 0.2 -8.2 -7.9 0.2 0.2

metals nec -12.4 -12.1 0.1 0.1 -11.9 -11.6 0.1 0.1

metal products -13.7 -13.4 0.5 0.5 -13.3 -13.0 0.7 0.7

motor vehicles and parts -7.3 -7.0 0.1 0.1 -7.6 -7.3 0.1 0.1

other transport equipment -22.8 -22.5 0.3 0.3 -22.3 -22.0 0.3 0.3

electronic equipment -24.2 -24.0 0.4 0.4 -26.4 -26.1 0.4 0.4

other machinery and equipment -21.7 -21.4 0.4 0.4 -22.9 -22.7 0.3 0.3

manufactures nec -33.2 -32.9 0.7 0.7 -33.3 -33.1 0.6 0.6

utilities -2.8 -2.4 0.0 0.0 -2.5 -2.1 0.0 0.0

construction -1.9 -1.5 0.0 0.0 -1.7 -1.3 0.0 0.0

distribution -6.7 -6.3 0.1 0.1 -7.0 -6.6 0.0 0.0

other transport -5.0 -4.6 0.0 0.0 -4.8 -4.4 0.0 0.0


air transport 1.4 1.8 0.0 0.0 1.9 2.3 0.0 0.0

communications 0.1 0.4 0.0 0.0 0.2 0.5 0.0 0.0

financial services -3.5 -3.1 0.0 0.0 -3.5 -3.2 0.0 0.0

insurance -3.2 -2.8 0.0 0.0 -3.1 -2.8 0.0 0.0

business services nec -1.9 -1.5 0.0 0.0 -1.8 -1.5 0.0 0.0

recreation and other services -0.2 0.1 0.0 0.0 -0.3 0.1 0.0 0.0


CGDS -1.2 -0.9 0.0 0.0 -1.2 -0.9 0.0 0.0

standard dev 17.1 17.1 0.3 0.3 17.4 17.4 0.4 0.4

Table III.0.43 Percentage change in employment - XCA, Very Comprehensive FTA

Short Run Long Run



grains 0.4 0.6 0.4 0.6 0.6 0.8 0.6 0.8




forestry 0.1 0.2 0.1 0.2 0.8 0.9 0.7 0.8

primary fishing 0.7 0.8 0.7 0.8 1.3 1.4 1.3 1.4

primary mining 1.6 1.7 1.5 1.7 1.7 1.8 1.7 1.8


textiles 2.9 3.5 3.2 3.8 3.7 4.2 4.0 4.6

wearing apparel 1.2 1.8 1.4 2.0 1.6 2.1 1.7 2.2


wood products -0.7 -0.1 -0.7 -0.1 -1.1 -0.6 -1.1 -0.6


Short Run Long Run







ferrous metals -1.0 -0.4 -1.0 -0.4 -0.7 -0.2 -0.7 -0.2

metals nec -2.1 -1.5 -2.1 -1.6 -2.4 -2.0 -2.5 -2.0

metal products 0.0 0.6 0.0 0.5 0.4 0.8 0.3 0.8

motor vehicles and parts -3.2 -2.6 -3.2 -2.6 -0.5 0.0 -0.5 0.0



other machinery and equipment -1.2 -0.6 -1.1 -0.6 1.8 2.3 1.9 2.4


utilities 0.4 0.9 0.3 0.9 0.0 0.5 -0.1 0.4

construction 0.3 1.0 0.3 1.0 0.0 0.6 0.0 0.6

distribution 0.3 1.0 0.2 1.0 0.1 0.7 0.1 0.7

other transport -1.3 -0.6 -1.3 -0.6 -1.7 -1.1 -1.7 -1.1


air transport -1.5 -0.8 -1.5 -0.7 -2.2 -1.6 -2.2 -1.5

communications 1.3 1.9 1.3 1.9 0.9 1.4 0.9 1.4


insurance -8.1 -7.6 -8.1 -7.5 -8.4 -8.0 -8.4 -7.9




CGDS 1.4 1.8 1.4 1.8 1.5 2.0 1.5 1.9

standard dev 7.2 7.2 7.2 7.2 8.2 8.2 8.2 8.2

Table III.0.44 Percentage change in employment - ROW, Very comprehensive FTA

Short Run Long Run



grains 0.4 0.6 0.4 0.6 0.6 0.8 0.6 0.8




forestry 0.1 0.2 0.1 0.2 0.8 0.9 0.7 0.8

primary fishing 0.7 0.8 0.7 0.8 1.3 1.4 1.3 1.4

primary mining 1.6 1.7 1.5 1.7 1.7 1.8 1.7 1.8


textiles 2.9 3.5 3.2 3.8 3.7 4.2 4.0 4.6

wearing apparel 1.2 1.8 1.4 2.0 1.6 2.1 1.7 2.2



Short Run Long Run



wood products -0.7 -0.1 -0.7 -0.1 -1.1 -0.6 -1.1 -0.6





ferrous metals -1.0 -0.4 -1.0 -0.4 -0.7 -0.2 -0.7 -0.2

metals nec -2.1 -1.5 -2.1 -1.6 -2.4 -2.0 -2.5 -2.0

metal products 0.0 0.6 0.0 0.5 0.4 0.8 0.3 0.8

motor vehicles and parts -3.2 -2.6 -3.2 -2.6 -0.5 0.0 -0.5 0.0



other machinery and equipment -1.2 -0.6 -1.1 -0.6 1.8 2.3 1.9 2.4


utilities 0.4 0.9 0.3 0.9 0.0 0.5 -0.1 0.4

construction 0.3 1.0 0.3 1.0 0.0 0.6 0.0 0.6

distribution 0.3 1.0 0.2 1.0 0.1 0.7 0.1 0.7

other transport -1.3 -0.6 -1.3 -0.6 -1.7 -1.1 -1.7 -1.1


air transport -1.5 -0.8 -1.5 -0.7 -2.2 -1.6 -2.2 -1.5

communications 1.3 1.9 1.3 1.9 0.9 1.4 0.9 1.4


insurance -8.1 -7.6 -8.1 -7.5 -8.4 -8.0 -8.4 -7.9




CGDS 1.4 1.8 1.4 1.8 1.5 2.0 1.5 1.9

standard dev 7.2 7.2 7.2 7.2 8.2 8.2 8.2 8.2

Table III.0.45 EU- 27 Percentage change in Imports, value by sector

Short Run Long Run

Comprehensive Very Comprehensive Comprehensive Very Comprehensive

grains -0.2 -0.2 -0.2 -0.2

vegetables, fruit, nuts 0.9 1.1 0.9 1.1

other primary food -0.3 -0.3 -0.2 -0.3

other agriculture -0.4 -0.4 -0.4 -0.4

forestry 0.1 0.2 0.1 0.3

primary fishing 0.0 0.0 0.1 0.1

primary mining 0.0 0.0 0.0 0.1

processed foods, bevs, tobacco 0.0 0.0 0.0 0.0

textiles 0.0 0.0 0.0 0.0

wearing apparel 0.0 0.0 0.0 0.0

leather products 0.0 0.0 0.0 0.0


Short Run Long Run


wood products 0.0 0.0 0.0 0.0

paper products, publishing 0.0 0.0 0.0 0.0

petroleum, coal products 0.0 0.0 0.0 0.0

chemicals, rubber, and plastic products 0.0 0.0 0.0 0.0

mineral products nec 0.0 0.0 0.0 0.0

ferrous metals 0.0 0.0 0.0 0.0

metals nec 0.0 0.0 0.0 0.0

metal products 0.0 0.0 0.0 0.0

motor vehicles and parts 0.0 0.0 0.0 0.0

other transport equipment 0.0 0.0 0.0 0.0

electronic equipment 0.1 0.2 0.1 0.2

other machinery and equipment 0.0 0.0 0.0 0.0

manufactures nec 0.0 0.0 0.0 0.0

utilities 0.0 0.0 0.0 0.0

construction 0.0 0.0 0.0 0.0

distribution 0.0 0.0 0.0 0.0

other transport 0.0 0.0 0.0 0.0

maritime transport 0.0 0.0 0.0 0.0

air transport 0.0 0.1 0.0 0.1

communications 0.1 0.2 0.1 0.2

financial services 0.1 0.1 0.1 0.1

insurance 0.1 0.1 0.1 0.1

business services nec 0.0 0.1 0.0 0.1

recreation and other services 0.0 0.0 0.0 0.0

public services and dwellings 0.0 0.0 0.0 0.0

Table III.0.46 Costa Rica, Percentage change in Imports, value by sector

Short Run Long Run


grains 1.4 1.2 1.7 2.4


other primary food 17.0 18.0 17.9 21.9

other agriculture 33.6 46.4 34.3 49.9

forestry 2.2 2.2 2.2 2.2

primary fishing -10.6 -15.3 -9.3 -10.6

primary mining -5.1 -9.1 -4.5 -6.4


textiles 1.0 2.1 1.5 4.6





petroleum, coal products -1.3 -3.8 -0.8 -1.6


Short Run Long Run





metals nec 6.4 21.3 7.8 28.8

metal products 10.0 21.4 10.5 24.2






utilities 3.4 9.8 3.9 13.2

construction 27.0 50.0 28.0 57.0

distribution 21.6 38.6 21.9 40.4






insurance 17.0 29.4 18.0 34.3




Table III.0.47 Guatemala, Percentage change in Imports, value by sector

Short Run Long Run


grains 0.1 0.5 0.6 1.3


other primary food -1.3 -0.9 -0.6 0.2


forestry 0.0 4.9 1.2 6.1




textiles -0.6 -0.7 -0.5 -0.6




paper products, publishing -0.2 -0.1 0.1 0.4

petroleum, coal products -0.1 -0.2 0.1 0.2

chemicals, rubber, and plastic products -3.0 -3.8 -3.0 -3.7


ferrous metals -0.1 0.0 0.2 0.5


metals nec -0.2 -0.2 -0.1 0.0

metal products -0.1 0.0 0.2 0.5



electronic equipment -1.6 -0.3 -1.8 -0.5

other machinery and equipment -0.6 -0.4 -0.5 -0.3


utilities -1.4 -1.4 -1.4 -1.4

construction 20.0 31.7 20.0 31.7

distribution 11.6 18.7 11.9 19.2



air transport -0.9 -1.4 -0.7 -1.0



insurance 10.3 15.5 10.4 15.7



public services and dwellings -0.9 -1.1 -0.9 -1.0

Table III.0.48 Nicaragua, Percentage change in Imports, value by sector

Short Run Long Run


grains 2.0 3.0 1.5 2.4

vegetables, fruit, nuts -2.3 -1.5 -2.6 -1.9


other agriculture 0.0 1.9 -0.6 1.3

forestry 0.0 14.3 0.0 0.0


primary mining -0.8 -0.7 -1.1 -1.0

processed foods, bevs, tobacco -0.4 -0.2 0.0 0.4

textiles 0.2 0.4 0.0 0.2




paper products, publishing 0.1 0.5 -0.2 -0.1




ferrous metals -0.2 -0.2 -0.2 -0.2

metals nec 0.0 0.0 0.0 0.0

metal products 0.0 0.2 -0.2 0.0


other transport equipment -0.7 -1.4 -0.7 -0.7

electronic equipment -0.7 -0.2 -0.5 0.1


Short Run Long Run




utilities -5.6 -5.6 -5.6 -5.6

construction 25.0 37.5 25.0 37.5

distribution 15.7 25.3 15.2 24.6






insurance 8.9 13.1 8.9 13.1




Table III.0.49 Panama, Percentage change in Imports, value by sector

Short Run Long Run


grains 50.0 50.0 50.0 50.0




forestry -7.1 -7.1 -7.1 -7.1

primary fishing -16.7 -16.7 -16.7 -16.7

primary mining -11.3 -11.3 -16.9 -16.9


textiles 1.9 2.3 2.3 2.7








ferrous metals 0.0 0.0 -0.4 -0.4

metals nec 5.6 5.6 5.6 5.6







utilities 0.0 0.0 0.0 0.0


Short Run Long Run


construction 20.0 33.3 20.0 33.3



maritime transport -2.5 -5.0 -2.5 -5.0

air transport -0.6 -1.0 -1.2 -1.6



insurance 18.4 28.2 18.1 28.0




Table III.0.50 XCA, Percentage change in Imports, value by sector

Short Run Long Run


grains 4.4 6.6 5.3 8.1




forestry 0.0 0.0 2.6 2.6




textiles 0.7 0.9 1.2 1.8





petroleum, coal products -0.3 -0.3 0.4 0.7

chemicals, rubber, and plastic products 0.0 -0.1 0.0 0.1


ferrous metals -0.4 -0.3 0.4 1.1

metals nec 0.8 2.7 1.8 4.4







utilities -0.6 -0.5 -0.5 -0.3

construction 22.0 35.2 22.7 36.3

distribution 11.0 17.7 11.8 19.1



Short Run Long Run






insurance 6.4 9.7 7.7 11.7



public services and dwellings -0.4 -0.1 0.7 1.7

Table III.0.51 ROW, Percentage change in Imports, value by sector

Short Run Long Run


grains 0.0 0.0 0.0 0.0

vegetables, fruit, nuts -0.1 -0.2 -0.1 -0.2



forestry 0.0 0.0 0.0 0.0




textiles 0.0 0.0 0.0 0.0









metals nec 0.0 0.0 0.0 0.0







utilities 0.0 0.0 0.0 0.0








Short Run Long Run



insurance 0.0 0.0 0.0 0.0




Table III.0.52 EU- 27, Percentage change in Exports, value by sector

Short Run Long Run


grains 0.2 0.2 0.2 0.2

vegetables. fruit. nuts -1.3 -1.5 -1.3 -1.5



forestry 0.0 0.0 0.0 0.0



processed foods. bevs. tobacco 0.1 0.2 0.1 0.2

textiles 0.1 0.1 0.1 0.1




paper products. publishing 0.0 0.1 0.0 0.1

Petroleum, coal products 0.1 0.1 0.1 0.2

chemicals, rubber and plastic products 0.0 0.0 0.0 0.1



metals nec 0.0 0.0 0.0 0.0







utilities 0.0 0.0 0.0 0.0








insurance 0.1 0.2 0.1 0.2



Short Run Long Run




Table III.0.53 Costa Rica, Percentage change in Exports, value by sector

Short Run Long Run


grains -14.7 -16.2 -14.7 -17.6




forestry 4.6 6.4 4.6 6.2



processed foods, bevs, tobacco -8.9 -12.5 -8.7 -12.2

textiles -7.6 -17.6 -8.3 -21.2

wearing apparel -8.7 -19.8 -9.7 -24.0

leather products -15.3 -34.3 -15.0 -33.7

wood products -4.1 -8.5 -4.4 -10.2

paper products, publishing -3.5 -7.8 -3.5 -8.2



mineral products nec -3.4 -7.9 -3.2 -7.6

ferrous metals -3.1 -7.7 -2.7 -7.4

metals nec -4.7 -13.2 -4.5 -12.7

metal products -3.3 -8.4 -3.2 -8.6

motor vehicles and parts -7.9 -12.9 -6.9 -8.9




manufactures nec -2.4 -5.9 -2.2 -5.3

utilities -3.3 -9.1 -3.5 -10.0

construction -4.5 -4.5 -4.5 -9.1

distribution -2.7 -6.7 -2.5 -5.9

other transport -1.1 -4.6 -0.9 -3.6





insurance 5.3 5.7 4.9 4.5


recreation and other services 0.4 -2.5 0.4 -2.2



Table III.0.54 Guatemala, Percentage change in Exports, value by sector

Short Run Long Run


grains 0,5 1,4 0,2 0,7

vegetables, fruit, nuts 2,1 2,5 2,0 2,3

other primary food 0,8 1,8 0,6 1,4

other agriculture 0,1 0,7 -0,1 0,4

forestry 2,9 6,6 2,4 5,7

primary fishing -0,9 -0,9 -1,7 -1,7

primary mining 0,4 0,6 0,3 0,3

processed foods, bevs, tobacco 3,8 5,3 4,1 5,9

textiles 5,9 9,6 6,4 10,7

wearing apparel 3,5 5,4 3,4 5,3

leather products 3,8 9,0 4,1 9,9

wood products 1,5 2,0 1,5 2,0

paper products, publishing 0,1 0,9 0,6 1,8

petroleum, coal products 0,0 0,0 0,0 0,0

chemicals, rubber, and plastic products 6,0 10,0 6,5 10,7

mineral products nec -1,3 -1,1 -0,7 0,0

ferrous metals 0,5 1,3 1,2 2,7

metals nec 2,0 2,8 2,2 3,2

metal products 0,3 1,7 0,7 2,4

motor vehicles and parts -6,8 -6,8 -5,7 -5,4

other transport equipment -17,5 -21,3 -16,9 -20,6

electronic equipment 5,2 4,0 6,3 6,3

other machinery and equipment 2,7 2,0 4,0 5,3

manufactures nec 3,3 7,7 3,4 7,9

utilities 0,8 1,1 0,9 1,5

construction 2,5 3,8 2,5 3,4

distribution 1,0 1,3 1,1 1,4

other transport 1,0 1,2 1,0 1,5

maritime transport 2,1 2,9 2,1 2,9

air transport 6,4 9,7 6,4 9,7

communications 9,6 14,6 10,0 15,2

financial services 9,9 14,8 9,9 14,8

insurance 6,5 9,9 6,8 10,3

business services nec 11,2 17,1 11,0 16,9

recreation and other services 4,4 6,4 4,0 5,8

public services and dwellings 0,8 0,9 1,0 1,4

Table III.0.55 Nicaragua, Percentage change in Exports, value by sector

Short Run Long Run


grains 4.5 9.1 4.5 9.1



Short Run Long Run



other agriculture -0.3 1.5 -0.1 1.7

forestry 1.6 4.7 2.1 5.2

primary fishing -0.8 -0.5 0.3 1.3



textiles 0.9 1.0 1.3 1.5



wood products -0.5 0.0 0.0 1.1






metals nec 2.0 2.5 1.8 2.4




electronic equipment 0.0 -6.7 -3.3 -10.0


manufactures nec -0.6 2.2 -1.7 1.1

utilities 1.3 2.6 1.3 1.3





air transport 7.7 11.4 7.7 11.7



insurance 7.0 9.3 7.0 9.3




Table III.0.56 Panama, Percentage change in Exports, value by sector

Short Run Long Run


grains -37.3 -40.5 -36.6 -39.9




forestry 3.2 3.5 5.0 5.3


Short Run Long Run




processed foods, bevs, tobacco -21.8 -23.8 -21.5 -23.4

textiles -5.4 -4.4 -10.5 -9.6

wearing apparel -3.6 -1.1 -7.6 -5.2

leather products -0.8 9.5 -5.6 3.9

wood products -1.9 -1.9 -1.3 -1.3

paper products. publishing -6.4 -6.6 -6.4 -6.1

petroleum. coal products 0.0 2.8 0.0 2.8

chemicals, rubber and plastic products -45.7 -51.5 -46.7 -52.7


ferrous metals -5.7 -6.7 -6.2 -7.0

metals nec -10.4 -12.1 -10.8 -12.5

metal products -14.5 -14.7 -14.5 -14.2





manufactures nec -41.1 -46.1 -41.4 -46.7

utilities 1.6 1.6 0.0 -0.2


distribution -0.1 -0.1 -0.1 -0.1






insurance 6.2 9.4 5.9 9.0




Table III.0.57 XCA, Percentage change in Exports, value by sector

Short Run Long Run


grains 18.1 23.5 17.7 23.0




forestry 3.5 5.6 2.4 4.0

primary fishing -1.1 -2.9 -3.2 -5.7




Short Run Long Run


textiles 2.9 3.3 4.1 5.2





petroleum. coal products 0.9 2.5 1.3 3.8



ferrous metals -0.3 -0.2 0.2 0.8

metals nec 0.3 -0.3 0.5 0.1







utilities 0.7 0.7 1.4 2.1





air transport 7.3 10.7 7.3 10.7



insurance 8.5 13.1 7.8 11.7




III.2 Additional quantitative analysis results

Table III.0.58 Estimated FDI-related boost to output by ISIC sector, percent, Costa Rica

Sector Estimated FDI driven additional growth in sector

Food Products 0.3

Beverages 0.4

Tobacco 0.0

Textiles 0.3

Clothing 0.3

Leather Goods Nes. 0.4

Leather Footwear 0.6

Wood & Cork excl. Furniture 0.5

Furniture 0.7


Paper and Paper products 0.2

Printing, Publish and Allied Industries 0.5

Industrial Chemicals 0.0

Other Chemical Products 0.2

Petroleum Refineries 0.8

Misc. Prod of Petroleum and Coal 0.0

Rubber Products 0.2

Plastic Products, Nes 0.2

Pottery, China and Earthware 0.2

Glass and Glass Products 0.0

Other Non Metallic Mineral Prod. 0.6

Iron and Steel Industries 0.0

Non Ferrous Metal Basic Ind. 0.3

Fab. Metal Prod exc. Machinery 0.2

Non Electrical Machinery 0.3

Electrical Machinery, Appliances 0.0

Transport Equipment 0.4

Prof., Scientific & Control Equip. 0.0

Miscellaneous Manufactures 0.3

Table III.0.59 Estimated FDI-related boost to output by ISIC sector, percent, Guatemala


Food Products 0.6

Beverages 0.5

Tobacco 0.0

Textiles 0.7

Clothing 0.5




Furniture 0.8







Rubber Products 0.4














Table III.0.60 Estimated FDI-related boost to value added by ISIC sector, percent, Nicaragua


Food Products 0.0

Beverages 0.0

Tobacco n.a.

Textiles 0.0

Clothing 0.3




Furniture 0.0







Rubber Products 0.0











Prof., Scientific & Control Equip. n.a.


Table III.0.61 Estimated FDI-related boost to value-added by ISIC sector, percent, Panama


Food Products 0.3

Beverages 0.0

Tobacco n.a.

Textiles 0.0

Clothing 0.6





Furniture 0.4







Rubber Products 0.0













III.3 Poverty methodology

The measurement of poverty requires an estimation of the income distribution in each country. The distribution will be used to evaluate the poverty incidence. Studies by Pradhan and Sahoo (2006)24 and ten Raa and Sahoo (2007)25 have created a methodology to capture the impacts of India’s trade policies (tariff and non-tariff) and competitive pressure respectively on the household poverty that has been used in this analysis as well. A popular lognormal income distribution is assumed for each country at the base year. The analysis is based on a general class of poverty measures proposed by Foster-Greer-Thorbecke (FGT) (1984). Using a continuous income density function, the FGT poverty index can be expressed as ⎟

⎠⎞

⎜⎝⎛ −

=σ

μzNP log0

, where N is the standard normal

24 Pradhan, B.K. and A. Sahoo (2006), Impact of trade liberalization on household welfare and poverty in India, MPIA Working Paper 2006-01, Poverty and Economic Policy (PEP), IDRC, Ottawa, Canada. 25 Ten Raa, T. And A. Sahoo (2007), Competitive pressure on Indian households: A general equilibrium approach, Economic

Systems Research, VOl. 19, No. 1, 57-71.


distribution, z is the poverty line and µ and σ are lognormal mean and standard deviation respectively for each Central American country.


105

Annex IV Civil Society Consultations

Consultations with civil society have been carried out during two public meetings in Brussels (2 February and 3 July 2009); a workshop in Managua, Nicaragua (20 April 2009); bilateral discussions with certain parties; and a feedback form on the study website. A full overview of the comments received as a result of all these consultation methods, is given in the tables below.

Table IV.0.1 Summary of comments by civil society and industry associations on TSIA EU – Central America– Phase 0 Public Meeting 2 February 2009

Name of

association/federation and

contact person

Main comments / issues discussed ECORYS Response

Dr Mareike Meyn (ODI) i. Are Central American Experts involved in the study and will

the consultations take place in both English and Spanish?

ii. Why is data on Belize mentioned in the presentation?

iii. Your baseline scenario assumes successful implementation

of the DDA. What does this scenario look like exactly? And

what does the ambitious scenario assume?

iv. How are the impacts on the ACP of agreements on

bananas and sugar taken into account and what are your

assumptions on these products?

v. What is the EC’s interest in Central America – is it offensive

i. Central American experts from our partner CDR (Costa Rica) will be involved. We also have

Spanish-speaking experts from our Spanish partner, Corporate Solutions and members of the

ECORYS team are fluent in Spanish.

ii: Because in the GTAP database, we cannot separate rest of CA (Honduras, El Salvador

and Belize). However, we will exclude Belize from the analysis after having corrected the

data.

iii: The DDA assumptions are based on the latest available texts from December 2008. We

will also base our analysis on the most likely FTA scenario. The ambitious scenario is not

100%, but close to it. The limited scenario has reduced services liberalisation and potential

exclusion of sensitive sectors, but we are still discussing the exact scenarios.


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contact person


or defensive?

iv: For bananas and sugar, the assumptions will be presented in an overview table, but given

that these will be at a more aggregate level (e.g. bananas under ‘fruit and vegetables’), these

cannot be presented specifically.

v: The EC’s interest is based more on a desire for Central American regional integration than

a trade-related interest. The ‘offensive’ interest is in services and we will definitely look for

preferences on all aspects we have negotiated on before. As for the ACP countries, this is a

huge challenge as they will be in competition with Central America. We cannot ignore Central

American requests

for more access for sugar and bananas, but neither will we open the market for these

products completely.

Camilo Tovar (ALOP) i. It is very important to involve Central America in this

consultation process. We realise you will publish an executive

summary in Spanish, but will you also accept comments in

Spanish?

ii. The timeframe is very tight. Will the study be finished before

the end of negotiations?

iii. How are trade-related issues (e.g. the Singapore issues)

taken into account in the model?

iv. How does the model take inequality into account?

v. How will you analyse the costs for Central American

governments of implementing the commitments entered into?

i. It is no problem for us to accept comments in Spanish, given that members of our team are

fluent in Spanish and our partners in Central America and Spain can also assist us with this.

ii. We aim for the study to be finished before the end of the negotiations to ensure the

recommendations can be considered by the EC. In any case our recommendations – interim

ones – are already being considered. We have made the SIA short due to the tight

negotiation timeline. The next report will be more substantial and include the modelling

results which will be a

Valuable tool for the next round. As in most negotiations, it is unlikely that these will be

concluded on time and we therefore may need ECORYS’ final report for the autumn round.

iii. These may be included as horizontal issues depending on the outcome of the CGE model

in our causal chain analysis. Given the nature of the study, it is impossible to guarantee if

these will be included as a horizontal issue, but they could be flagged as a potential one.

iv: Inequality is one of the social indicators which forms part of our analysis, and is also taken

into account when we examine the effects on poverty.

v: We will take these into account when making our policy recommendations.


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Name of


contact person


Aslihan Tuncer

(Undersecretariat for Foreign

Trade, Republic of Turkey)

i. How will the EU-Turkey Customs Union be taken into

account? You have mentioned the EU-27, but there is

separate analysis for the effects on Turkey. This agreement

could have an important effect on Turkey if there are changes

in the EU domestic market. We already have difficulties

entering the EU market and these could be exacerbated by the

agreement.

i. We realise that this will have important effects for Turkey, but the focus of our study is on

the EU and Central America. We cannot single out Turkey as then several other countries

would need to be singled out.

Our ToR did not request that the consultants study the effects on Turkey. We realise there

may be issues regarding EU border control. I would like to

speak to the Turkish representative privately to establish which products Turkey is especially

concerned about.

Charley Poppe (FoEE) i. The draft Interim Report was only put online on Friday

afternoon which did not give sufficient time to review it.

ii. I have some questions on stakeholders as some of these

are updated, but I will send these comments directly to

ECORYS.

iii. Regarding the modelling, you have not mentioned the

Sustainable

Development Chapter. Will this be part of your analysis? Will it

make a

difference to the outcome? How will you differentiate between

the binding

and voluntary issues in this chapter?

iv. It is important to consult with Central American colleagues

on the important sectors to investigate.

i: The consultants delivered on time but the EC was engaged in negotiations. It will not

happen again.

iii: We will look at this issue across the study, since our main focus all throughout is on

sustainable concerns.

Luc Hellebuyck (European Fruit

And Vegetable Trade

Association)

i. You do not include Panama in your methodology. Could you

include a separate scenario with Panama included in the

agreement?

i: This is a good suggestion; we will take it up. We will run Panama in at least one of our

scenarios. This is a region-to-region agreement and the regional dimension is thus of great

importance.


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Name of


contact person


ii. Bananas currently fall under the sector ‘tropical fruits’. Would

it be possible to treat bananas separately?

iii. There are some critical points to be solved mainly on the

certification of textile products.

iv. Regarding IPR, Nicaragua has a socialist/communist

regime which does not offer good IPR protection. This also

needs to be solved.

v. Why have you chosen Managua as a location for the

workshop, when Costa Rica receives 70% of EU exports?

ii: The CGE model does not disaggregate below ‘tropical fruits’. We will analyse bananas

qualitatively during phase 2.

iii: Textiles is certainly an important sector which will be considered.

iv: We are grateful for this remark and IPR has been accepted as a potential horizontal issue

(depending on later findings).

v: This location was requested in our ToR. It is also the location of the regional EC

delegation. We are currently considering if Managua is the best location for the workshop,

considering the political climate there. We would in any case like to give a significant role to

the less developed countries in the region.

Johan Bosman (Coalition of the

Flemish North-South

Movement)

i. There is very limited trade between the EU and Central

America. The EU receives 8% of all Central American exports

and Central America receives just 0.5% of EU exports. This is

a very unequal trade relationship which needs to be

considered seriously.

ii. The consultation should be bilingual.

iii. It is insufficient to have one workshop in one Central

American country. Members representing the weakest sectors

and should have an opportunity to contribute in their own state.

iv. How will indigenous groups be involved? They are present

in all Central American countries, especially in Guatemala

which has the second largest indigenous population in all

America.

v. The ILO Conventions on Decent Work are legal international

instruments and are not yet included in the decent labour

principles in Central American countries. This should be

i: We have noted your remarks on this unequal relationship.

ii: The workshop will be simultaneously translated and all executive summaries will be

published in Spanish. Our ToR stated that all reports should be submitted in English.

iii: After the modelling phase, a bilateral phase will be held during which our local partners will

engage with local stakeholders – this complements the TSIA Workshop sufficiently.

iv: We would be pleased to incorporate the voice of indigenous peoples and ask you to lead

us to the organisations that represent them.

vi: We will look at biodiversity once our analyses have produced the first outcomes on the

environmental impacts.


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Name of


contact person


included in the process and be part of the AA. The ILO

Convention No. 169 concerning Indigenous and Tribal People

in Independent Countries and the UN Declaration on the

Rights of Indigenous People also need to be implemented in

Central American national constitutions.

vi. You have made no reference to biodiversity. Central

America is a hotspot for biodiversity and this is also an

important issue for indigenous peoples.

Iana Dreyer (ECIPE) i. To what extent is CAFTA a template for this agreement?

ii. How are the different levels of development within the

Central American countries taken into account as different

countries have different sensitivities to different sectors?

i. Model-wise, CAFTA is in the baseline, i.e. it will be used when we take into account what

has already occurred regarding international trade before the FTA is concluded.

ii: We realise that there are different attitudes to certain sectors and that these vary in

importance for each country, but this is impossible to say before starting the analysis.

Table IV.0.2 Summary of comments by civil society and industry associations on TSIA EU – Central America- Bilateral Discussions/Website feedback

Name of


contact person


Elies Arps (WWF Costa Rica) i. It is important to include mechanisms to encourage the

sustainability of the trade in wildlife as an issue and as a

policy recommendation in the SIA, as well as implementation

of the CITES.

i. Biodiversity, sustainable development and the implementation of international conventions

such as CITES are all important considerations of our TSIA. In our draft Interim Report (stage

1), we outline our methodology for this SIA and, aside from our modelling results, qualitative

analysis by an environmental expert forms an important part of assessing the impact of the

EU-Central America AA on the environment, including biodiversity. In Chapter 8 of the Final

Report, we include references to CITES and the inmplementation of mechanisms to ensure

sustainable natural resource management and trade in wildlife. In Annex 8 we look particularly


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Name of


contact person


at multilateral environmental agreements and international environmental agreements.

Johan Bosman (Coalition of the

Flemish North-South

Movement)

i. The consultation process should be at least bi-lingual

Spanish/English.

ii. One consultation workshop in Central America is

insufficient. There should be at least one consultation

workshop in each of the Central America countries.

iii. We would like to have a rights based approach used in the

SIA, in particular how the AA and the FTA will positively or

negatively impact on the rights of indigenous peoples.

iv. We would like to see the impact of the AA and FTA on

biodiversity (both land and marine) duly taken into account.

v. We would like you to consult in particular with indigenous

peoples' and small scale farmers' organizations.

i. The workshop was simultaneously translated. Executive summaries of each report were

provided in Spanish as well as a Spanish section on the website and summaries of the

newsletters in Spanish. Invitations to the workshop were also sent in Spanish.

ii. We considered a second workshop in the area, but given the time pressures involved in

ensuring that the final report would be ready in time to be considered during the final round of

negotiations , these time constraints made such a trip impossible. However, we spent a week

in the region in April and tried to include as many consultation opportunities as possible.

iii. We have looked at the effects of the AA on indigenous populations, particularly in relation

to forestry and labour issues.

iv. Biodiversity is included as a separate indicator in each in-depth sector analyses with the

impact considered there.

v. These names were included in our contact list. At the Managua workshop, we had two

speakers representing indigenous populations – Samuel Buc of FUDI and Egdardo Benitez of

Asang Launa.

Charley Poppe (FoEE) i. The following sectors/issues ought to be analysed, because

of their environmental relevance to Central American

countries: - Agrofuels, Tourism, Financial services

ii The following horizontal issues should be analysed:

Sustainability chapter, Regional integration

i. & ii. These issues were taken into consideration during our screening exercise made on the

basis of our modelling results. Biofuels have been addressed as part of our analysis on the

forestry sector and tourism and financial services have been looked at in the analysis on

investment conditions. We have also included recommendations to include a sustainable

development chapter in the agreement and have highlighted the importance of regional


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Name of


contact person


iii. The SIA ought to check all dimensions of the negotiations

against the others

iv. We propose using the indicator of environmental space in

the study. The following issues are important to take into

consideration in the analysis:

- environmental vulnerability of the region;

- vulnerability of indigenous people and afro-descendants;

- impact of existing trade and investment agreements on

sustainable development;

- ways of guaranteeing the policy space for Central America;

- impact of trade liberalisation on economic, social and cultural

rights in the case of investments in public services;

- impact of trade liberalisation on food security, the respect of

the right to food and the preservation of traditional knowledge;

- impact of trade liberalisation on the domestic capacity to

regulate capital flows (capital controls).

integration for reducing NTMs and thereby encouraging higher levels of intra-regional trade

and investment.

iii. In the policy recommendations, we have provided recommendations related to the trade

part of the AA, as well as political dialogue and cooperation.

iv. The environmental indicators used are standard and used for every TSIA commissioned by

the EC (See Handbook). We are currently working to develop the methodology further and

these suggestions could be useful in that process. Some issues mentioned have been

included in the analysis such as the value of Central American policy space, the vulnerability

of indigenous peoples, food security and the overall environmental vulnerability of the region.

Camilo Tovar (ALOP) i. The website, reports, newsletters should be available in

Spanish.

ii. Draft versions of reports should be available in good time to

allow review by civil society before meetings.

iii. The Workshops in Managua should be organised in an

open and transparent way and information on it made

available in plenty of time.

iv. It is not clear how many public meetings will take place in

Brussels.

i. A summary of the reports and newsletters has been provided in Spanish. The website has

information in Spanish, we accept consultations in Spanish and all interviews in Central

America were conducted in Spanish. We have tried to do as much of the study as possible in

Spanish within the limits of our Terms of Reference and budget.

ii. The draft Interim Technical Report was made available 3 weeks before the Managua

workshop. The draft Final Report has been made available 7 days before the second Public

Meeting in Brussels. We understand the need for time to make comments. However, the study

is also under pressure to finish a draft final report before the end of negotiations to ensure the

policy recommendations can be considered by the negotiators.


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Name of


contact person


v. We recommend analysis of the impact of the agreement on

Central America regional integration.

vi. The political dialogue and cooperation components of the

AA should also be analysed.

vii. The historical, economic and social context of the region

should be included in the report.

viii. There is no explicit mention of a variable on poverty,

access to basic facilities and social equality. These factors

should be considered.

ix. More focus should be given to the social and environmental

components, both qualitatively and quantitatively.

x. The impact of FDI should be analysed closely, particularly

on SMEs.

xi. We suggest the following sectors to be important for the

analysis: agriculture, fish, industry, services, mining.

xii. We suggest the following horizontal issues to be important

for the analysis (prior to ITR publication): public procurement,

intellectual property (especially pharmaceuticals).

xiii. The policy recommendations should serve to prevent,

rather than simply mitigate, negative impacts of the FTA. We

also hope that these recommendations are communicated in a

timely manner to the negotiators.

xiv. Civil society input should be reflected in the reports and

results

xv. The crisis should be included in the analysis.

iii. We have endeavoured to do this in a transparent way. All contact email addresses were

included in our list and an open invitation to all these organisations was included in our

newsletter and on the website. The input from civil society on invitees was thus extremely

valuable.

iv. The first public meeting in Brussels took place after publication of the draft Inception

Report. The Managua workshop will take place after publication of the draft Interim Technical

Report. The second public meeting in Brussels will take place after publication of the draft

Final Report.

v. This issue has been highlighted in particular in our in-depth analysis on Investment

Conditions.

vi. Our ToR were for the trade part of the AA only. However, the other two components have

been taken into consideration in the analyses, particularly the policy recommendations which

include trade-related and non trade-related suggestions.

vii. We have looked at these issues in the social impact analysis in the final report.

ix. We give equal importance to identifying the economic, social and environmental impacts.

While the ITR focuses more on the quantitative impacts (economic), the final report analyses

the social and environmental impacts in much more depth. Our final report also includes

additional analyses on poverty and labour.

x. Investment conditions has been analysed as a horizontal issue in the final report. This was

done using a gravity analysis and by considering the effects of dynamic capital in the long-

term, which the model includes. In addition, qualitative methodology complemented these

quantitative methods.

xi. & xii These suggestions were taken into considerations during sector and horizontal issue

selection after publication of the draft ITR, based on the modelling results. Services were

analysed as part of the investment conditions chapter, and some agricultural impacts are


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Name of


contact person


xvi. The model does not adequately include the Central

American labour market (i.e. unemployment cannot be

modelled). Issues such as unemployment, migration, cost of

living and labour mobility should be considered.

xviii. The TSIA should consider the costs of implementation

and compliance with the AA for Central America.

xix. The model should include a scenario where EU tariffs are

reduced more than Central American tariffs; separate

scenarios for goods and services liberalisation.

xx. The limitations of the models should be highlighted when

presenting its results. The following results should also be

included: absolute gains in GDP are higher for the EU; some

Central American countries will experience a decrease in

wages, labour displacement, changes in land use; some

countries will benefit more than others.

xxi. Important sectors other than those suggested in ITR:

public services, other agriculture (coffee), other primary foods,

insurance services, public procurement, transport equipment.

Horizontal issues: policy space for Central American

governments, investment conditions should include the issues

of capacity to meet requirements and SMEs.

included in the fruits, nuts and vegetables analysis.

xiii. As well as identifying the negative impacts of the AA and suggestions for how to deal with

these effects, the recommendations also include suggestions for preventing these effects in

the first place. The policy recommendations will be based on the analysis results and will be

communicated to the negotiators for their consideration before the endgame negotiations. The

draft version of the Final Report will be made available to negotiators before the final round of

negotiations in July 2009.

xiv. We highly value civil society input and all comments we receive are included in these

annexes. We endeavour to include as many comments in the report and annexes as far as

possible in order to complement the 50% economic methodology.

xv. The crisis could not be included in the model baseline. Predictions are for 10 years down

the line, by which time there may be no more effects of the crisis.

xvi. The in-depth labour analysis in the final report has considered these issues.

xviii. This has been looked at in the policy recommendations.

xix. Thank you for these suggestions which are very useful, given that we are currently

reviewing the TSIA methodology. These points could potentially be considered in future

TSIAs.

xx. We have adjusted the report to try and highlight these more. In addition, we have

addressed the issue you mention throughout the report.

xxi. These have been considered in our selection, but unfortunately we can only analyse five

sectors and one horizontal issue.

EUCOFEL (Association

Européenne du Commerce de

Fruits et Légumes)

Information provided on concerns about negotiations of

bananas and sugar and Central American trade unions.

This useful material has been taken into consideration when composing the report.


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Name of


contact person


Adolfo Sansolini (on behalf of

the Royal Society for the

Prevention of Cruelty to

Animals (RSPCA), World

Society for the Protection of

Animals (WSPA), Compassion

In World Farming (CIWF) and

Eurogroup for Animals.

1. The SIA should analyse the impact of the FTA on animal

welfare and identify ways to prevent negative consequences,

which in some cases might even include the expansion in

Central American countries of farming systems outlawed in

the EU.

2. The inclusion of references to animal welfare in the SPS

chapter of the Agreement can generate co-operation among

European and Central American veterinary services for the

development of training and capacity-building activities on

animal welfare which would benefit both animals and rural

communities.

3. The establishment of a differential tariff treatment according

to the level of welfare granted to animals should be

considered too.

As land use for livestock is expected to decrease, these farmining practices will also decrease.

Recommendations for the inclusion of animal welfare in the agreement (in the SPS Chapter

and through differential tariffs) have been included in Chapter 8 of the main report.

Felicity Manson-Visram (One

World Action)

1. An in-depth analysis of the impacts on vulnerable groups

such as indigenous and Afro-descendent peoples

and disabled people (10% of population).

2. Gender inequalities should be analysed in-depth including

women’s access to the labour market, social impact of the

internal migration of women to textile zones (family cohesion,

women's employment rights).

3. Changes in land use can impact food security.

Our poverty analysis in the final report looks at vulnerable groups as does our labour chapter,

in addition to the issues mentioned in relation to gender equality. The forestry analysis

considers the changes in land use and their effect on food security.


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Name of


contact person


Peter Lunenborg (South Centre

Geneva)

1. Include regional integration, unemployment and

deforestation.

2. Remove or change conclusions not supported by the

results.

3. Suggestions for changes in liberalisation scenarios and

baseline.

1. Regional integration has been addressed in our investment conditions chapter,

unemployment in our labour analysis and deforestation in our forestry analysis and as part of

the overall environmental impacts.

2. These have been re-examined and modified accordingly.

3. These suggestions can now not be incorporated as the model has been run. As we are

currently reviewing the TSIA methodology, this can be taken into consideration in future

TSIAs.

Jesus Garza (CHAAC) 1. The study should place more focus on free trade in services

and investments, to equal the focus on goods.

2. Important sectors aside from the six proposed for analysis

include: other agriculture, other transport equipment, fisheries,

wood products, and communications.

1. Services and investment have been analysed in-depth in the final report.

2. We appreciate the importance of these sectors, although we are limited for the number we

can focus on. Wood products have been briefly looked at as part of forestry.

Annelie Anderson (APRODEV) 1. Consultation:

Lack of translation; only one consultation (workshop)

possibility for Central America; final report of TSIA after the

conclusion of the negotiations.

2. Methodology:

The CGE model has huge limitations; gender impact analysis

is missing; assumes full employment, however the TSIA

identifies unemployment as a main social problem, no account

of informal sector; separate results for Honduras and El

Salvador are missing, Belize is in XCA; macroeconomic

results fails to account for the global economic crisis; current

baseline scenario overstates benefits of EU-CA AA; important

trade arrangements are missing in the baseline scenario.

1. See first response. We are endeavouring to have the draft final report ready before the

close of negotiations.

2. The model limitations have been highlighted.

3. The sustainability issues have been analysed in this report. Regional integration was

examined in the investment conditions chapter, the labour analysis in our social chapter looks

related issues and deforestation is looked at in the forestry chapter. Sugar has been analysed

as a product deserving particular attention, along with bananas.

4. We have highlighted in the report that our results should be approached with caution given

the model’s limitation and have, where possible, complemented our figures with qualititative

analysis.


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3. Missing main sustainability issues:

- regional integration.

- impact on labour; effect of rising food and land prices and

decreasing nominal wages.

- deforestation is not considered in the natural resource use

analysis; fish production and land for grains should be

replaced by more important export sectors, including forestry

and wood/paper products, “other primary food” and “other

agriculture”.

4. General comments on results:

The FTA has besides positive effects on Central America,

some negative effects that needs to be considered, (expect

real wage decreases, substantive labour displacement, and

deterioration in their terms of trade or large changes in land

use patterns); the CGE analysis may yield magnified and

unrealistic results when working with small numbers.

Conclusions based on such numbers should not be part of the

summary or main conclusions, and should at least be

substantiated.

Sheila Page (ODI) 1. You should provide all reports in Spanish.

2. Financial or insurance services should be analysed.

1. See response above.

2. These have been included in the investment conditions chapter.


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Manuel Aragon Castillo

(Forestry expert)

1. In future, the model could benefit from statistics provided by

organisations such as the Strategic Regional Programme for

the Management of Forests and Ecosystems – PERFOR).

2. Investments and technical assistance from the EU can

greatly improve capacity and competitiveness in Central

America and thereby reduce the asymmetry between the two

regions.

3. Important sectors other than those suggested include

automotives.

1. We will consider this in future TSIAs and have also made reference to this organisation in

our forestry analysis.

2. These useful suggestions form an important part of our policy recommendations chapter in

the Final Report.

3. This was included in our screening analysis, but unfortunately did not fulfil enough criteria

for analysis.

Marta Prado, (International

Trade and Development) on

behalf of Humane Society

International (HSI)

Environmental issues that need to be identified: 1) wildlife

protection and enforcement and 2) farm animal welfare.

In our general environmental policy recommendations, we include reference to animal welfare

and trade in wildlife as areas which could be included in the Sustainable Development

Chapter. In addition, we suggest mechanisms for improving animal welfare such as the

inclusion of this in the SPS Chapter and various capacity-building exercises to raise

awareness of these issues.

Alejandro Salas and Jana

Mittermaier (Transparency

International)

Public procurement is indicated as a high priority issue. Unfortunately we were only conducted one horizontal issue which was investment conditions,

but are grateful for this input.

Elies Arps (WWF) 1. The screening criteria should include less focus on

economic impact and more on sustainability issues.

2. Important sectors to include: fisheries and trade in wildlife.

1. The economic impact is taken into account in 25% of the screening. The other 75% is

based on civil society input and social and environmental impacts.

2. These have been considered in our sector selection. Trade in wildlife is referred to in our

policy recommendations.


118

Table IV.0.3 Agenda of the TSIA Workshop - Central America 20 April 2009

Time Programme

8.30 - 9.00 Registration

9.00 - 9.15 Opening address

9.15 - 10.15 Main preliminary findings of the study

10.15 - 10.30 Tea/Coffee

Section 1 The Trade SIA in progress

10.30 - 11.30 Methodology, application of methodology, analysis of results, expected input of civil society

Section 2 Sectoral and Horizontal Impact

11.30 - 12.45 FTA impact on different sectors of industry, FTA impact on conducting business between the EU and Central America, FTA impact on agriculture, FTA impact on services

12.45 - 13.45 Lunch

13.45 - 14.45 Civil Society and its role in reaching FTA agreements: Economic impact of the FTA

Section 3 The FTA and Sustainable Development

14.45 - 15.45 Civil Society and its role in reaching FTA agreements: Social impact of the FTA

15.45 - 16.00 Tea/Coffee

16.00 - 17.00 Civil Society and its role in reaching FTA agreements: Environmental impact of the FTA

17.00-17.15 Other issues

17.15 Closure of the TSIA workshop


119

Table IV.0.4 Summary of comments by civil society and industry associations on TSIA EU – Central America - Central America April 2009

Workshop Managua – 20 April 2009 Name of


contact person


Samuel Buc (FUDI) Two of the screening criteria include the importance of the

sector for a country’s economy and the social impact of the

AA. Indigenous communities in Guatemala rely heavily on

handicrafts and it is therefore a very important sector socially,

particularly for women. This should be analysed.

We will re-emphasise handicrafts which was considered in the social indicators but for which

we did not have separate data in the model. We will consider including a short case study on

this in textiles or forestry (wood products).

Carlos Flores (Unidad

Ecológica Salvadoreña)

The study should not only focus on the trade pillar but also on

political dialogue and cooperation. Will government

procurement and investment be considered (the latter is

particularly relevant for Central America wage effects)? Will

the effects of NAFTA and CAFTA be considered? Central

American governance is an element which should be included

in the analysis, as well as the role of the private and public

sectors and where demand originates.

The sectors and horizontal issues were chosen on the basis of the four screening criteria.

However, these sectors are just a preliminary proposal and have yet to be confirmed. NAFTA /

CAFTA are in the baseline. Investment will be considered in more detail in the next phase as

well.

Joe Thompson (Nicaraguan

Chamber of Commerce):

1. Will the analysis consider gender equality?

2. 85 percent of Central American employment comes from

Small and Medium-sized Enterprises (SMEs). The impact of

the agreement on this sector should also be measured.

Thank you for flagging these important issues, we are aware of them. Gender equality is one

of the social sustainability indicators included in the analysis.

Elies Arps (WWF):

You have prioritised sectors before discussing the

environmental impacts. This is important for the fisheries

industry which is not included in your suggestions as

decreasing resources are an important environmental effect.

This sector should therefore be focused on in the sector

Fisheries is a sector in itself in the model, but processed fish products falls under ‘processed

foods’ ,making it slightly more difficult to interpret the results from the model directly. There is

a slightly higher impact on forestry and this was chosen above fisheries as it relates to similar

environmental problems, including biodiversity.


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analysis.

Martha Perez (Unión

Internacional para la

Conservación de la

Naturaleza):

Will the analysis of fruits, nuts and vegetables also analyse

the impacts on products such as sugar, bananas and ethanol?

There may be local databases you could use. It is then

important to propose mitigating measures for the negative

environmental effects of increases in these sectors.

We can consider focusing on the product groups bananas and sugar in the fruits, vegetables

and nuts sector.

Alejandro Arauz (A. Arauz

Consulting and Associates)

Handicrafts are also important for the tourism sector. Some

sectors are too aggregated in the model, e.g. dairy products

such as meat, grains and leather should be analysed. The AA

will stimulate these as products but it will not be a strong

development.

Tourism could be included in the investment conditions analysis (as a case study). It is indeed

a limitation of the model that certain product groups are aggregated under other sectors. This

is part of the reason for the in-depth sector analysis. The study could indeed focus on some

products in the analysis of fruits, nuts and vegetables, such as bananas and sugar.

Eva Carazo (MAOCO)

Investment conditions are indeed a cross-cutting issue

influencing trade in general. IPR, services and public

procurement could also be included as horizontal issues.

The deadline for the submission of sector suggestions is 27 April 2009 (by email or form).

Other comments and inputs for the next stage are welcome until the end of the study.

Jesús Leonel Garza Chinchilla

(CHAAC)

Central America is strong in communications, cement and

tourism and the environmental and social impacts on mining

and energy could also be important, particularly regarding

concessions on the use of natural resources.

We are grateful for this specific information which is necessary in the next phase. We have

already started analysing the environmental issues of increase agricultural production,

including water issues such as waste water and access to drinking water.

Martha Perez (Unión

Internacional para la

Conservación de la Naturaleza)

Organic agriculture is usually left off the negotiation table as

regards sustainable development and could therefore be

included in the analysis.

There is a lot of attention in the EU given to environmental and green issues. Promoting

incentives for organic farming should perhaps also be included. We may have scope to

include that.


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ILO Bipartite Meeting, Antigua – 22 April 2009 Name of


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Carlos Molina (CC-SICA)

1. Market access for products such as rice, beans, pineapples,

bananas, sugar and fish should be considered given their

importance for the rural economy. Services such as tourism

and telecommunications are also important.

2. What is the final aim of your document given that it will not

be finished before the negotiations conclude?

3. How will you measure the impact of changes in biodiversity

on indigenous populations?

1. We analysed 36 sectors in our CGE analysis and we realise there are important products

such as bananas, sugar and coffee. We realise the importance of fisheries and although this

has significant results, these are not as high as those in forestry. As both these sectors touch

upon similar environmental and social issues, we would like to choose just one of them for

analysis.

2. The policy recommendations provided in the final report will be valuable for the

negotiations. The lateness of the study is a bureaucratic issue. The draft version will be

publicly available before the close of negotiations.

3. Biodiversity will be particularly relevant in our analysis of the forestry sector and we will also

consider its effects on indigenous populations here. Other sectors which impacts indigenous

populations such as textiles and handicrafts will also be included.

Alvaro Ramírez (ATP)

1. What will be the effects on land use if more fruits, nuts and

vegetables are produced and fewer grains?

2. Could education be included as a horizontal issue?

1. These changes will be considered in the analysis of fruits, nuts and vegetables.

2. This was included as a social indicator and has therefore already been considered.

We are glad to see the publication of this study. Will you also

examine human rights issues such as employment, migration

and other social issues? Will you look at the effects of social

policies on vulnerable groups?

Human rights are not the focus of our study. We do look at the impacts of the trade agreement

on employment and labour conditions and recognise that these are ever-changing. Where

human rights are important for a certain sector, these will be highlighted in the in-depth

analysis, but the main aim of our study is to inform rather than prescribe. We recognise that

some groups will lose out as a result of sector changes, but some will also gain. In our poverty

analysis, we will include a basket of goods analysis in order to factor in the effects of price and

employment changes on vulnerable groups.


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Shirley Saborío (UCCAEP) Will you consider free zones and ports? The issue of free zones will be examined in our in-depth analysis on investment conditions.

Ports will also constitute part of this chapter as well as maritime transport services.

Juan Ignacio Castillo (ILO) Will you consider the impacts on SMEs in certain sectors? SMEs will certainly be considered, above all in the textiles section.

Bilateral Interviews- 20-25 April 2009 Name of


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Alicia Valenzuela and Karin de

Léon de Reyes (VESTEX)

Although textiles is an important sector in Guatemala, the

expectations are not high given the transport costs involved

with exporting to the EU.

This input has been considered in the in-depth analysis.

Juan Carlos García (SIECA) 1. Value of AA for Central American integration (reduction of

intra-regional NTBs, conflict resolution, trade facilitation)

2. The important products to focus on include sugar, bananas

and meat, particularly in Nicaragua’s case

1. These issues have been highlighted in both the investment conditions chapter and our

policy recommendations which encourage increased regional integration.

2. Bananas will be part of a case study in the fruit, nuts and vegetables analysis and we also

conducted a separate GSIM analysis on sugar.

Georgina Muñoz Pavón

(Coordinadora Civil)

Importance of trade part of AA for fruits, nuts and vegetables,

textiles and maritime transport. Electronics is not as

important.

This has been noted in our sector selection.


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CC-SICA (Bayardo Altamirzno

(Universidades), Miguel Ruiz

(CST-JBE), Rogen Barrantes

(CST-JBE), Victor Campos

(Centro Humboldt/Iniciativa

CID), Francisco Delgadillo

(UPOLi))

Import sectors for analysis include textiles, fruits, nuts &

vegetables (including bananas and sugar), forestry and

investment conditions (including financial services).

Electronics is only important for Costa Rica. Other sectors to

be considered are meat and dairy products, tourism and

fisheries.

Issues to consider also include the informal sector, labour

regulations, education and the pillars of political dialogue and

cooperation.

These important sectors have been noted. Bananas and sugar have been analysed

individually, financial services have been looked at in investment conditions. The informal

sector and labour regulations have formed part of our labour analysis and have also been

included in the textiles sector analysis. Our policy recommendations refer to all three pillars

and how these could complement one another.

Haydée Castillo (CC-SICA) Asymmetric relationship between Central America and EU.

EU is at advanced stage of integration and should not make

high demands on Central America which is in the process of

integration. NTMs and technical assistance should be

included in the study’s focus.

Products such as coffee, bananas, sugar, meat, cocoa, beans

and rice should be analysed.

Integration has been considered in both the investment conditions chapter and our policy

recommendations. We have noted the importance of these products and bananas and sugar

have been selected as those needing most focus in the fruits, nuts and vegetables analysis.


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Summary of comments by civil society and industry associations on TSIA EU – Central America– Phase 2 Public Meeting 14 July 2009 Name of


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APRODEV (Annelie Andersson) The publication of the Final Report was on 7 July and the

notification of publication of the Final Report was on 9 July.

This gave just 2 and a half working days for analysis. We

suggest that 10 working days are given for civil society to

review the report and allow meaningful discussion. The

Executive Summary alone in Spanish is not enough. We

realise the Terms of Reference stipulates publication in

English and we address this question to the EC.

Why was the Final Report published later than first

announced?

What should the EC do to prevent this happening again?

Why was the date of the Public Meeting changed?

In future TSIAs, could more thought be given to the language

of the study and the local language used?

We have a very tight timeframe for this study and follow the official requirements of the ToR

and consultation document (e.g. 7 days before the meeting the document needs to be online).

During the inception phase, we received concerns from civil society that the study would not

be ready before the end of the negotiations and would therefore not have any influence. This

was one of the reasons why we tried to speed up the process. We have also met personally

with several members of civil society such as you and your colleagues, to allow possibility for

bilateral input. Despite our Terms of Reference, we have always made it clear that

submissions are welcome in Spanish and have held consultations in Central America with the

main stakeholders there in Spanish.

EURATEX (Luisa Santos) 1. Does the FDI in your analysis refer to all FDI or just the

EU?

2. Are you applying the EU standard rules for example for

Rules of Origin?

3. We are aware of the negotiating situation on Rules of

Origin for textiles. We are worried about FDI. It would be good

to get a better view on the situation with market access. We

are happy the IPR chapter is almost closed as we have

concerns about enforcement problems.

1. These are the increases in FDI from the EU as a result of the AA.

2. These standards have been looked at in the qualitative sense as the effects and differences

are not included in the model. But differences are allowed for.

3. We will provide the negotiators with our policy recommendations (including, for example,

Rules of Origin). Given that the negotiations have been delayed, we now have more time to

provide these recommendations and would welcome any suggestions for amendments to

existing recommendations or for any new recommendations. We are also open for bilateral

interviews.


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European Services Forum

(Pascal Kerneis)

1. I agree with APRODEV that the report was published late

leaving little time for me to consult with my members.

2. Why does the report say that the Central American

insurance sector will lose out? Usually insurance grows as a

result of trade agreements.

3. The CGE model does not consider investment. There is not

much about services in the report (only maritime transport

services) and yet 60 percent of EU investment in Central

America is in services. There should be further analysis on

this.

4. I have concerns on the transparency of the negotiation

process. We received limited feedback on the negotiations.

1. This has been noted. You are welcome to submit written comments within the next two

weeks.

2. There are two effects on the insurance sector. The gains in the Central American financial

sector are due to a general equilibrium effect. The comparative advantage in other sectors is

positive and therefore these grow and crowd out insurance. We should emphasise the effects

of FDI on the services sector but maritime transport services was our focus. This could lead to

different impacts for insurance as foreign firms lead to large outputs and lower prices. Further

analysis is needed to complement the CGE.

3. The CGE model does include investments as the long-run scenario allows for dynamic

adjustment capital from investments to adapt and reallocate based on comparative

advantages but it does not include foreign direct investment.

>> The Chapter on Investment Conditions and the chapter on Maritime services are relevant

for the service sectors It is true that services are very important fro the EU economy. It should

be noted however that the estimated changes in output in the EU sector for all services sector

I the model are 0%. Thus, if anything will be interesting for the EU it will mostly be more

general investment conditions improvements (included in report); similarly, maritime transport

is chosen also because its importance is large as a general facilitator of trade and regional

development.

European Trade Union

Confederation (Tom Jenkins)

1. Why were the trade unions not present at the Managua

workshop?

2. The impacts for the EU are said to be insignificant. We are

keen on the Sustainable Development chapter as a key issue,

especially on labour standards and its enforcement.

3. What are the remaining issues to be negotiated for the

Sustainable Development chapter and is the text similar to

1. We consulted with the trade union leaders of the Central American countries during an ILO-

hosted bipartite meeting in Guatemala during the same week as the workshop.

2. There are two effects expected from the AA. One is that increased competition may put

pressure on labour standards, but also that the inclusion of labour standards in the

Sustainable Development chapter will increase monitoring of commitment to these standards.

5.This is a general equilibrium effect. The trade flows are likely to increase and therefore

demand for public services will also increase. We did not look at the effect of privatisation on


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that used for ANDEAN?

4. We would like to see some mechanisms included in the

agreement for enforcing labour standards. CAFTA is

mentioned in the report and the US has stronger enforcement

mechanisms than the EU. Is there some way of ensuring this

happens?

5. Central American countries are expected to gain on public

services. We would like more information on this.

6. Could you explain more about the poverty effects in

Panama? Panama seems to be in a bit of a difficult position.

services but rather non-discriminatory access to certain services. Furthermore ‘public services’

are an aggregate term for different subsectors, so more specific effect on sub-sector level are

hard to determine.

6. The effects come from the fact there is a small Dutch disease effect: i.e. already large and

dominant sectors in the economy would potentially expand further under an AA and thereby

crowd out smaller sectors. There are some small increases in poverty levels expected,

especially when Panama when Panama does not join the AA. If Panama does join, the

poverty analysis estimates a very small increase as well, but this can be assumed to be no

effect, given the error margin. In relation to poverty levels, it is thus more beneficial for

Panama to join the AA.


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European Trade Union

Confederation (Tom Jenkins)

1. Provision of literature: ETUC/ITUC Statement of Trade

Union Demands Relating to Key Social Elements of

‘Sustainable Development’ Chapters in European

Negotiations on Free Trade Agreements (FTAs)

Special emphasis should be given to monitoring mechanisms

for labour standards and the involvement of social partners in

trade agreements.

2. In relation to the violation of fundamental rights at work for

the benefit of comparative advantage, the 2008 ILO

Declaration on Social Justice for a Fair Globalization should

be referred to. The OECD Guidelines on Multinational

Enterprises and the ILO Tripartite Declaration on Multinational

Enterprises and Social Policy should also be referred to in

this regard. Other ILO declarations should also be included.

3. The enforcement mechanisms used in DR-CAFTA should

be emphasized in the recommendations.

4. Labour conditions in export processing zones should also

be protected under the agreement.

5. Public services should not be covered by any FTA and

would suggest that the SIA finding that public services would

be improved under the AA needs reconsidering. In particular,

it seems that the consequences, particularly for

disadvantaged groups, of possible privatisation of public

1. This useful document has been considered in our section ‘In Focus: Labour Issues’ as well

as the social policy recommendations.

2-4. These have been mentioned in the analysis of labour issues.

5. This statement has now been adjusted to reflect this expectation. In addition, the study

refers to the negative impact on public services as a result of labour migration from rural to

urban areas.


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services that may ensue have not been considered in the

SIA. This should be rectified.

British Trade Union

Confederation

1. A requirement that parties to the FTA are, or become,

signatories to the OECD Guidelines should be included.

2. It should be recommended that the EU provide technical

assistance to Central America with labour standard

enforcement.

3. ‘Decent work deficits’ identified through SIAs could be

explicitly addressed through (a) technical and development

assistance and (b) ensuring policy space/safeguard

mechanisms under the FTA.

4. A trade and sustainable development forum for civil society

could also be linked to decent work cooperation activities.

1-4. These interesting recommendations have been added to the labour issues analysis as

well as the social policy recommendations.

ASEPROLA (Omar Salazar) Provision of literature:

La Agricultura de America Central en Juego.

1. Sustainable Development should be the main focus of

the AA.

2. Preferential treatment should be given to agricultural

goods produced under decent environmental and social

conditions.

3. The experiences of other Latin American countries in

regional integration should be taken into account when

discussing Central American integration (e.g. ALBA).

1. This has been noted and several recommendations have been made in this study for the

inclusion of a Sustainable Development Chapter in the agreement.

2. This is an excellent recommendation which has been included in our sector-specifc policy

recommendations for the fruits, nuts and vegetables sector with reference to the agricultural

sector as a whole.

3. This point has been added to the economic policy recommendations.

4. See ETUC/ITUC comments and response above.


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4. Basic ILO labour rights should be committed to by

Central American producers and appropriate

enforcement mechanisms should be put into place for

these.

ACICAFOC (Edgar Talavera) Provision of literature:

Carta de los pueblos indígenas y campesinos a los

gobiernos de Centroamérica

1. Vulnerable groups such as indigenous populations

should be included in the consultation process.

2. Increases in trade threaten the land of indigenous

populations.

1. This has been addressed in our social policy recommendations.

2. This is indeed a fundamental issue which has been noted in the analysis of the forestry

chapter.

CDR (Giovanni Veluchi) Provision of literature:

• El Acuerdo de Asociación Union

Europea/Centroamérica: Mas que un espejismo

una propuesta neoliberal expoliadora

• La privatización de los servicios de agua potable en

Centroamérica: avances y perspectivas frente a los

acuerdos de libre comercio

• Editorial: Dos años y la misma tendencia del DR-

CAFTA en Centroamérica y República Dominicana

1. The civil society consultation process when negotiating

FTAs needs to be improved in order to increase participation.

2. Drinking water should not be included in environmental

services and privatization of this sector should be avoided.

3. Drinking water can be further protected through the

1. See response above.

2. This has been mentioned in the analysis of investment conditions.

3. This has been included in the analysis of MEAs.

4. For this reason, several recommendations have been included for the EU to provide

technical and financial assistance to Central America with the implementation of various parts

of the AA.

5. This point has been noted in the investment conditions analysis where several

recommendations have been included to attract further FDI as a result of improved investment

conditions.

6. Recommendations have been made in the fruits, nuts and vegetables analysis to reduced

NTMs which negatively affect agricultural products, along with other recommendations to

induce growth in this sector.


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implementation of Multilateral Environmental Agreements

(MEAs).

4. There are significant asymmetries between the EU and

Central America.

5. FDI has not risen as a result of DR-CAFTA.

6. The agricultural sector has also suffered as a result of DR-

CAFTA.

WWF/Traffic Central America

(Elies Arps)

The policy recommendations under the economic pillar

should be more clearly linked to the ones under the

environmental pillar. More cross-references in general are

required. This is necessary to cover the positive- and to

counter the negative environmental impact of economic

recommendations mentioned. For example the suggestions to

´Improve infrastructure and promote port development´

should include a reference to the need for monitoring

mechanisms and environmental Impact Assessments that

avoid biodiversity loss due to these economic developments.

The policy recommendations should be read in conjunction as the three fields of sustainability

are complementary. This has been added to the Executive Summary.

CC-SICA Nicaragua (Haydée

Castillo)

1. The report should be available in Spanish.

2. There should be more time available for consultations.

3. Provision of literature:

• Balance de las negociaciones del Acuerdo de

Asociación entre la Unión Europea y

Centroamérica.

• Hasta ahora, el AdA no nos sirve para nada. a. There is too much focus on trade in the AA and more

1. We note this language issue once more.

2. The time cannot be extended for contractual reasons.

3a. Although our study focuses only on trade, we have provided recommendations which are

non-trade related (and thereby relevant for the political dialogue and cooperation pillars) in

addition to those directly related to trade.

3b. See response above.

3d. We have included labour issues in an in-depth analysis and recommendations with regard

to gender issues and vulnerable groups in other parts of the poverty and other social issues


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should be put on the other two pillars.

b. These are two very asymmetrical regions.

c. Social cohesion should be included in the AA.

d. Issues addressed in the political dialogue and cooperation

pillars should also be addressed in the trade pillar (e.g. labour

rights, gender issues).

e. The Sustainable Development Chapter is a vital part of the

AA.

f. The enforcement of decent labour standards should be

included in the AA.

g. The civil society consultation process during negotiations

should become more accessible.

analysis.

3e. This has been noted and several recommendations made for its inclusion.

3f. These have been addressed in our policy recommendations included in the labour analysis

and social policy recommendations.

3g. See response above.

EURATEX (Luisa Santos) 1. Regarding the Policy Recommendations for Textiles and

Clothing: with or without Panama the transhipment is a

possibility considering the preferential access these countries

will have to the EU market. The strengthening of Border

Control and Cooperation with EU Authorities should also be

included in the Policy Recommendations.

2. In the context of creating a competitive cluster in Central

America in the T&C Sector, special programs to promote joint

investment initiatives and cooperation between EU and

Central American business operators should be

recommended. This could also be a way to mitigate the

importance of North American and Asian Investment in the

area which will very likely increase with the Agreement.

1 & 2. These recommendations have been added to the textiles and clothing sector-specific

recommendations.


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Summary of comments by civil society on TSIA EU – Central America during ad hoc Workshop Costa Rica 28 July 2009 Name of


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Carlos Molina (Presidente CC-

SICA)

1. It is important to update the policy recommendations in line with what is already there in

the negotiations / texts and make them a bit more specific, especially in the social and

environmental pillar. E.g. monitoring mechanisms are important, but the CA governments

do not want to go further. Similarly involvement of civil society is important, but

governments do not want to go further (GSP+).

2. I have doubts about the positive effect estimated on poverty reduction – this depends to

a large extent on policies in the field of education, health, access to employment, fiscal

reform, etc. The effects from trade, (imports, exports) do not affect poverty directly,

especially not positively. These results are very aggregate, while poverty regards specific

groups.

3. You address PYMEs in your report. This is a very important issue for employment,

especially in the context of the question who will gain from trade liberalisation. This should

be specified further; is it only the big firms or also the PYMEs?

4. I agree that agricultural products are important for CA, and that e.g. SPS needs to be

addressed. However, the EU has been very inflexible in this respect, and will be e.g.

regarding SPS standards. The triangle Access to markets, SPS, and RoO is very crucial

for CA.

5. The fact that this study only covers the trade pillar is not perceived well by civil society

in CA; the AA should be seen as an indivisible whole, including all tree pillars.

Your comments are taken on board.

Ad. 1 Yes. Regarding the monitoring mechanisms, from the study

we objectively conclude that this is very important, thus we

recommend it. This is apart from whether political reality makes it

difficult.

Ad. 2 & 3. We are very aware of these issues, as is addressed in

the main report. We are specifying the policy recommendations a

bit further to this extent.

Manual Cordero Alarcón

(Universidad de Costa Rica)

Indeed agricultural products are very important for CA and this FTA. The triangle Access

to Markets – SPS – RoO is crucial and needs addressing.


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Jorge Coronado (Comisión

Nacional de Enlace – Alianza

Social Continental)

1. The reports should be in Spanish and the negotiations more open – it is difficult to

comment on something inaccessible.

2. The current crisis affect CA significantly; much more that this FTA, also because the US

(remittances and FDI) is the most important foreign market for CA). This should be

reflected in the study (assumptions). E.g. the poverty reductions estimated will never

happen in context of the crisis; the projections are that they will increase significantly.

3. The study mentions that regional integration in CA is important; yet the CA countries

that benefit most from this FTA are least in favour of regional integration.

4. The political instability in the region is important (Honduras); a firm stance is required

regarding human rights and democracy.

5. The policy recommendations need to address all three pillars of the AA.

Ad. 2. This study tries to isolate the effect only of this FTA relative

to the baseline. Yes, the crisis is very important, but the isolated

effects of this FTA in the long run still stand. This might imply that

while the baseline growth rate declines due to the crisis, the effect

of this FTA is that the decline will be slightly less pronounced.

Bernardo Aguilar González

(Fundación Neotrópica)

1. It is crucial that social dialogue and participation of civil society is improved. In contrast,

participation of civil society in environmental policies and conservation programs is being

reduced at present. This is very worrisome; participation needs to be direct and open.

Therefore your policy recommendation regarding this is very crucial.

2. The regional / local effects of this FTA are worrisome, especially in the field of social /

environmental impacts. The macro-economic effects can have very large effects at

regional level, e.g. in the north of Honduras, in Costa Rica, Guatemala. The countries

where the impacts from this FTA are largest, also have the largest levels of biodiversity

(i.e. CR). Thus, such potentially pronounced regional impacts on poverty and migration

(social indicators) and biodiversity (environmental indicators) need to be specified /

mentioned.

3. Formalisation of the informal sector hardly ever happens in reality.

Ad. 2. Though it is beyond thee scope of this study to specify all

regional effects in detail, we recognise that such effect may occur

and recommend to take this into account and design specific

policies were needed, especially in the social and environmental

field. The policy recommendation to design effective monitoring

mechanism is also done in this context.


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Paola Herrera Montero

(Fundación Neotrópica)

1. The Executive Summary gives some contradictory statements on environmental

impacts: not much impact on deforestation a large potential impact on it resulting

from land use changes.

2. Other environmental effects, e.g. contamination of water sources and water use are

large issues of concern.

Ad. 1 Yes, this will be clarified. The argument goes that not many

impacts are expected directly as there are not much impacts

expected on the forestry and wood sectors. Yet, the indirect

impacts from changes in land use pose the largest risk to

deforestation.

Edgar Talavera (ACICAFOC) Regarding the poverty estimates, I agree that only specific programs are going to affect

poverty, not the FTA as such directly. E.g. GSP+ has only increased income inequality.

The policy recommendations in this respect therefore need to be much more concrete and

stronger toward, urging and helping governments to take responsibility. Social dialogue is

important in this process.

Giovanni Beluchi (CDR) 1. The study should be in Spanish, the consultation process wider and more elaborate and

the secondary sources listed more clearly.

2. Processes of social dialogue and democracy (see Honduras) are important and fragile

in CA. This needs to be taken into account in the negotiations and addressed in the report.

3. The issue of trade is difficult, as we don’t even agree among ourselves as CA countries

on which model of development to apply. The effects of free trade are very mixed. The risk

is that large companies gain (from trade and FDI) while income inequality rises. The real

impacts on poverty would rather come from social investment.

4. The large disparities between CA countries make negotiations and impact assessment

at regional level difficult / very aggregate.

Omar Salazar (ASEPROLA) 1. Is political stability included in the model?

2. Does the model project until 2018 or from 2018 onwards?

3. How aggregate are the tariff levels taken in the model; are there specific ones for

bananas?

4. What tariff levels are taken in thee model?

Ad 1. No this impossible to include; it is included indirectly in the

indicators that reflect the total socio-economic situation of a

country.

Ad 2. The baseline project the economic situation towards 2018.

The estimated effects from implementation are then from 2018


135

Name of


contact person


I like this report because the social impacts expected (especially labour issues) confirm to

me why I have to keep arguing against free trade and its impacts. In Central America we

first need to solve many issues in the social and environmental field before we are ready

for trade issues like this FTA. There is a clear contradiction of social/environmental issues

and trade; e.g labour standards, while so important for CA, technically are a barrier to

trade. Complete deregulation would be most beneficial for trade (e.g. temporary contracts

on the plantations in Panama), but is detrimental socially. E.g. the informal sector and will

not benefit from this FTA.

onwards.

Ad 3. Tariff levels are aggregated at sector-level (thus 38x), For

the product group bananas, a separate analisis with the specific

tariffs rather than the FVN sector aggregate has been done.

Francisco José Valerio (CEDIL

Asemblea Legislativa de Costa

Rica)

Thank you very much for the possibility of being present and listening to the study results

and the discussion. The points raised are very important also for us to see what we need

to address. It is important that requests for assistance are specified clearly.


Annex V In-depth Analyses


1. Fruits, vegetables and nuts

1.1. Introduction

This chapter assesses the potential impacts on the fruits, vegetables and nuts (FVN) sector for both the EU and Central America. In this Chapter the FVN sector is analysed as a whole which includes all fresh and dried fruits and vegetables, all shelled and unshelled nuts, as well as truffles, potatoes, some beans and lentils and seeds of fruits and vegetables. In addition, bananas is an important product group within the FVN sector. Partial equilibrium modelling (GSIM) is used to analyse some specific effects for this product group in context of the AA. It should be noted that this is done for scenarios that differ from the scenarios used throughout the analysis in the CGE model. For bananas, the GSIM analyses tariff reductions of 30 percent (limited) and 90 percent (comprehensive) – in deviation of the 90 and 97 percent respectively for the comprehensive and very comprehensive scenarios in CGE.

1.2. Summarised results from the CGE model

The general CGE modelling results for the FVN sector are presented in Table V.1.1 below. The percentage changes are changes compared to the baseline values, and thus rative to the sector size. Also, changes in import and export values relate to the total import or export from that region of countries for this sector with the rest of the world, ad thus not only bilaterally between the EU and Central America.

Table V.1.1 Model outcomes of the FTA impact on the FVN sector (% change)

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

EU

Output -1.2 -0.8 -1.2 -0.8 -1.4 -1.0 -1.4 -1.0

Prices -0.5 -0.3 -0.5 -0.3 -0.6 -0.4 -0.5 -0.4

Exports value -1.3 -1.3 -1.5 -1.5

Imports value 0.9 0.9 1.1 1.1

Skilled labour -1.3 -0.9 -1.3 -0.9 -1.5 -1.1 -1.5 -1.0

Unskilled labour -1.3 -0.9 -1.3 -0.9 -1.5 -1.1 -1.5 -1.0


Costa Rica

Output 20.0 20.2 19.8 20.1 22.7 23.0 22.1 22.4

Prices 17.5 17.6 17.6 17.7 21.0 21.2 21.3 21.4

Exports value 51.6 51.5 61.4 60.7

Imports value 49.5 50.0 60.1 62.2

Skilled labour 25.0 25.2 24.7 25.0 28.4 28.7 27.3 27.4

Unskilled labour 24.9 25.1 24.6 24.9 28.3 28.5 27.2 27.5

Guatemala

Output 0.5 0.6 0.5 0.6 0.6 0.7 0.6 0.7

Prices 0.2 0.2 0.3 0.3 0.3 0.3 0.5 0.5

Exports value 0,5 0,2 1,4 0,7


Skilled labour 0.7 0.8 0.7 0.8 0.9 1.0 0.9 0.9


Nicaragua

Output 2.7 2.8 2.7 2.8 3.2 3.3 3.3 3.4

Prices 1.4 1.4 1.4 1.3 1.9 1.9 1.9 1.8

Exports value 12,8 13,1 15,2 16,2

Imports value -2.3 -2.6 -1.5 -1.9

Skilled labour 3.0 3.1 3.1 3.1 3.6 3.7 3.7 3.8


Panama

Output 58.0 -0.7 58.7 -0.7 64.4 -0.9 65.1 -0.8

Prices 51.0 -0.6 50.8 -0.6 60.2 -0.7 60.0 -0.7

Exports value 141,6 142,4 166,9 167,8

Imports value 243.2 243.2 286.5 286.5

Skilled labour 71.5 -0.9 72.4 -0.9 80.6 -1.0 81.5 -1.0

Unskilled labour 71.4 -0.9 72.2 -0.9 80.5 -1.0 81.4 -1.0

Honduras & El Salvador

Output 5.4 5.5 5.4 5.4 6.3 6.4 6.2 6.3

Prices 3.2 3.3 3.5 3.5 4.2 4.2 4.6 4.6

Exports value 24,7 24,2 29,5 28,7

Imports value 9.9 10.9 13.1 14.7

Skilled labour 6.4 6.5 6.3 6.4 7.6 7.7 7.4 7.4


Model outcomes European Union The CGE model results suggest that trade liberalisation between Central America and the EU would reduce the value of output of the FVN sector in the EU between 0.8 and 1.4 percent. Part of this reduction is due to lower prices, which are expected to decrease by about 0.5 percent. The total value of exports from the EU (from all destinations, not only bilaterally) is expected to decrease by up to 1.5 percent (very comprehensive scenario). Total imports of FVN into the EU are expected to increase by roughly 1 percent. As a direct result of the decline in output, employment in the FVN sector is expected to decrease also between 0.9 and 1.5 percent. To put this in context, a bit less than 1 percent


of total unskilled labour in the EU is employed in the FVN sector (for comparison – this figure is 6 percent for Costa Rica). While the impact on overall (unskilled) employment in the EU is therefore negligible, some regional effects can be expected, as production and employment in the EU FVN sector are regionally concentrated. Model outcomes Central America For the Central American region overall, the mirror image can be observed: output, exports and employment are expected to increase considerably. The higher demand for Central America FVN causes domestic prices also to increase. At country-level, however, the effects differ considerably. The largest producers in the FVN sector in the region at present, Costa Rica, Guatemala and Panama (if joining the AA) stand to gain most, while for the other countries the figures are less substantive. Countries are thus further specialising according to comparative advantage. For Panama, the output gain estimates go up to a potential 65 percent in the long run, provided that Panama joins the AA; if Panama does not join, the expected output changes are slightly negative, mainly due to a preference erosion effect vis-à-vis the other Central America countries, although these are very marginal effects. Unskilled employment is expected to increase by up to 82 percent. This effect is considerable, given that 3 percent of unskilled labour works in the FVN sector in Panama. Exports are expected to go up by 167 percent, which implies (when comparing to output increases) that the sector will become relatively more export-oriented. Imports will also increase considerably, by up to 287 percent. As the baseline import value is substantially lower than the export value (for the whole region imports of FVN are relatively low), in absolute terms exports will increase far more than imports. The increased imports can partly be explained by considerably higher domestic prices in the sector (caused by the enormous boost in the sector), and it may also reflect increasing intra-sectoral trade patterns for this sector as a result of specialisation. The picture for Costa Rica is similar to that of Panama, though slightly less pronounced. In terms of percentage changes however, the baseline values are higher for Costa Rica than for Panama. Increases are expected in output (between 20 and 23 percent), export and import value (both around 50 percent in the comprehensive and 60 percent in the very comprehensive scenario) and employment (between 25 and 29 percent). Given the fact that 6 percent of total unskilled labour is employed in the FVN sector in Costa Rica, this employment increase is substantial in absolute terms. For Guatemala, Honduras and El Salvador, the same pattern arises with increases projected for all indicators. The projected impacts are least significant for Guatemala, all between 0 and 2 percent. For Honduras and El Salvador, the impacts are moderate. Especially exports are expected to grow substantially, more than imports, also in absolute terms, which indicates increased internationalisation and potential for specialisation in the sector. For Nicaragua, imports are expected to decrease slightly, while exports increase moderately, implying a clear improvement of the trade balance for this sector. Output and employment are expected to increase by roughly 3 percent. The overall pattern for this sector reflects a trade specialisation process by which Central America can further put to use its relative comparative advantage vis-à-vis the EU. In that


way, Central America can benefit from increased production – and related employment opportunities – and exports, while EU consumers benefit from falling prices.

1.3. Vertical dimension: main issues in the sector

1.3.1. European Union

Sector specific structure26 According to DG AGRI statitics, the share of the subcategory Vegetable and fruits made up 22 percent of agricultural output in 2006.27 Total EU production of fresh fruits was 69 million tonnes in 2006. For vegetables this was 66 million tonnes. Most fruit and vegetable production takes place in Italy, Spain and France. Fruit production in the EU is slowly growing whereas vegetable production is slowly decreasing, each at about 1 percent per year over the past few years. The main fruits produced are apples, oranges and grapes. The most important vegetables are tomatoes, onions, carrots, lettuce and cabbages. The EU’s production of tropical fruits is limited to very small scale production of bananas and pineapples in Spain and Portugal (including its Atlantic islands), as well as in the Outermost Regions of France in the Caribbean. The temperate climate of Northern Europe limits fruit and vegetable production to a seasonal pattern, though the expansion in the use of greenhouses has enabled year-round production of vegetables and fruits. In addition, improved storage technologies are enabling year-round supplies of fruits and vegetables such as apples. Consumption of fruits and vegetables in the EU amounted to 77 and 62 million tonnes in 2006, respectively. For fresh fruits, total consumption exceeds production by around 12 percent and therefore the EU relies on imports of fresh fruits. Some reasons for this include: the EU Member States cannot produce some exotic fruits themselves; consumption of fresh fruits is increasing overall mainly due to increasing health concerns (since 2000 the consumption of fruits has grown by an average of 2.7 percent annually, while that of vegetables has remained stable) and growing markets in New Member States; familiarity and demand for variety within this product group amongst consumers is increasing; and the demand for fruit is high during the whole year, so the EU must import during the off-season. In contrast, for vegetables, production exceeds consumption. Yet the EU still imports fresh vegetables, because year-round production is not possible for many species. In addition, in some cases it is cheaper to import from developing countries than to produce in the EU (e.g. products like beans, chilli peppers or asparagus, as they are very labour-intensive and carry considerable production risks). Generally, the intra-sectoral trade in FVN is caused by efficiency reasons (specialisation patterns) and demand for variety. 26 Main source of data: CBI, The fresh fruit and vegetable market in the EU, April 2008. 27 DG AGR, agrista, economic data 2008, Agriculture by region: major economic insicators and the share of individual products.


The EU is the world’s largest importer of fruits and vegetables with a share of 25 percent in the world trade of fruits and vegetables. The main products imported into the EU are bananas, citrus, apples, grapes and pineapple. Among vegetables the main imports are tomatoes and onions.

Table V.1.2 Production, consumption, imports and exports of the EU, 2006 – millions of tonnes

Fruit Vegetables

Production 69 66

Consumption 77 62

Imports 25 11.5

Exports 17 15.5

In 2006, imports of fruits amounted to € 19 billion (25 million tonnes), of which € 7.1 billion originated from developing countries (9.8 million tonnes). Import of fruits from developing countries increased by on average 5.3 percent per year between 2002 and 2006. Imports of vegetables amounted to € 10.7 billion in 2006 (11.5 million tonnes), of which € 1.226 billion (1.205 million tonnes) was supplied by developing countries. Import of vegetables from developing countries increased by an average of 8 percent between 2002 and 2006 (in value terms).

Table V.1.3 Agricultural land use - % Utilised Agriculture Area (UAA) in different categories of land use, 2005

Subdivisions % UAA in arable land % UAA in permanent pasture % UAA in permanent crops

EU27 59.7 32.1 5.7

EU15 54.9 34.9 6.9

Source: Eurostat Farm Structure Survey28

Fruit and vegetable production accounts for a considerable share of agricultural land use in the EU. Data from 1997 for the EU15 showed that there are 636,000 holdings with an average size of 4.12 hectare producing fruits and vegetables. The fruit and vegetable sector supply chain is characterised by a relatively high market power (concentration) of distributers, mianly supermarket chains. These distributers, with the objective of constantly reducing their costs, have a tendency to reduce their number of suppliers, to demand mass transports of supplies, to require regular and programmed deliveries in terms of calendars, qualities and prices, etc. The main nut product in the EU in volume terms are almonds. Hazelnuts, walnuts, carobs and chestnuts play an important role. Less important in terms of overall EU production is pistachios, but they are relevant in some countries. Although it varies per nut, the main producers nuts are Spain, Italy, France, Greece and Portugal (in 2002)29.

28 From Rural Development in the European Union - Statistical and Economic Information - Report 2008


For the demand for nuts, the EU is depending on imports, the EU presents a deficit in its balance of trade for nuts. Hazelnuts and almonds are the main import products, but also for pistachios and walnuts the EU is depending on imports.

Table V.1.4 Trade Value in 1000$ - 2006

Import Export Trade Balance

Almonds (shelled and unshelled) 1,783,702 646,714 -1,136,988

Hazelnut (shelled and unshelled) 922,725 145,777 -776,948 Pistachios 712,594 300,147 -412,447

Waltnuts (shelled and unshelled) 486,174 204,606 -281,568

Carobs 68,629 63,953 -4,676

Chestnuts 55,208 95,312 40,104

Source: FAOSTAT

For hazelnuts Turkey is a big supplier, Turkey is the world’s largest producer, 70 percent of worlds total supply in hazelnut is from Turkey. 80 percent of world trade in hazelnut is exported from Turkey and 78 percent of Turkey’s export is going to the EU30. The US is the main producer of almonds, with 75 percent of world’s total production in almonds; the production in the US is mainly concentrated in California. The US is also world’s largest exporter of almonds, 82 percent of world’s exports in almonds is coming from the US. And 60 percent of the almonds has the EU as destination.For walnuts 55 percent of world’s exports are from the US, followed by China (18 percent), France (13 percent) and India (8 percent). For India the main importers are Spain, Germany, the Netherlands, the United Kingdom and Italy. Turkey is also exporting walnuts, but they only export higher quality domestic nuts. Iran and the US are large producers of pistachios. They have 45 percent and 29 percent respectively of the world market. Iranian exports represent 60 percent of world trade and the main destination is the EU. On the other hand U.S. exports are oriented to EU markets.For chestnuts the EU (France?) is the world’s largest exporter, followed by China. Main issues in the sector relevant for AA Some main issues and trends that are relevant for the FVN sector in the EU include:

• Consumption trends: health, convenience and variety; currently an important trend in the EU food market is consumer preference for health, convenience and variety. Fruits and vegetables fit well into this trend. Overall, consumption of tropical fruits is rapidly growing. Retailers and manufacturers have found new markets by offering these fruits in washed, pre-cut, pre-packed and portioned fruits and vegetables.31 The main products imported into the EU from Central America are bananas and pineapples that (potentially) fit well into these trends.

30 SEC (2002) 797 – Analysis of the Nut sector 31 It should be noted that such products would in the statistical sector division be included in the processed foods sector,

although trade in the primary products is directy influenced by this,


• SPS standards in the EU; the EU is known for its high level of SPS standards to safeguard EU health and safety of its citizens, both with a horizontal (regarding themes like hygiene across product categories) and with a vertical dimension (regarding a specific product group). EU citizens have high expectations regarding the safety and quality of their food. To meet these expectations and to take account of the technical progress made in maintaining hygiene standards during the past years, the EU has undertaken an overhaul of its food safety legislation. This reform process is now largely finished. SPS legislation exists both at national and at Community level, which can contribute to compliance costs and trade-restricting-effects for non-EU exporters (though currently around 90 percent of legislation is harmonised at Community level). The food law of the European Union puts strong emphasis on process controls – throughout the food chain, “from farm to fork”. The general food law supports the flow of information and the management of quality in order to provide a high level of safety, quality and transparency to the consumer. Various provisions apply to specific product groups, including border inspections on imports from third countries. Provisions apply to the whole supply chain, e.g. hygiene in the production, processing, transportation and storage. Also, for a wide variety of products, maximum residue levels of certain substances are specified therein, including remainders of pesticides, antibiotics, heavy metals and other contaminants. The World Bank’s “World Development Report 2008 Agriculture for Development” underlines that agriculture’s large environmental footprint can be reduced, farming systems made less vulnerable to climate change, and agriculture harnessed to deliver more environmental services.32 These issues are also highly valid in the context of this AA. Central American exporters logically also have to comply with these EU standards if they want to export to the EU, which may lead to impediments and costs, especially in the short run, and especially for smaller scale local producers that e.g. lack overseas market information.

• Other relevant EU policies; EU policies have been designed to address e.g. the issues of diversification of production, the perishable nature of production, improvement of product quality, protecting consumer health and safety and the promotion of trade. Marketing standards have been formulated for products that are supplied fresh to the consumer including quality requirements, minimum maturity requirements and labelling standards. These standards are based on international standards and mandatory within the EU.

• Environmental issues; the key EU27 environmental issues related to the FVN sector are linked to food security, sustainable use of natural resources and reducing the ecological footprint of agriculture.

32 With the exclusion of drinking water services, see CDC (2008), La privitización de los servicios de agua potable en

Centroamérica: avances y perspectivas frente a los acuerdos de libre comercio.


1.3.2. Central America

Sector specific structure Fruits and vegetables Total production of fruits and vegetables in Central America amounted to around 12 million tonnes in 2004, representing a rough 1 percent of total world production.33 Except for some specific export products (i.e. bananas and pineapples) the main destination of this production is internal consumption. In Nicaragua, 68 percent of the arable land is dedicated to the production of basic grains (i.e. rice and beans). The production of fruits takes less than 4 percent of arable land, according to FAO. The vegetables sector in Nicaragua represents only less than 5 percent of the land dedicated to agricultural activities, with around 15 thousand hectares.34 In fact, Nicaragua at present imports most of the vegetables that it consumes.

Table V.1.5 Area Harvested: Vegetables and Fruits (2007, ha)

Vegetables Fruits

Costa Rica 20350 134395

El Salvador 14045 18780

Guatemala 64200 65930

Honduras 33025 74335

Nicaragua 14200 25079

Panama 25500 30940

Source: FAOSTAT

Bananas, pineapples and sugar are important product groups within the FVN sector. Costa Rica is the world main exporter of pineapples with 36 percent of total exports. The EU is the second biggest importer of Costa Rican pineapples, after the US. Panama is also a large pineapple exporter (it is the second largest export product of the country). The rest of Central American countries produce pineapple only for internal consumption. In the market for bananas, Costa Rica and Guatemala are important players in the international market (13 and 7 percent of world exports, respectively), while Panama, Nicaragua and Honduras are middle to small producers. Production of sugar from sugar cane is widespread in Central America. All countries produce both for internal consumption and exports. Guatemala is a large player in exports worldwide (ranked fourth). Nicaragua and Honduras have the lowest number of sugar cane processing farms (“Ingenios”) and returns in industrial production. There is significant potential for improvement in these two countries. Currently, in some countries (Nicaragua and Honduras) non-traditional fruit production is incipient and using low levels of technology. As mentioned above, Costa Rica, Panama, Honduras and Guatemala specialize in certain export products including bananas, melon 33 FAOSTAT, Production of Fruits and Vegetables Shares in the World, 2007 34 See website of Instituto Nacional de Estadisticas y Censos (INEC), CENAGRO.


and sugar cane. Costa Rica is a main exporter of pineapple; Guatemala is a main exporter of ginger and other small fruits while Honduras and Panama export mainly melon. Production of vegetables in Central America follows the same pattern as of fruit. Basic grain production (maize and beans) throughout the Isthmus was dominant until the 1990s, and is still the backbone of agriculture in Nicaragua and Honduras. Vegetable chain production started expanding in the Central Valley of Costa Rica and the more humid and fertile zones of Guatemala, mostly due to factors of proximity to and purchasing power in the urban areas of Meso-America. The potential for growth in the FVN sector in Central America is substantial due to highly favourable agronomical conditions for fruits and vegetables production. The south Pacific area in Nicaragua has the best conditions for fruits production. Fruit and vegetable production in poorer areas in Central America remains constrained due to a number of structurally crippling factors. First, the sector heavily depends on the infrastructure for transport and storage under refrigeration. These are relatively well developed in the southern countries of the Isthmus, but less in the poorer core countries. Second, internal demand for fruit is related to per capita income level, resulting in higher consumption levels in the southern countries and lower volumes consumed in the urban areas of Nicaragua and Honduras. Third, fruit and vegetable consumption throughout the Isthmus is hardly promoted, neither in national education nor in nutritional campaigns. Moreover, horticulture and non-traditional fruit production generally remain beyond the areas covered by research and training institutes e.g. in promotion the use of new production technologies, implying little spill-over of techniques into production systems. Quality control and improvement are not publicly enhanced through research, education and extension networks. As a corollary, recent innovations such as the introduction of organic agriculture are mostly pushed by non-governmental agencies and producer associations, with varying degrees of success. Nuts Nicaragua is the main producer of nuts of several types. Peanuts are a major sub sector, Nicaragua being the only Central American country producing it at large scale. This product is not very labour-intensive, as processed peanuts depend heavily on capital inputs. Peanuts are the fourth exported good in Nicaragua. In 2005, 45.000 acres of land were dedicated to this product for a total production of almost 92 million kilograms, and exports for a value of $ 43.5 million. The EU is the main destination of exports from this sector. Main issues in the sector relevant for AA Fruits Pineapple production is land and capital intensive which requires high levels of organization among producers. It is expected that with the AA pineapple production for export purposes becomes profitable in countries as Nicaragua, but lack of credit and technical assistance can deter efforts towards expanding the production of pineapple in Central America.


Banana production is a main source of tax revenue and employment in Central America, making it a social and political sensitive product. The final outcome for banana exports will depend on the resolution of the dispute between the EU and Latin American exporters of this fruit.35 Guatemala is a large producer and exporter of sugar from sugar cane. Other Central American countries also produce sugar cane. With the oil crisis in 2008 a number of projects were undertaken by governments to produce ethanol (e.g. Costa Rica). It is expected that with the AA the demand for sugar and ethanol in Europe will impact Central American production. The demand for sugar in EU is rising due to reductions in production in this market undertaken after reforms were put in place since 2006. Vegetables Central America trade with the EU is nearly absent for this sector. The production of vegetables in Central American region is mainly for internal consumption and little trade is actually seen among its members. The AA between the EU and Central America can stimulate the production of vegetables for the European market, in particular organic production which is in high demand in the EU. Nuts Direct peanuts crops create approximately 6,000 jobs in Nicaragua. The main destination of this product is the EU making the AA especially pertinent for the sector. Region II in Nicaragua is responsible of around 90 percent of the entire production of peanuts in the Central America region. This region also has the best agronomical conditions for producing nuts (i.e. land-climate-topography-hydrology). Other general Issues

• Large number of SMEs and subsistence farming; many of the fruits and vegetables farms in Central America are SMEs and in e.g. Nicaragua the agricultural sector is composed for a large part of subsistence farmers. The sector therefore provides direct employment to rural low income households. In the context of increased trade and sectoral specialisation, this needs to be kept in mind. The comparative disadvantage of small (subsistence) farms can become more pronounced by efficiency-increasing internationalisation processes. In that context crucial success factors are access to capital, access to knowledge on production processes and technologies, knowledge of export markets and procedures, scale advantages etcetera.

• Compliance with SPS measures, market Access and Rules of Origin; the high level of SPS standards of the EU may be hard to comply with for Central America producers, particularly for SMEs and non-specialised small-scale producers that are not (yet)

35 Since the creation of an unified European Market in 1993 special import conditions were granted to African and Caribbean

ex-colonies producing and exporting banana to the EU. These conditions were seen as discriminatory by other banana exporters, including Ecuador, Costa Rica and Colombia. The conflict has been taken to the WTO by Ecuador while Central American countries are looking for a negotiated solution (Leon.et. al 2007)

Leon A, Andres; Ramirez, Alonso y Dinatte Roberto. El Sector Agricola Centroamericano de Cara al Acuerdo de Asociacion con la Union Europea: Posibles Escenarios, CEPA


internationally active. Information on export procedures and on EU standards on health and safety are important tools, as well as access to technology and knowledge to be able to comply with them. In addition to SPS measures, market acces and RoO are other NTMs that are crucial for Central America’s FVN, and therefore need to be reduced.

• Organic farming; due to an increasing demand for organic products in industrialized countries including the EU, some producers are re-orienting their activities in this direction and the sector has therefore seen signficiant growth inr recent years. This is true in particular for Nicaragua where half of all certified farmers in the Isthmus operate,36and Costa Rica, where in general higher technological standards are applied in the production of fruits and vegetables.37 The main organic product exported is coffee and products such as sesame and cashew nuts are also growing in popularity.

• Land use; due to low technological levels, in Nicaragua and Honduras in particular, production is extensive in land which implies low levels of crops returns.38 While increases in the FVN sector might require more land being used for this sector (with potentially negative environmental and social effects), this implies that there is also considerable scope for improvement of efficiency in production and land use.

• Logistics, transport and intra-Central America NTMs; as mentioned, an important bottleneck for efficiency increases and expansion in the FVN sector, especially in some less developed countries of the region, is the poor state of infrastructural and logistic services. The transport network in Central America is limited and its quality varies from country to country. Even more there is little specialisation in the transportation of these types of products, except for traditional ones such as bananas and melon. For instance, transportation systems to keep products under certain temperature conditions are hardly available in some parts of Central America in general and in Nicaragua and Honduras in particular.

• Customs procedures; inefficient, timely and intransparant customs procedures that in addition differ per Central American country can be a structural inhibiting factor, especially in smaller ports. For the FVN sector this is potentially more damaging than for e.g. industrial goods, because of the perishable nature of e.g. fresh fruits.

• Low access to credit and lack of regional integration hampering specialisation, might negatively affect the real potential for increase in trade in fruits and vegetables. Central American producers might have difficulties complying with high SPS standards and in particular SMEs might need technical assistance and capacity building to be able to comply with those standards.

36 Annual Yearbook Organic Agriculture and FAO Data base,2008. 37 CATIE, 2008. 38 FAOSTAT, 2008.


1.4. Partial equilibrium modelling on bananas

Given the particular importance of bananas in the Central American region and in the context of international trade, a partial equilibrium model is used to assess the impacts expected in this specific group.

Box V.1.1 Partial equilibrium modelling

Bananas: product group-level impacts

Partial equilibrium model GSIM is used to analyse the potential product-group specific effects of the trade-part

of the AA on bananas in Central American countries and in the EU.

GSIM

The GSIM model was developed by Francois and Hall (2003) and is a log-linearised partial equilibrium model

developed for trade policy analysis at industry level. National product differentiation is a basic assumption of the

model, meaning that imports are assumed to be imperfect substitutes for each other. The elasticity of

substitution is held to be equal and is constant in one specific country across products from different sources.

The elasticity of demand in aggregate is also constant. In other words, the model uses a CES (Armington)

import demand function. Import supply is similarly characterized by constant (supply) elasticities. The model

requires data for trade and trade protection measures (also domestic production support could be included, but

these have not been used this time). The results provide the changes in national output, consumer surplus,

producer surplus, tariff revenues and in total net welfare. A more detailed description of the model is provided in

Francois and Hall (2003).

Specifications

The model was run with a base year of 2007, assuming in the baseline a 30 percent reduction in tariff lines for

the EU and Central American countries. Tested as part of the FTA are two scenarios, similar to those tested for

sugar:

Limited scenario, assuming a 30% cut in tariffs; and

Comprehensive scenario, assuming a 90% cut in tariffs.

As the cuts for the comprehensive scenario are relatively large compared to the historical cuts in the banana

sector and those of the limited scenario are more in line with historical cuts, the former provide an ambitious

scenario and the latter a more realistic impact scenario. UN Comtrade data from 2007 were used for the

analysis together with WITS data of tariff levels. The baseline tariff levels assume the finalisation of Doha

negotiations (with a 30 percent tariff cut). The analysis is done for the following countries/regions: Costa Rica,

Panama, El Salvador, Honduras, Guatemala, Nicaragua, EU27 and Rest of World (ROW) and includes results

for the grouping of Rest of Middle and Low Income Countries (RMLIC), trying to capture the likely effect of an

EU-CA FTA on some of the other major banana exporting countries (such as Ecuador and Columbia).

Product group characteristics

Within the Central American region, Costa Rica, Panama and Guatemala are the largest banana exporters.

Outside the region for example Ecuador and Columbia in addition to some African countries are also large

exporters of bananas to the EU27. The effects for these countries dominate the impacts for the group of RMLIC.

In recent literature the Central American countries have been found to have a relatively high supply elasticity for

bananas, i.e. they can increase the production levels relatively easily both in the short and in the long run

compared to other countries. The short term supply elasticity according to the FAO estimated for these

countries is assumed to be 1.1, while e.g. in the RMLIC the supply elasticity is assumed to be slightly lower, 0.4,


in the short term. The elasticity of the EU27 is 0.97, which is a weighted average between the EU15 and EU10

elasticities. A demand elasticity of -0.89 has been used for other countries except for the EU27, where the

elasticity has been found to be slightly lower, -0.61 in average.

Modelling results

The modelling results presented below show that the largest bananas exporters to the EU within the Central

America countries, namely Costa Rica and Panama, would benefit the most from the trade-part of the AA under

both scenarios. In percentage terms the output change is expected to be 1.9 percent in Panama for the

comprehensive and 0.6 percent in the limited scenario respectively and 1.4 percent and 0.5 percent in Costa

Rica for the same respective scenarios. On the other hand, output is expected to decrease between 0.7 and 2.0

percent in the EU and 0.4 to 1.3 percent within the group of RMLIC. This would imply a small to modest impact

for the EU on average, but larger impact for specific geographic regions. Within the group of RMLIC, Ecuador

and Columbia are expected to bear most of the effect which are caused by the change in relative EU trade

preferences due to the AA (these countries are not expected to face any cuts in their tariffs). In other words, the

effects are clearly driven by the preferential access of the Central American countries into the European market,

but as the impact levels are still relatively low, large structural effects on the countries within the RMLIC group

are not likely (even though the production is facing some reductions).

The Table also presents the effects on producer surplus, consumer surplus, tariff revenues and net welfare.

While in most of the countries the largest welfare effects stem from the changes in welfare for producers

(producer surplus), in the EU27 consumer surplus is growing significantly, while the producer welfare and tariff

revenues go down. However, the net welfare effect is negligibly negative in the comprehensive scenario and

positive in the limited scenario for the EU. Due to the small expected increase in banana’s consumer prices in

the RoW, the largest welfare effects for RoW stem mostly from the decrease in consumer surplus.

Partial equilibrium modelling results

Change in CRI PAN ES HON GTM NIC EU27 RMLIC ROW

Limited scenario, 30% cut

Output, % 0.5% 0.6% 0.0% 0.2% 0.1% 0.0% -0.7% -0.4% 0.0%

Producer surplus, mil $ 19.9 7.3 0.0 0.7 0.6 0.0 -11.7 -13.1 7.2

Consumer surplus, mil $ 0.0 0.0 0.0 0.0 0.0 0.0 70.0 0.1 -26.6

Tariff revenue, mil $ 0.0 0.0 0.0 0.0 0.0 0.0 -50.8 0.0 0.0

Net welfare effect, mil $ 19.9 7.3 0.0 0.1 0.1 0.0 7.4 -12.5 -19.5

Comprehensive scenario, 90% cut

Output, % 1.4% 1.9% 0.1% 0.5% 0.2% 0.1% -2.0% -1.3% 0.1%

Producer surplus, mil $ 60.6 22.3 0.0 2.2 2.0 0.0 -35.2 -39.6 21.7

Consumer surplus, mil $ 0.0 0.0 0.0 0.0 0.0 0.0 213.3 1.7 -80.7

Tariff revenue, mil $ 0.0 0.0 0.0 0.0 0.0 0.0 -178.5 0.0 0.0

Net welfare effect, mil $ 60.6 22.3 0.0 2.2 2.0 0.0 -0.4 -37.9 -59.0

Source: WITS & UN Comtrade data, WTO negotiating texts, own calculations


1.5. Sustainability impact assessment

1.5.1. European impacts

Economic impacts European Union Real income Real income effects in the EU are expected to be very small. The expected decline in prices in the EU is limited and varies between 0.3 and 0.6 percent. The decline in output is varying from 0.8 to 1.4 percent. Producers of FVN in the affected regions of the EU are expected to experience a commensurate fall in incomes. Consumers, on the other hand, will face lower prices for fruits, vegetables and nuts; this is a positive impact for the income of the consumers. The price decline in the EU is also reflected in the output decline, although the prices are still higher compared to the prices in Central America. The increase in imports and the fall in prices on the EU market will increase competitive pressure for local producers on the EU market. In the EU, bananas and pineapples (the main import products from Central America) are mainly produced in the Mediterranean regions of the EU and in the EU’s outermost regions in the Caribbean. The CGE model suggests that an AA results in a decline in overall fruit and vegetable production in the EU of 1.4 percent in the most extreme case, which though modest in percentage terms is still quite substantial in value terms, around € 1.4 billion (the total production value of the fruit and vegetable sector is € 100 billion). This means that the impact of the AA on production and incomes in the areas within the EU where bananas are produced could be substantial (not for pineapple production as the tariffs are already nil under GSP Plus) It may imply an incentive to change from producing bananas to other fruits and vegetables, as it is unlikely that the EU will become competitive producers of bananas. Trade The estimated impacts on trade flows as a result of trade liberalisation between the EU and Central America are the total effects estaimed for the sectors in the different countries or regions, so e.g. changes in EU exports to the rest of the world, and not only bilaterally between the EU and Central America. The import impacts prohected for the EU FVN sector needs therefore to be viewed in context the value of total imports into the EU. EU total imports are expected to marginally increase by around 1 percent as a result of this AA. EU total exports on the contrary show a decrease of 1.5 percent (in the very comprehensive scenario). Total fruit, vegetables and nut imports from Central America amount to € 1.3 billion in 2008 (4 percent of total EU imports of this sector), of which vegetables account for € 40 million (mainly cassava and arrow roots from Costa Rica). Most of these imports come from Costa Rica (€ 1 billion) and Panama (€ 200 million). The most important product groups for the EU within the FVN sector are bananas and pineapple together accounting for 90 percent of EU fruit, vegetable nut imports from Central America (bananas 55 percent and pineapple 35 percent). As Box V.1.1 showed, the AA (implemented after DDA completion) is expected to still have significant effects


on trade in the bananas product group. Output is expected to increase in the Central American region, while the EU loses some tariff revenues and gains consumer surplus (through lower prices). Investment Given the limited effect on productions of the AA, no major results are expected on investment. There will be a need to invest in increasing efficiency of FVN (banana and pineapple) production if the EU wants to remain competitive, but investments will rather be allocated toward product categories and diversification into products where competitive pressure and comparative advantage from other part of the world is less pronounced. Social impacts European Union Employment The employment effects for the FVN sector in the EU as calculated by the CGE model are expected to be relatively small. The scenarios show a decrease between 0.9 and 1.5 percent. Within all the scenarios the change for skilled and unskilled labour is the same. The impacts of the AA will mainly affect the larger producers in the sectors, who are regionally concentrated, implying that some regional effects may be felt. Fruit and vegetable production in the EU is concentrated in Italy, Spain, France and Germany. The more tropical fruits (likely to face most increases in competitive pressure) are concentrated in the Mediterranean region. The expected employment decrease in employment and production could also indirectly affect the risk of poverty, given that there are more unskilled workers in the FVN sectors (respectively 0.93 percent of the total unskilled labour in the EU and 0.09 percent of the total skilled labour in the EU). Other social indicators Impact on other social issues, such as health, education and equality, will be closely linked to the employment impact and is expected to be similarly small. The impact on these issues will also depend on the availability of alternative employment or adequate social protection systems. Environmental impacts European Union The two main areas for the environmental impact of this AA for the fruits, vegetables and nuts sector39 are indicators of environmental conditions on human health, and indicators of the state of the environment. Health concerns relate to air pollution, drinking water quality, contamination of soil, food security and accumulation of hazardous chemicals. The state of the environment impact of this agricultural subsector relates mainly to sustainable use of natural resources, loss of biodiversity and water and natural resource use in agriculture.

39 Fruit and vegetables are important crops in value terms. They represent 30 percent of the total EU27 crop output. Their

production distribution among the EU-27 countries can be both very wide (for example, apples) and highly concentrated (for example, eggplant). In general, climatic conditions in the south of Europe are favour the production of fruit and vegetables. Source: Eurostat 2007.


It is important to note that farmers manage half of the EU's land area and agriculture uses half of the water available in southern Europe. In magnitude, farming causes almost half of the nitrogen pollution in rivers, 94 percent of ammonia emissions and 9 percent of total greenhouse gas emissions in the EU27. The summary direct impact of this sector is assessed to be slightly positive or negligible for the EU27 since the projected changes in output vary between -0.8 and -1.4 percent. The global impact aggregates to increase in greenhouse gas emissions, and secondary impacts are derived from increased trade volumes. Atmosphere

• Decline in output will decrease CO2 emissions from the EU27 agricultural sector. The magnitude of this direct decrease is estimated to be maximum 2 million tonnes of CO2/year. However, this positive impact will on global scale turn to negative because of the output increase in Central America, as well as increased trade flows expected;

• Similarly negligible positive changes are expected for air quality and quantity of dangerous chemicals in the atmosphere. Land and Biodiversity

• Projected decline in output will have a slight positive impact on land use in agriculture, forest and natural resource stocks for the EU27. With respect to biodiversity, decline in output will positively impact the formation and maintenance of high natural value farmland mainly in Southern Europe. This will have a direct positive impact, although, negligible in magnitude on protected areas and ecosystems in the EU27;

• Pressures on desertification will be slightly reduced in Southern Europe; • Increasing trade volumes and marine transport will increase the potential entry of alien

species into the EU27. In the long run this may pose a threat to a number of species in the EU27. In addition, pressures on marine pollution will slightly increase. Environmental quality and Fresh and waste water

• Increasing trade volumes and marine transport will slightly increase pressures on waste management especially on harbour areas and storehouses. Especially, the amount of packaging waste potentially harmful to human health would increase slightly. Increasing marine transport will also slightly increase the amount of waste water from harbours;

• Increasing transport will increase the consumption of transport fuels and energy resources both in the EU27 and in Central America;

• Projected decline in output will have slight positive impact on the quantity of water use in the EU27. This positive impact would dominantly benefit Southern Europe.

1.5.2. Impacts Central America

Economic impacts Central America Real income

• Output in the FVN sector is expected to increase in all Central American economies. Prices are also expected to go up, implying that the producer surplus will increase considerably. For consumers, there is a positive income effect (from increased


employment) on the one hand, and a negative effect from higher domestic prices on the other hand;

• The highest positive impact on output (and prices, by a lower percentage than output) are projected for Panama (output increases of 58 to 65 percent) and Costa Rica (output increases of 20 to 23 percent). More modest but still considerable impacts are expected in Guatemala (0.5 to 0.7) and Nicaragua (2.7 to 3.4). Honduras and El Salvador are in between these two groups with output increases between 5.4 and 6.4 percent and price increases between 3.2 and 4.6 percent;

• Production of bananas in the region is expected to increase, see Box V.1.1, (mostly so for Costa Rica and Honduras, and Panama for bananas), but after completion and implementation of Doha, the effects on this product group will be rather limited. Trade

• The model results for this sector show a clear trade specialisation process, by which Central America further specialises in production according to its comparative advantage. Trade impacts are positive for the whole region, impact magnitudes varying across countries. Because of specialisation, import will also increase (implying intra-sectoral trade increases, though only modest. Trade in agricultural goods between EU and Central America is expected to increase mostly for non-traditional products that already have access to the EU market, like melon and pineapple;

• Export increases, in percentage terms, are highest for Panama (142 to 287 percent if Panama joins the AA) and Costa Rica (52 to 61 percent), while for Guatemala, Honduras and El Salvador, the impact is more modest. Costa Rica has the largest absolute export value in the baseline and the absolute increase in export value will be largest for Costa Rica and Panama. For the FVN sector market access, SPS measures and RoO are NTMs that are crucial in order to get these export increases and therefore need to be reduced;

• Imports are also expected to increase for all Central American republics, except for Nicaragua (showing a slight projected decrease). Especially for Panama the percentage change seems high in percentage terms, although the absolute effects of the export increase by far outweighs that of imports (roughly by a factor 50), as the baseline values for exports volumes are almost a factor 160 of import volumes;

• In line with current consumption trends, organic production in vegetables and fruits, starting a late ascent around 2003 in Costa Rica, then in other countries, is expected to increase in Central America as demand in EU for this type of production is high. Investment

• Investment in logistics and infrastructure induce by the increased opportunities in the sector, can positively stimulate efficiency and output further, while such investment also has a spill-over effect to other sectors;

• There could potentially be direct investment in the production and export of non-traditional fruit in countries with a high potential in this sector but who currently export low levels and are poorly organised such as Nicaragua and Honduras;

• In line with the internationalisation and specialisation processes expected, further investment in knowledge- and capital-intensive production processes can be expected. Social impacts Central America Employment/Labour issues


• The impact of the AA on skilled and unskilled employment in the FVN sector is positive (in line with strongly growing output levels). As most employment is unskilled, especially the absolute increases in unskilled (rather than skilled) employment opportunities are expected to be pronounced in Panama (a projected 71 to 82 percent increase, while 3 percent of unskilled labour works in the FVN sector) and Costa Rica (a projected 25 to 29 percent increase, while 6 percent of unskilled labour works in the sector). More moderate though still substantive positive effects are expected for Honduras and El Salvador (6 to 8 percent), Nicaragua (3 to 4 percent) and Guatemala (1 percent);

• Many SMEs produce fruits and vegetables and create direct and seasonal jobs. After the AA employment is expected to rise as a consequence of more exports from these sectors. In particular Nicaragua and Honduras have potential in fruits and vegetables, as well as a large SME population, which might imply increased opportunities fro SMEs;

• In Costa Rica and Panama unskilled labour is relatively scarce, implying that the expected increase in production of FVN might induce immigration flows from unskilled labour abundant countries in the region, such as Nicaragua;

• Though there is an overall positive absolute effect on employment, this might be mitigated slightly by further investments capital-intensive production and efficiency, implying some relative labour substitution effects;

• The projected increase of demand for land used for FVN might have a negative effect on indigenous people’s way of living. This risk exists in particular in countries such as Guatemala, with a high proportion of indigenous population, although the predicted changes in land use are moderate there.

• Hazardous working conditions (including the use of agrochemicals and small plans in plantations) will require detailed reporting and continued attention in labour intensive chains in order to prevent these potential hazards. Poverty and Equality

• The fact that labour in this sector is mostly unskilled, the large employment increases expected will mostly impact the unskilled labour force, implying a positive effect on income equality;

• As output and prices are affected only mildly in Nicaragua and Guatemala and also in Honduras and El Salvador, the impact of the AA on poverty in these countries is less significant though still positive. In Panama and Costa Rica on the other hand, income is expected to experience a large increase which might have a reducing effect on poverty levels;

• Price increases are expected for all Central American countries. Though favourable from a producer perspective, the consumer perspective is mixed. Though overall income increases through higher employment, so do consumer prices. Given the wide income disparity across countries in the region, the latter effect might be more significant in the poorer countries where vulnerability levels are higher. It must be noted however that FVN compeose a very small share of the consumption basket compared to other agricultural products;

• In countries like Nicaragua and Honduras the production of vegetables and fruits is mostly generated by SMEs and small farms. The extent to which these producers can benefit from the boost in the sector expected form the AA, depends to a large extent on access to knowledge, capital and technology to be able to compete with more efficient larger scale producers in e.g. Costa Rica and Panama.


Health • Negative health effects from the use of pesticides and other hazardous substances is

expected to decrease with the AA, as higher SPS and other standards will apply to Central American producers wanting to export to the EU, though there will be a push for more efficiency and productivity that might have the opposite effect. The trend in organic farming is relevant and positive in this context;

• The effects on health and working conditions of the labour force is mixed; while the AA may promote increased labour standards, there will also be an increase in competitive pressure. Education

• No significant impacts are affected on education through changes in the FVN sector. Environmental impacts Central America Land use

• The area of land used in FVN production is expected to increase moderately in Nicaragua and Guatemala while in Costa Rica (13 percent) and Panama (40 percent) it will increase significantly. The former countries present good agronomical conditions for these products. At present, the pattern is rather skewed due to concentration of areas for vegetable production in Guatemala and for fruit in Costa Rica;

• Though demand for land for the FVN sector is expected to increase, the increased specialisation and internationalisation is also expected to increase productivity, implying more efficient land use.

• Preventive measures for the negative impacts of increased fruit and vegetable farming should be created. These include measures to prevent soil depletion and reduce intensive irrigation measures which could potentially compete with human drinking water supplies.

Atmosphere • Increases in output will increase CO2 emissions from the Central American FVN sector.

In addition, increased trade and transport is also expected to have a negative effect on GHG emissions;

• The AA may provide an incentive to improve energy efficiency of transport modes and further investments in clean technologies applied in the FVN sector, which can mitigate the negative atmosphere effect to a certain extent;

• Also, the fact that land use for cattle is expected to decrease (as the demand for land for FVN increases), the relative emission rate of the land use will decrease somewhat. Biodiversity

• As the production of fruits and vegetables is increased new threats to biodiversity will be a concern as land is used for agriculture extents;

• The negative effect on biodiversity might be tempered because a decrease is expected in the use of land for cattle (substitution effect). Environmental quality

• Organic production of fruits and vegetables, expected to increase, will contribute to enhance environmental quality.


1.6. Conclusions


• Economic: Output of the EU FVN sector is expected to decline by a maximum of 1.4 percent; exports are expected to decrease and imports increase. This is a direct effect of specialisation according to comparative advantage as a result of further trade liberalisation between the EU and Central America. For some EU producers in the sector, this would imply a decline in income – and a need to reallocate resources towards other products – while consumers benefit from lower prices;

• Social: As production in the EU FVN sector is regionally concentrated, the expected fall in employment as a result of declining output – though small – may be felt in some regions especially;

• Environmental: The projected output decline for the EU FVN sector has only negligent impact on environmental indicators. Mostly these changes are slightly positive, especially for Southern Europe. However, increasing output in Central America flows will increase the global greenhouse gas emissions. In addition, increasing trade flows and marine transport will cause pressures on marine pollution, biodiversity and waste management.


• Economic: Output of the FVN sector in Central America is expected to increase considerably, especially in Costa Rica and Panama. The other (poorer) countries of the region are also expected to gain, though to a smaller extent. While (real) income is increased considerably, consumption prices in the sector are also expected to increase;

• Social: Increased employment opportunities, especially for unskilled labour is expected to have considerable positive effects on reducing poverty and income inequality. Yet, a risk posed by the fact that the two already most economically advanced countries stand to gain most, as well as the already most efficient producers, this might be to the detriment of regional levelling of income as well as of SMEs and small (subsistence) farmers with less access to capital, technology and knowledge. Some migration flows can be expected from Nicaragua, Honduras and El Salvador towards Costa Rica and Panama as a result of increased demand for unskilled labour. In addition, the health effects of hazardous working conditions involved in fruit and vegetable production must be prevented;

• Environmental: The increase in output in Central America as well as increased (maritime) transport flows will increase global greenhouse gas emissions. Land used for FVN production will also increase, though the AA might also provide considerable opportunities fro improved efficiency and use of greener technologies. In addition, the environmental effects of increased fruit and vegetable farming through soil depletion and intensive irrigation should be prevented.

1.7. Policy recommendations



• The expected decrease in employment in some regions of the EU may require facilitation of reallocation of labour towards other sectors and economic activities. Given the fact that many parts of the agricultural sector (including the FVN sector) face competitiveness issues given the relatively high labour and production costs vis-à-vis other producers in the world, substitution towards closely related products may be difficult as well. Whether technological advancement can be implemented in the EU as a means to improve efficiency and thus competitiveness will depend on the local situation;

• The labour force that may need reallocation from the FVN sector is expectedly for a large part unskilled, implying that some specific (technical) occupational resettlement may be required;

• The potential risk of entry of alien species, of disposal of packaging materials harmful to human health and increased pressure on marine pollution would require improved monitoring and mitigation measures.

1.7.2 Central America

• To ensure that growth in the sector can be inclusive, there might be need for capacity building in export promotion (including knowledge of the EU market), in efficient production methods and technologies, in sustainable production (regarding pesticides etc) and in meeting SPS standards. This is important to ensure inclusiveness between countries (e.g. Nicaragua and Honduras vis-à-vis Costa Rica) and inclusiveness within countries (SMEs vis-à-vis large scale producers);

• Improved opportunities for SMEs to access credit (and technology) can improve their opportunities in export markets, e.g. entailing provision of improved agricultural microcredit opportunities in rural areas;

• Lack of an appropriate transport network and an advanced logistics sector limits taking full advantage of increased export opportunities. This issue is closely linked to the ongoing regional integration efforts and amelioration of investment conditions. Investment in this area (ports, roads and transportation means) is a crucial complementary measure to enable and improve the growth effect, also for e.g. rural communities. Improvement of in-land onward transportation to and from ports as well as cooled transportation and storage possibilities can considerably facilitate the development of the FNV (export) sector;

• Regional integration and regulatory convergence between the Central American countries in e.g. technical standards, SPS measures and labelling requirements can facilitate efficiency and growth of the sector on a regional level considerably and will stimulate further investment in e.g. infrastructure;

• Measures to monitor and mitigate potential negative environmental effects (including on land use and on indigenous peoples’ territories) are needed. This implies the need to collect more precise data for the specific regions / areas where predicted land use changes are most likely to occur in order to specify targeted measure to avoid additional negative effects on e.g. deforestation and biodiversity loss.;

• The AA can provide incentive structures to improve the investment in and use of clean technologies as well as robust social standards in agricultural production of FVN. Similarly, organic production can be stimulated.


2. Forestry

2.1. Introduction

Forestry and forest-based and related industries comprise the following industrial sectors: woodworking, cork and other forest-based materials; pulp, paper and paper-board manufacturing; paper and paper-board converting, and printing industries.40 The modelling outcomes are based on a more narrow definition that includes only primary forestry activities. However, throughout this chapter we will consider the wider context (including related processing and other sectors as well as environmental context) of the forestry sector. Although the forestry and forest-based and related industries are small by comparison with other trade sectors between the two regions, forestry is of great importance in terms of basic land use and environment. Management of both natural forest and industrial plantations for sustainable development is of crucial importance for the protection of biodiversity and addressing of climate change. The sector also relates strongly to social issues, as it comprises mostly small enterprises in the EU – with the exception of the paper and pulp industries that is – and touches on the lives of the poor in Central America, many of whom live in isolated indigenous communities dependent on forests and the products stemming from it for their livelihoods. Many countries in Central America remain heavily reliant on natural resource exploitation, and the relationship between forests and other land uses in terms of climate, environment, culture and livelihoods has an importance which extends well beyond the immediate contribution to GDP. In the EU, forestry is also an important use of land – especially in recent accession countries – and its importance reflects multipurpose uses like water catchment protection and recreation, which are often not directly reflected in conventional economic balance sheets.


In light of the interlinked nature of the forestry sector we present both the modelling results for the forestry sector as such and for the linked sectors.

40 EU (2008), Agricutural and Rural Development.


2.2.1. CGE results for forestry sector

European Union Considering the model outcomes for the forestry sector, the relatively limited role of the sector in EU-CA trade is reflected in the relatively small impact of the FTA. This is also a reflection of the fact that tariffs are already low for the sector. The highest tariffs are currently in place for EU-Costa Rica trade in the forestry sector: 3.8 percent for EU imports into Costa Rica and 2.2 percent the other way; for the other countries tariffs are between zero to one percent. Impacts for the EU are therefore negligible.

Table V.2.1 Model outcomes of the FTA impact on the forestry sector (% change)

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive FTA

Long Run

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

EU

Output 0.0 0.0 0.0 0.0 0.0 0.0 -0.012 0.0

Prices 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Exports value 0.0 0.0 0.0 0.0


Skilled labour 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Costa Rica

Output 0.2 0.2 0.2 0.2 0.0 0.0 0.2 0.2

Prices 1.3 1.3 1.3 1.3 2.5 2.5 2.5 2.5



Skilled labour 0.1 0.1 0.1 0.1 0.1 0.1 -0.2 -0.2

Unskilled labour 0.1 0.1 0.0 0.0 0.0 0.0 -0.3 -0.3

Guatemala

Output 0.2 0.2 0.2 0.2 0.5 0.5 0.5 0.6

Prices -0.1 -0.1 0.1 0.1 0.6 0.6 0.9 0.8

Exports value 0.1 -0.1 0.7 0.4


Skilled labour 0.4 0.5 0.5 0.5 1.1 1.1 1.2 1.2


Nicaragua

Output 0.2 0.2 0.1 0.1 0.6 0.6 0.4 0.5

Prices 0.1 0.1 0.0 0.0 0.4 0.4 0.3 0.3



Skilled labour 0.2 0.2 0.1 0.1 0.6 0.6 0.5 0.6


Panama

Output -1.3 0.0 -1.4 0.0 -1.5 0.0 -1.6 0.0

Prices -0.9 0.0 -1.3 0.0 -0.9 0.0 -1.3 0.0


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive FTA

Long Run

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama


Imports value -7.1 -7.1 -7.1 -7.1

Skilled labour -1.8 0.0 -1.9 0.0 -2.1 0.1 -2.1 0.1

Unskilled labour -1.8 0.0 -1.9 0.0 -2.1 0.1 -2.2 0.1

Honduras and El Salvador

Output -0.1 -0.1 0.4 0.4 0.1 0.0 0.8 0.8

Prices -0.1 -0.2 0.1 0.1 0.0 -0.1 0.4 0.4



Skilled labour 0.0 0.0 0.4 0.4 0.2 0.2 0.9 0.8

Unskilled labour -0.1 -0.1 0.4 0.3 0.1 0.1 0.8 0.7

Central America All countries with the exception of Guatemala are expected to increase particularly their exports of forestry products, although in terms of actual impact we must keep in mind the low base values for trade in this sector to begin with. Costa Rica is expected to see modest increases in output, but relatively big changes in price levels. This could imply a move towards higher value added goods, which is also reflected in the higher value of exports. In addition some productivity increases can be expected, illustrated by the fact that employment is actually expected to decrease (while output increases), possibly indicating a shift towards larger scale enterprises as opposed to many small holders. Increases in output are modest to small for all countries, which, coupled with low shares of value added of the sector in these countries (see Table V.2.2 below), suggest limited real impact on the sector, with the possible exception of Nicaragua.

Table V.2.2 Value added forestry and forest based products sectors EU and Central America

Country

value added forestry (EURO

mln) share of forestry VA in total VA

EU 21,533.29 0.20%

Costa Rica 115.87 0.64%

Guatemala 95.87 0.37%

Nicaragua 46.35 1.26%

Panama 41.50 0.35%

El Salvador & Honduras 194.47 0.88%

* Paper products, publishing


Table V.2.2 also provides value added figures resulting from the FTA impact for wood products and paper products, publishing, both of which use forest products as an important input.

2.2.2. CGE output results for sectors impacting forests and land use

As the primary forestry sector only covers part of the picture, in Table V.2.3 we also take a closer look at the output changes in other forest product sectors (in bold) and in sectors (grains, vegetables, fruit, nuts, etc…) that may compete with forest for land use. This is further illustrated by figures on expected changes in land use as a consequence of the FTA (see Table V.2.5).

Table V.2.3 Model outcomes impact FTA on Central America output in forestry linked sectors

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

Sector Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Costa Rica

grains -8.9 -8.9 -8.9 -9.0 -11,1 -11,2 -11,2 -11,3

vegetables, fruit,

nuts 20.0 20.2 19.8 20.1 22,7 23,0 22,1 22,4

other primary food -9.8 -10.1 -9.7 -9.9 -12,4 -12,7 -11,9 -12,2

other agriculture* -13.4 -13.5 -13.5 -13.6 -15,7 -15,9 -16,1 -16,3

wood products -7.5 -7.5 -7.6 -7.6 -13,1 -13,1 -13,6 -13,5

paper products,

publishing -3.0 -3.0 -2.7 -2.7 -7,1 -7,1 -5,7 -5,7

Guatemala

grains 0.0 0.1 0.0 0.1 0,0 0,1 0,0 0,1

vegetables, fruit,

nuts 0.5 0.6 0.5 0.6 0,6 0,7 0,6 0,7

other primary food 0.2 0.2 0.3 0.3 0,3 0,3 0,5 0,5

other agriculture* -0.1 0.0 -0.3 -0.2 0,2 0,3 -0,1 0,0

wood products -2.9 -2.7 -2.8 -2.6 -4,1 -3,9 -3,9 -3,7

paper products,

publishing 0.2 0.4 0.4 0.6 0,2 0,4 0,7 0,8

Nicaragua

grains -0.6 -0.5 -0.6 -0.5 -0,9 -0,7 -1,0 -0,9

vegetables, fruit,

nuts 2.7 2.8 2.7 2.8 3,2 3,3 3,3 3,4

other primary food 0.4 0.2 0.3 0.1 0,4 0,2 0,3 0,1

other agriculture* -0.5 -0.3 -0.4 -0.2 0,5 0,7 0,6 0,8

wood products -1.3 -1.3 -1.3 -1.3 -1,7 -1,7 -1,6 -1,5

paper products,

publishing -0.2 -0.2 -0.3 -0.3 0,1 0,1 0,1 0,0

Panama

grains -1.0 0.1 -1.2 0.1 -1,3 0,1 -1,5 0,1


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive

FTA Long Run

Sector Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

vegetables, fruit,

nuts 58.0 -0.7 58.7 -0.7 64,4 -0,9 65,1 -0,8

other primary food -8.5 0.1 -8.9 0.1 -9,7 0,2 -10,2 0,2

other agriculture* -19.0 0.6 -19.0 0.7 -21,5 0,7 -21,4 0,8

wood products -2.1 0.1 -2.2 0.1 -2,7 0,1 -2,8 0,0

paper products,

publishing -3.3 0.0 -4.1 0.0 -3,8 0,1 -4,4 0,2


grains -0.3 -0.3 -0.1 -0.1 -0,4 -0,4 0,0 0,0

vegetables, fruit,

nuts 5.4 5.5 5.4 5.4 6,3 6,4 6,2 6,3

other primary food -0.1 -0.1 0.3 0.2 0,3 0,3 0,8 0,8

other agriculture* -1.9 -1.9 -2.2 -2.2 -1,9 -1,9 -2,2 -2,2

wood products -0.7 -0.6 -0.3 -0.3 -0,7 -0,7 -0,1 -0,1

paper products,

publishing -0.3 -0.3 0.4 0.3 -0,3 -0,4 0,8 0,7

* Including livestock

Secondary forest product outputs (wood products and paper and pulp) are not expected to increase, but rather show a declining trend for most Central America countries. Additional demand for timber through these processing sectors thus is not expected.

Table V.2.4 Value added forest based products sectors EU and Central America

Country

value added wood

products (EURO

mln)

share of wood

products VA in

total VA

Value added PPP*

(EURO mln)

share of PPP* VA

in total VA

EU 59,743.77 0.55% 183,196.36 1.68%

Costa Rica 45.54 0.25% 251.64 1.39%

Guatemala 150.88 0.59% 147.77 0.58%

Nicaragua 58.19 1.58% 10.28 0.28%

Panama 7.30 0.06% 46.42 0.40%

El Salvador &

Honduras 151.24 0.69% 149.71 0.68%

* Paper products, publishing It is clear that Central America as a whole, and particularly countries such as Costa Rica, Panama and to a lesser extent Nicaragua, Honduras and El Salvador stands to gain substantially in the FVN sector (see also Annex V, Chapter 1). To the extent that this sector expands through large scale plantations, this may increase pressures on forests


(especially if the growth of the sector exceeds decline of other agricultural sectors, which could convert land towards vegetable, fruits and nut production). Therefore, we recall the land use changes expected as a consequence of the FTA, as presented in phase 1 of the study. These are summarised in the table below for the long run very comprehensive scenario including Panama for sectors that impact on forests in particular.

Table V.2.5 Natural Resource Usage, % change (long run, very comprehensive scenario)

Countries land for grains

land for vegetables,

fruits and nuts land for livestock

European Union 0.4 -1.0 0.3

Costa Rica -14.8 15.8 -14.0

Guatemala -0.5 0.2 0.2

Nicaragua -1.7 2.3 -0.3

Panama -16.1 44.3 -16.9

Honduras, El Salvador -2.2 4.1 -0.6

Again, the biggest impacts are expected for Costa Rica and Panama, with land use increase in particularly the latter. The question is where this land would be converted from. In the case of Costa Rica increases in land use for FVN are more than matched by decreases in other agricultural sectors, implying there could be a conversion between different agricultural land uses. However, in the case of Panama land use increases for FVN far outstrip decreases in land use for other agricultural sectors, potentially putting pressure on forests for conversion. It must be noted that these are relative changes and actual effects will depend on the actual land use patterns (see further in our analysis), as well as national legislation, forestry regulation and public policies aimed at slowing the current rate of deforestation.


Sustainability issues related to the forestry sector include deforestation due to unsustainable and/or illegal logging practices, or due to land use pressures from other sectors and activities, notably agriculture, livestock, mining and plantations. Assessing the impacts of an FTA – or rather of trade and economic growth in a more general sense – therefore requires considering all these linkages, as well as existing policies and initiatives in the area of deforestation, biofuels, land use and livelihoods issues. Productivity of the forestry sector can be seen in terms of both forestry products, and environmental forestry services. Environmental services provided by forests include for instance clean air and water, mitigation of climate change and unspoilt landscapes. The demand for such services has been increasing, driven by policies and initiatives in the developed world but increasingly also the developing world to address climate change and other environmental degradation issues. Maintaining forest environmental services requires striking a balance between the production of goods and the provision of services.


Regulatory approaches for helping to secure forests’ ability to meet the demand for environmental services include protected areas, instruments for sustainable forest management and green public procurement policies. Market approaches include certification, carbon markets and payments for environmental services.41


Sector specific structure and issues • Forests in the EU are characterised by a wide variety of climatic, geographic, and

ecological conditions. Among other forest types, they encompass temperate, boreal, Mediterranean, alpine and lowland forests. Socio-economic conditions also vary greatly among countries and regions;

• Forests and other wooded land in the EU cover approximately 177 million ha (over 40 percent of the EU territory), of which 130 million ha are available for wood supply. As a result of afforestation programmes and due to natural regeneration on marginal lands, forest cover in the EU has increased over the past few decades and currently expansion of the EU's forest area exceeds the loss of forest land to infrastructure and urban uses. Several countries have expanded their forest cover by plantation programmes on agricultural land which is no longer cultivated. This sets the EU apart from many other global regions, where deforestation continues to reduce forest resources;

• The recent changes in EU forestry can be ascribed mainly to the extension of the common agricultural policy, combined in some countries with rapid economic growth fostered by their accession to the EU and access to the internal market. If not managed carefully, these changes can lead to the loss of valuable extensively managed habitats. In addition there has been major afforestation in Ireland, Portugal, Spain and the United Kingdom (Scotland). Erosion, biodiversity loss, increased/changed flood-risk, altered species composition dominate as climate change impacts;

• In 2005, forest-based industries in the EU employed about 3 million people in 350,000 enterprises, with a turnover of about EUR 380 billion, producing added value of around EUR 116 billion.42 In addition, the construction and furniture industries are important users of forest materials;

• Forestry often involves small enterprises or even individuals whose activities are commonly coupled with those of other economic sectors. Besides wood, forests produce many other products, such as cork, resins, medicinal plants, mushrooms and berries. The economic value of non-wood goods and services (NWGS) provided by forests is increasing. NWGS include hosting biodiversity and helping to mitigate climate change, mushroom and truffle gathering, fruit and berry collection, game products, honey, cork, medicinal products, and the seeds of forest tree species;43

• The EU is one of the biggest traders and consumers of forest products in the world, with a positive trade balance overall. Conversely, supplies of wood-based raw

41 FAO (2009) 42 Eurostat, Statistics in focus 74/2008 43 Cork is one of the most important non-wood forest products in the EU, with approximately 1.7 million ha of cork oak forests

accounting for 80 percent of it's production worldwide. In addition, almost 100 percent of the manufactured output of cork originates in the EU.


materials of adequate quality can be imported at competitive prices, and the EU is a net importer of these products. The two main types of such imports comprise roundwood as well as pulpwood. In contrast, for certain categories of processed wood products, some EU sub-sectors exhibit a particularly high level of domestic supply, especially of the higher value-added products (e.g. quality papers and wood-based panels). Consequently, the EU is a prominent exporter of these products;

• Production and consumption of key wood products and wood energy are expected to rise from the present to 2030, largely following historical trends. The most dramatic change is expected from the rapid increase in the use of wood as a source of energy, particularly in Europe, as a result of policies promoting greater use of renewable energy;

• According to the FAO (2009) the outlook for the sector is rather mixed: “Forest resources in Europe are expected to continue to expand in view of declining land dependence,

increasing income, concern for protection of the environment and well developed policy and institutional

frameworks. The provision of environmental services will remain a primary concern, especially in Western

Europe, and rules and regulations will make wood production less competitive than in other regions. Forest

management will continue to serve a wide variety of purposes. Economic viability is likely to remain a

challenge, especially for small-scale forest owners, but the increased demand for wood fuel could change

this. While the forest industry, especially in Western Europe, may continue to lose competitiveness with

other regions in labour-intensive segments, it is likely to retain leadership in the production of

technologically advanced products. Within the region, the differences in forestry between Eastern and

Western Europe are likely to diminish as Eastern Europe catches up economically.”

European Union Policy related to forestry and related sectors The EU Forestry Strategy, adopted in 1998, established a framework for forest-related actions in support of sustainable forest management (SFM), based on the co-ordination of the forest policies of the Member States and Community policies and initiatives relevant to forests and forestry. The strategy emphasizes the importance of the multifunctional role of forests and SFM for the development of society, and identifies a series of key elements, which form the basis for its implementation. It also emphasises the implementation of international commitments, principles and recommendations through national or sub-national forest programmes or equivalent instruments, and active participation in all forest-related international processes.

As part of the EU forest strategy the Forest Action Plan (FAP) sets four main objectives for the sector. In order to achieve these objectives, the European Commission developed the FAP work programme in cooperation with the main stakeholders. This programme is updated annually in cooperation with the Member States. The four main objectives of the FAP include: • Improving long term competitiveness of the sector and increase the sustainable use of

forest products through research and innovation; • Protection of the environment including specific steps for dealing with climate

change and biodiversity issues; • To contribute to the quality of life by promoting the social and cultural dimensions of

forests and forestry, e.g. through environmental education and exploring the potential of urban and near-urban forests;

• Fostering coordination and cooperation.


Main issues in the sector relevant for FTA The importance of forestry services, and the implications for climate changes are by now well understood in the EU and sustainable forestry management ranks high in the sector strategy. There is also increasing recognition of the global nature of the problem of climate change and the role that deforestation and the unsustainable production of forestry product and trade of these products play in the process. Therefore the EU has embarked on a number of international initiatives directly or indirectly linked to trade in forest based products, in an effort to combat the interlinked issues of deforestation and climate change. At a summit in December 2008, the EU leaders reached agreement on an energy and climate change 'package' to deliver the bloc's ambitious objectives of slashing greenhouse-gas emissions and boosting renewable energies by 20 percent by 2020. This decision has a direct impact on the EU forestry sector since biomass has a key role within the European energy policy44. In addition it has implications for EU trading partners in sectors contributing to renewable energy development and climate change issues. Two important initiatives in this respect are (1) the Forestry Law Enforcement, Governance and Trade (FLEGT) programme and related Voluntary Partnership Agreements (VPA) and (2) the EU biofuels policy and related sustainability criteria for biofuels production.

1. FLEGT/VPA

The practice of illegal logging and timber trade is mainly affected by two major and often interlinked conditions: limited sustainable supply and the weakness of law enforcement. Limited supply is exacerbated by inefficient existing industries, limited capability of sustainable production of forest products, and high global demand for wood and wood products. Law enforcement in many developing countries is also influenced by community participation and capabilities to engage in sustainable forestry management, specifically related to livelihood because often the people depending on income from the forestry sector are among the poor or indigenous people. In addition, the often low salaries of government employees involved in enforcement contribute to the difficulty in adequately tackling deforestation issues in many developing countries. All this serves to illustrate the complicated and inter-related nature of illegal logging and timber trade.

Despite many years of assistance for developing countries through forestry protection, reforestation and governance programmes and projects, the effectiveness of such programmes remains debatable. Therefore recently initiatives have been developed by producer and consumer countries to try and address these issues in an internationally integrated and cooperative way. One such example is the EU Action Plan for FLEGT, which looks to establish agreement on the legality of wood-based products, develop import-licensing schemes, create awareness, and promote sustainable timber production, all based

44 Within transport 100 percent of all renewables come from biomass, within heat production biomass provides 95 percent in

all renewables and within power generation 17 percent in all renewable comes from biomass. Source: European Sustainable Energy Review, Issue 4, 2008 page 5.


on so-called VPAs. Currently the EU has a dialogue on FLEGT, with a number of countries in Asia and Africa, has negotiated an agreement with Ghana and is in the process of negotiating a VPA with Indonesia and Malaysia.

Box V.2.1 Forest Law Enforcement, Governance and Trade through Voluntary Partnership Agreements

Responding to public concerns on the issues of illegal logging and deforestation, in 2003, the European

Commission adopted an EU Action Plan for FLEGT.45 The key regions and countries targeted, which together

contain nearly 60 percent of the world’s forest and supply a large proportion of internationally traded timber,

are Central Africa, Russia, Tropical South America and Southeast Asia. Although the ultimate goal of the

Action Plan is to encourage sustainable management of forests, ensuring legality of forest operations is

considered a vital first step. The Plan focuses on: (1) support to timber producing countries; (2) activities to

promote trade in legal timber; (3) promoting public procurement policies; (4) support to private sector

initiatives;(5) safeguards for financing and investments; (6) use of existing legislative instruments or adoption

of new legislation to support the Plan; (7) addressing the problem of conflict timber.

A key element of the Action Plan is a voluntary scheme to ensure that only legally harvested timber is

imported into the EU from countries agreeing to take part in this scheme. The Council adopted a Regulation in

December 2005, allowing for the control of the entry of timber to the EU from countries entering into bilateral

FLEGT VPA with the EU. Once agreed, the VPAs will include commitments and action from both parties to

halt trade in illegal timber, notably with a license scheme to verify the legality of timber. The agreements

will also promote better enforcement of forest law and promote an inclusive approach involving civil

society and the private sector. The European Commission has been given a mandate to conduct

negotiations in view of concluding such FLEGT VPAs. While the European Commission is leading in these

negotiations, EU Member States play a key role in supporting the negotiations and the future implementation.

Negotiations are currently underway with Malaysia, Indonesia and Cameroon. A number of other countries

have also expressed interest in VPAs, including Vietnam.

Capacity-building is an important element of the FLEGT Action Plan, particularly for developing countries.

The Commission is working with the EU Member States to provide such capacity-building for FLEGT Partner

countries including support to NGOs and private sector actions. Funding for FLEGT-related projects has been

provided through development cooperation instruments managed by the Commission.

Source: DG Environment (http://ec.europa.eu/environment/forests/flegt.htm)

Crucial in making FLEGT effective is the complementary legislation that needs to be put in place in importing countries, to ensure the timber and wood products entering these markets meet the legality criteria and ultimately are sustainably produced.

Although there is as of yet no FLEGT/VPA dialogue with Central America countries, this could be considered in the context of enhanced trade and economic relations between the EU and Central America. Already similar partnerships and programmes between Central America and other countries (e.g. the US) or at multilateral level (UN) exist. As the EU is already in an advanced stadium of implementing regulations in its markets in relation to illegal timber and wood products – specifically the due diligence regulation for placing 45 Council Regulation (EC) No 2173/2005 of 20 December 2005 on the establishment of a FLEGT licensing scheme for

imports of timber into the European Community.


wood and wood products on markets in the EU – providing assistance and developing further cooperation in combating illegal logging and deforestation could be enhanced through inclusion of the VPA in the AA and its linking to the FTA.

2. EU Biofuels policy and Biofuels sustainability criteria

The EU’s commitment to lowering greenhouse gas emissions and reducing its dependency on oil imports has been the backdrop for a review of its current energy policy. The EU transport sector is responsible for 30 percent of total energy consumption in the EU and is 98 percent dependent on fossil fuels. The 2003 directive on the promotion of the use of biofuels and other renewable fuels for transport (2003/30/EC) committed member states to achieve the goal of deriving 5.75 percent of EU transportation fuel from biofuels by the end 2010 and 10 percent by 2020. A set of regulatory and legislative tools have been put in place to promote this policy both at the EU and national level, with the European Commission setting the policy framework for implementing the Union’s renewable energy goals.

So called ‘first generation biofuels’ are renewable fuels which are produced from renewable organic materials, also known as biomass. Agricultural crops such as wheat, barley, corn, rapeseed, palm oil and sugar can be used to make liquid biofuels. These can subsequently be blended at low rates with fossil fuel to run conventional transport vehicles. Biofuels fall into two broad categories, biodiesel and bio-ethanol. Second generation biofuels are produced from non-food feedstock, also known as lingo-cellulosic material. These include wood, wood residues, grass, straw and fast growing trees – in the context of Central America, a promising crop in this respect is the Jatropha curcus, a tree native to the American tropics whose nut can produce about 200 gallons of oil per acre. Although second generation biofuels are more promising in terms of costs, quality and environmental impacts, they are still about 10 years away from full commercialization.

It has been estimated that the increased demand for biofuels as a result of this Directive is unlikely to be met by EU production, given current limitations in terms of availability for such purposes. Part of the demand will thus have to be met by imports. While on the one hand presenting opportunities for many developing and tropical countries to develop and export biofuels, there is increasing debate over the potential adverse effect of this development, as biofuel crops may compete with land use for food crops and/or natural forest. On higher quality soils, it may also compete with food production, indirectly contributing to food price increases.46 This may lead to unsustainable forms of production which create bigger social and environmental problems than what they aim to solve in the first place. Therefore, as part of the proposal for a Directive on the promotion of the use of energy from renewable energy, which was approved by the European Parliament

46 CEPAL (2007), Perspectivas para el biodiesel en Centroamerica and Servicio Holandes de Cooperación al Desarrollo

(2008),Estudio de Mercado del Biodiesel en El Salvador, Honduras y Nicaragua.


in December 2008, sustainability criteria for biofuels have become as central thrust in pushing forward Europe’s renewable energy policy.

Article 17 of the proposed directive lays out a series of criteria that biofuels in the EU, irrespective of their origin, must comply with to be bought and sold on the European market. These criteria are the following: • The greenhouse gas emission saving from the use of biofuels and other

bioliquids must be at least 35 percent. Starting in 2017, greenhouse gas emission saving from the use of biofuels and other bioliquids must be at least 50 percent;

• Biofuels and other bioliquids present in the EU shall not be made from raw material obtained from land with high biodiversity value. The criteria for determining areas of high biodiversity value are laid out in paragraph 3 of article 17 of this directive;

• Biofuels and other bioliquids shall not be made from raw material obtained from land with high carbon stock. Land with high carbon stock is defined in paragraph 4 of article 17 of this directive;

• Biofuels and other bioliquids shall not be made from raw material obtained from land that was peat land in January 2008, unless it is proven that the cultivation and harvesting of this raw material does not involve drainage of previously un-drained soil.

The Directive also provides a set of procedures to verify that biofuels produced in, or entering the EU comply with the criteria mentioned above. Furthermore, a methodology for calculating the greenhouse gas emissions of a given biofuel is laid out in the directive (Annex V of the Directive).

Although trade in forestry and forest based products is relatively limited and not expected to expand substantially under an FTA, the nature of potential impacts warrants close monitoring and addressing through flanking measures.


Sector specific structure and issues Central America is a region characterised by forests and jungles – all countries in the region have a high share of forest area coverage, with the exception of El Salvador where it is only 14 percent, compared to an average of over 40 percent for the other five countries. As such the forestry sector potentially impacts on large parts of these countries’ natural resources. For example, since 1990, the Isthmus has lost more than 5.2 million hectares in forest, which exceeds the country area of Costa Rica.47 Over the last two decades, Honduras has proven to be singularly prone to losing forest resources.

Production & employment • Overall, wood and paper production is not that significant in Central America, with

some exceptions, such as tropical wood furniture manufacturing in Honduras. 47 Mongabay (2008).


Therefore expected negative effects of the FTA agreement are not expected to be substantial, as also illustrated by our modelling results – yet the nature of this sector and the fact that it is affected by specific issues that may link to the FTA require close monitoring and attention to visible and not directly visible changes;

• The forestry sector contribution to employment and gross domestic were estimated at 0.4 percent and 1.3 percent respectively in 2006. Table V.2.6 and Table V.2.7 below provide an overview of the breakdown of these shares per country and sub-sector;

• Clearly the sectors official contribution to employment is rather limited, and less significant than the sector’s contribution to GDP. However, there is a large informal segment attached to these ‘official’ parts of the sector and there are many (indigenous) communities dependent for their livelihoods on forest products, implying un-official and indirect employment numbers may be substantially higher.

Table V.2.6 Forestry sector contribution to employment in Central America (2006)

Total for the forestry sector

Country/area

Roundwood

production

Wood

processing Pulp and paper

1,000 1,000 1,000

1,000 % of total

labour force

Costa Rica 1 7 5 13 0.7

El Salvador 4 5 4 13 0.4

Guatemala 7 1 2 10 0.2

Honduras 3 15 2 20 0.7

Nicaragua 3 1 - 4 0.2

Panama 1 1 2 3 0.2

Total* 20 32 13 65 0.4

* Includes Belize

Source: FAO (2009)

Table V.2.7 Forestry sector contribution to GDP in Central America – gross value added per sub-sector (2006)

Total for the forestry sector

Country/area

Roundwood

production

Wood

processing Pulp and paper

USD mln. USD mln. USD mln.

USD mln. % contribution

to GDP

Costa Rica 12 42 118 171 0.8

El Salvador 121 2 70 193 1.1

Guatemala 483 51 52 587 2.0

Honduras 73 49 27 149 1.8

Nicaragua 40 45 7 92 1.9

Panama 26 6 36 67 0.4

Total* 762 206 311 1,279 1.3

* Includes Belize

Source: FAO (2009)

• The role of natural forests in wood production plays a smaller role with the increase

in plantation forestry, but in some countries is still an important source of timber. These natural production forests are largely managed through concessions. In Guatemala these concessions are usually medium-sized, while in e.g. Honduras they are overwhelmingly small scale concessions;


• Selective logging is the primary focus of most concessions. However, sustainable forest management is still limited, due to a number of constraints, such as limited certified forests, ownership disputes, diseconomies of scale for small scale community managed concessions and a high share of informal activities (e.g. illegal logging and wood processing);

• Most non-wood forest products (NWFP) in the region are for local subsistence use, although some are sold in national and international markets as ingredient for health and beauty care products and medicines. Overall this is a very limited industry though, in which other Latin American countries (notably Bolivia, Brazil and Peru) have been more successful. As such they may provide an example for Central America;48

• Ecotourism is another form of economic activity that may be indirectly linked to the forestry sector – it is essentially an environmental service provided by forests among other things. Costa Rica forms a good example of this form of exploitation of its natural attractions, such as its forests, to attract tourists. The country has successfully applied this strategy and eco-tourism now forms “the back-bone of its economy” (FAO, 2009).

Trade & investment • Current trade patterns in forest products present a rather mixed picture, although for

all countries these are not major export products. Figure V.2.1 provides an overview of the development in export values per country;

• Clearly Guatemala is the main exporter of forest products, followed by Honduras, this latter however has seen a drastic decline in exports since that since 2001. Both countries focus their exports in round wood (logs), instead of higher value added wood (processed) products.

Figure V.2.1 Trade in forest products, export value (thousand US Dollars)

48 In these South American countries exploitation and marketing of NWFP has particularly benefitted indigenous groups living

in the forests. Experiences until now on the Isthmus have been mixed. Previously, the processing and commercialisation of Ojón palm nut oil in Honduras has been assessed as uneven in revenue distribution and as causing health hazards, while adding to depletion of local wood resources. However, this is currently being improved in cooperation with NGOs.


Source: FAO

• Similar to the situation for round wood and carved products, there are also

cooperatives and associations dedicated to the exploitation of different wood products such as resins and other derivatives. Forestry services are still little developed, except in Costa Rican and Panama, where they are emerging.

• Unlike in Nicaragua, where 95 percent of forests are in privately owned areas, forest in Panama and Guatemala are frequently in indigenous areas and the State recognizes the indigenous people’s rights to exploit the land. However, indigenous people generally do not have enough experience or resources to invest, and are forced to work with large forestry companies. In some cases this is a disadvantage for the communities, as it does not generate enough income, added value nor allows for regeneration of the forests.

• Investment levels in sustainable forestry are still very low; for example in the government budget of Guatemala only half a million dollars are included for training of technical personnel for scientific methods of forest development and management plans. In Honduras, also small amount of resources are used in the sustainable field through the regional training school ESNACIFOR. El Salvador, Costa Rica and Panama do not have plans to invest public funds, but they promote sustainability certification to companies as a requisite to compete and sell their products. Costa Rica and Panama firms generally pursue Rainforest Alliance or Forest Stewardship Council (FSC) certification in order to obtain financing and orders, as well as many firms in the other countries, and some technological centres and universities help in disseminating the certifications, including preparation and training.

Deforestation, climate change and biofuels policies • Deforestation is a major problem in most of Central America. Estimations indicate

that in the past 15 years, 20 percent of the countries’ forests have been destroyed.49 Figure V.2.2 and Table V.2.8 provide an overview of the extent of forest cover and deforestation n the region over the past two decades.

Figure V.2.2 Central America – Forest Area, (% of total area)

Source: World Bank, 2007


Table V.2.8 Forest cover and deforestation in Central America (1990-2005)

Total land

area

Total forest

cover 2005

% of

total

land area

Primary

forest

cover 2005

% of total

land area

Total de-

forestation

1990-2005

Loss of

primary forest

1990-2005

Country (1000 ha) (1000 ha) (1000 ha) % 1990 cover % 1990 cover

Belize 2,296 1,653 72.5 612 26.7 0.0 0.0

Costa Rica 5,11 2,391 46.8 180 3.5 -6.7 -29.4

El Salvador 2,104 298 14.4 6 0.3 -20.5 0.0

Guatemala 10,889 3,938 36.3 1,957 18.0 -17.1 -17.0

Honduras 11,209 4,648 41.5 1,512 13.5 -37.1 0.0

Nicaragua 13 5,189 42.7 1,849 14.2 -20.6 0.0

Panama 7,552 4,294 57.7 3,023 40.0 -1.9 -18.4

Total 52,16 22,411 43.9 0.0 -18.9 n/a

Source: http://rainforests.mongabay.com/20neotropical.htm

• As an extreme example, in Honduras, the forest area has dropped from 67 percent in 1990 to around 40 percent in 2005. The most affected species are broadleaf forests and mangrove swamps that have been lost as a result of the expansion of the agricultural frontier, shrimp farming, extensive husbandry, coffee growing and other domestic industrial and handicraft activities. Pine forests still have the same covered area, but deterioration of the quality and density are also an important issue;

• In Honduras, Guatemala and Nicaragua, one of the main causes of deforestation is the use of wood as an energy source by poor people who do not have access to electricity or gas (although this varies for different areas). In addition, Guatemala and Honduras are known to have conceded vast areas for industrial wood logging, as well as cattle production. In these countries the impact of this personal use of wood as energy source is higher than the damage caused by wildfires;

• Deforested lands due the agricultural frontier expansion are often not suitable for agricultural products; therefore using land for this purpose increases erosion. This represents a growing risk of flooding during rain and hurricane seasons – as was the case when Hurricane Mitch hit the region in 1998 with devastating effects;

• Sedimentation of rivers downloading coastal zones also causes serious deterioration of forests, as well as hydroelectric dams built in areas with flood risk. According to most scientific sources on Climate Change, deforestation is one of the sources of emissions that contribute to global warming; therefore the conservation of these resources is a strategic asset for the EU and the world;

• According to the FAO, “in most Central American countries, net forest loss declined from 2000 to 2005 in comparison with the decade 1990 to 1999, with Costa Rica achieving a net increase in forest area. Also in the future the rate of deforestation is expected to decline, as small-scale agriculture becomes uneconomic, with abandonment of marginal farmlands, increasing opportunities for alternative sources of income and growing urbanization, stabilizing and recovering some of their forest area;”50

50 FAO (2009)


• With high population densities in the region and increasing urbanization, forest clearance is likely to decline. However, high food and fuel prices could favour continued forest clearance for production of livestock and agricultural crops for food, feed and biofuel to meet the global demand. Sustainable forest management will continue to be a challenge in a number of countries where land tenure is poorly defined;

• Guatemala, Costa Rica and Honduras have taken some steps to kick off a bio-fuel industry from agricultural and forestry products – for example they have a defined the Technical Specification B1,000 for biodiesel – but biofuel production is still in its infancy in the region. Guatemala has a draft Law on biofuels, Costa Rica and Honduras are preparing one, while in El Salvador and Nicaragua do not have anything in place as of yet;

• The future of biofuels in Central America is uncertain at this stage, and will depend on prices of foodstuffs, regulations and incentives, and the progressive renewal of the automotive park. One determining factor is international oil prices, with USD 60 / barrel considered as a critical threshold for bio-fuel production to become profitable51.

Main issues in the sector relevant to the AA • Although forestry is protected by legislation in all the countries, the judicial system

does not have the capacity to enforce these rules and penalize violators. The most common offenses are related to illegal logging, transport and counterfeit documents, as well as land invasion, slash and burning of forests, processing of wood on the banks of rivers and illegal harvesting of public trees. Official production, employment and trade figures may therefore not reveal the entire picture and secondary impacts of trade and investment liberalisation could be more substantial than what appears at first glance, while mitigation of potential negative impacts necessitates the addressing of enforcement issues;

• Further development and improvement of sustainable forestry management is a complex issue and will require public and private involvement such as the Central American Commission for Enviornment and Development’s (CCAD) PERFOR project (Strategic Regional Programme for the Management of Forest Ecosystems), as well as investments and awareness raising and involvement of small-scale holders and addressing of enforcement issues;

• There is regional potential for expanding bio-fuels production, but given the region’s poor track record with deforestation and forest management, this should be closely monitored and framed within a sustainable development policy;

• NWFP and forest based environmental services such as biodiversity, water regulation and climate change mitigation services and eco-tourism, have the potential of growing in importance for the region and could further support sustainable forest management initiatives and the addressing of issues related to indigenous – often impoverished – groups.

51 Expertise Centrum voor Duurzame Ontwikkeling (ECDO), (2006)



2.4.1. European Union sustainability impacts

Considering the marginal expected effects of the FTA on the EU forestry sectors in all scenarios, direct and indirect economic, social and environmental impacts are also expected to be negligible. Therefore we only highlight a number of key potential issues, which may be more substantial due to their regional concentration.

Economic impacts European Union Trade and investment • EU imports of forestry products are expected to increase slightly, although this is

unlikely to have a displacement effect for EU production and employment; • To the extent that the FTA encourages demand for plant, equipment and services

related to forestry management, a small increase in trade of these goods and services from the EU to Central America could be expected, as EU operators have extensive experience in this area and could make use of new trade and investment opportunities opened up by the FTA;

• To the extent that the AA opens up further opportunities in forest based services in Central America and possibly biofuels production, this may provide enhanced trade and investment opportunities for e.g. carbon credits, eco-tourism, sourcing of raw or semi-processed materials for bio-fuel production, etc. In other words, AA impacts on the forestry sector potentially impact trade in other sectors as well.

Social impacts European Union Considering the small expected overall impacts of the FTA on the sector and particularly the fact that prices and employment are not expected to change, social impacts by all accounts can be expected to be negligible.

Environmental impacts European Union The direct changes for the environmental indicators induced by the EU-CA FTA that are related with the forestry sector are mostly estimated to be negligible for the EU due to the insignificant change in sector output.

However, many environmental impacts are cross-border and even global in nature. Although direct impact of the FTA on the forestry and forest based sector is expected to be limited, close monitoring of potential secondary effects, particularly related to deforestation and climate change is required. In Europe climate change already appears to impact many sectors of society. Higher temperatures and more intense droughts are producing a rising trend in the number and severity of forest fires in the Mediterranean. These threaten forestry, farming, tourism and the suitability of the land for habitation. The contribution of the EU-CA FTA to these processes will be so small that it is hard to attribute to the agreement per se, but rather to the overall trends of which it forms a part. .

On the positive side, to the extent that the FTA opens up increased opportunities for provision of forest based environmental services, it may also assist in mitigating climate change issues. No measurable effect is expected for any of the other environmental indicators in the EU.


2.4.2. Central America sustainability impacts

Economic impacts Central America • Overall the impact of the FTA on the forestry sector is expected to be small but

positive in percentage terms of output and trade for all Central America countries with the exception of Panama (if included);

• Considering the low production volumes and particularly the low volumes of trade between the EU and Central America in forestry products, the overall real impact of the EU-CA FTA in the Central America forestry sector is expected to be rather limited, with the exception of certain positive effects on output, employment and exports in Nicaragua, Honduras and Guatemala, where value added and labour shares of the sector are slightly higher than in the rest of Central America;

• Nicaragua’s potential to gain from the FTA crucially depends on its ability to address infrastructure constraint, as presently there is limited transport to reach many areas;

• Panama is expected to experience decreasing output mostly due to the decrease in wood product output, as comparative advantage shifts towards other sectors.

Real income • Considering the relatively small size of the sector in Central America, we do not

expect any significant impacts on real income. However, for certain groups, real income could be affected through increased employment opportunities, while the price increases in several countries may affect consumers (see below under social impacts);

• Real income changes are closely related to employment and price changes. In our modelling results, expected employment impacts follow more or less output increases or decreases, with the exception of Costa Rica, with employment decreasing slightly in the most comprehensive scenarios, while output and prices increase. This indicates increases in productivity and value added as more output at a higher value added can be produced with less labour. The effects on real income of people remaining in the sector would be positive, including increases in labour and wage levels. With its already more advanced level of production in the sector, Costa Rica thus seems able to further expand its competitive advantage as a higher value added producer;

• In Guatemala and Honduras, on the other hand we expect increases in employment that are bigger – in percentage terms – than increases in output. This could indicate a focus on more labour intensive segments of the industry. To the extent that this allows SME and small landholders to increase their share in the sector, this could have a positive real income effect in certain areas and for certain groups;

• In Nicaragua we expect employment increase the long run, especially in the areas in which the landholders are indigenous. It will depend upon the effort in construction of highways and the legalization and titling of the land, as large portions of rural land in Nicaragua do not have yet an official cadastre level;

• Insofar environmental forestry services and development of NWFP can be further developed and exploited within the context of the FTA and AA, there is a potentially positive real income effect on particularly small holders and indigenous groups – contingent on a number of conditions such as (enforcement of) clear property rights, adequate investment in sustainable forestry management, etc.


Trade and investment • Trade is not expected to increase significantly in overall volume terms, but for some

countries, notably Costa Rica, Nicaragua and Honduras in percentage terms we expect some increases in exports, and improvements in the trade balance (as imports increase less);

• In forest based products (wood products and paper & pulp industries) we expect more pronounced shifts with Guatemala, Honduras and particularly Nicaragua increasing their exports of these products, although due to low base values, the effects on output in these sectors is expected to be limited. In all three countries output in the PPP show a small expected increase, while wood products outputs is expected to slightly decrease;

• In order to be able to realise these benefits and ensure sustainability, the sector will need to attract investments for forestry management, development and marketing of NWFP and forestry environmental services and to improve infrastructure. Such investments could come from different sources, including public and private and including domestic and foreign sources. Improvement of investment conditions and provision of specific incentives are crucial in encouraging these much needed investments and in combination with the FTA/AA may encourage more EU investments in the sector in Central America;

• In terms of plant and equipment for wood processing as well as forestry management services, EU providers have a significant competitive edge. To the extent that the FTA encourages further trade and investment in these activities, this could encourage a dissemination of EU knowledge and technology towards the Central America forestry sector;

• EU requirements on environmental protection, sustainability criteria and wood certification, is likely to push local companies to improve their practices on forest exploitation and environmental conservation, and as such may have a positive impact. Yet it could also become a barrier for smaller local companies that do not have enough resources to make the necessary adjustments;

• Central American countries have considerable opportunities to benefit from the growing demand for global public goods provided by forests, especially carbon sequestration and storage. This potential may be positively impacted by an FTA, as it could promote investments and promote policy dialogue and assistance. Nevertheless, realizing the potential for forestry services expansion will require substantial improvements in policy and institutional framework. Planted forests and reforestation are likely to increase, promoted by private investments and carbon credit projects, however, it is unlikely that the increased planting rate will be sufficient to offset the rate of deforestation52.

Social impacts Central America Employment & decent work • As indicated above, employment increases are expected to be modest, given the low

shares of employment in the sector at present and the limited expected effect on overall growth of the sector. However, employment opportunities and losses may be

52 FAO (2009)


concentrated in certain areas and among certain groups, implying (un)employment among these groups may be affected in a more pronounced way;

• Expected employment increases as derived from the model should also be tempered somewhat as we expect some increases coming from ‘formalisation’ of jobs, implying they are not net jobs created. The positive effect of such conversion, however, lies in the fact that formal labour conditions and pay tend to be better than those for informal employment;

• EU emphasis on decent working conditions and health and safety certification could encourage improvement in these fields of local and international employers; however, this also hinges on further improvement of local labour laws and their enforcement, especially in plantations and in relation to migrant and temporary workers.

Poverty and equality • The small but positive employment impacts in most countries could have a positive

effect on poverty reduction, as most employees in the sector belong to the poorer segments of society. However, this effect could be reduced if all gains go to large plantation holdings and property rights of indigenous groups are not adequately enforced;

• The small and medium industries dedicated to the development of the forest by-products (usually cooperative) will be strengthened since they sell their by-products to larger firms thereby increasing the income of the inhabitants of the rural areas, mostly poor and/or indigenous population;

• The forestry sector and much of the forestry linked sectors is concentrated in certain areas in each country (Peten in Guatemala, Olancho in Honduras, etc.). Therefore, the expected negative changes in output and employment levels in some of the sub-sectors (notably wood products) could affect these areas more significantly than overall impacts would suggest;

• As an activity that takes place in rural areas, where half of the Central America population lives, combined investments of the European and local private sector in forestry products – especially NWFP – and forestry environmental services could have a positive impact on reducing unemployment, especially informal employment, increasing wages and improving working conditions among some of the poorer segments of society in Central America. Best practice examples for such development exist in Latin America and Europe and could be used for further strategy development of national governments;

• Frequently, in many forestry rural communities, women are the head of households, as their partners have migrated illegally to the United States or other countries. Development of the forestry sector (environmental services and NWFP in particular) could thus have a positive effect on women in the region.

Education The increased need for forestry management skills and compliance with higher EU standards and sustainability criteria is likely to increase the demand for education and training in this area. Already a number of training programs by US and international institutions is in place. Such institutions and centres could be further encouraged under the AA and cooperation programmes between the two regions.


Environmental impacts Central America Atmosphere • As described under the EU impacts, the increased activity in the sector as a

consequence of the FTA could have both positive and negative effects on GHG emissions and climate change. This crucially hinges on the development of sustainable forestry management and forest based production. Illegal logging practices remain an issue and if not addressed could be exacerbated by further trade liberalisation;

• The relative lack of a well developed bio-fuels policy and framework in Central America could result in unsustainable practices once trade is further liberalised and demand increases. Contrary to reducing GHG, increased biofuels production may then actually have a negative impact on emissions as its footprint becomes bigger than its positive impacts through reduced vehicle emissions.

Land and water quality • The dangers of soil erosion, water scarcity and reduced water quality (e.g. through

salinisation) as a consequence of deforestation have been well recorded. Again, if increased activity in the sector is not flanked by adequate addressing of illegal logging and wood processing, the ultimate impacts of trade liberalisation may be negative for land and water quality. In making these assessments we should of course keep in mind that in the grand scheme of Central America deforestation issues, the EU-CA FTA is but a minor contributor to the overall problem. Moreover, through the AA and flanking policy measures it presents opportunities to address in a more coordinated way the issues at play.

Biodiversity and natural resources stock • Forests and particularly primary rainforests contain some of the world’s richest and

most unique eco-systems and biodiversity. Central America is home to many rare species of plants and animals, that depend crucially on the forest. Sustainable forest management thus affects not just local, but global biodiversity issues. Similar as argued above, in this respect the EU-CA FTA/AA both poses challenges and offers opportunities;

• Similarly the EU biofuels policy could have a substantial impact and this warrants close monitoring. Honduras and Nicaragua and Guatemala are increasing the land allocated to palm oil for biofuels, which could reduce forestry areas. Likewise, El Salvador is increasing the land used for sugar cane plantations for biofuels, and reducing other crops, including that of its basic staple, corn;

• To the extent that enhanced FTA also leads to increased dialogue and assistance with regards to sustainability issues and possibly (flanking) negotiations on FLEGT/VPA, environmental impacts could be positive, as the EU has much to offer in terms of experience with sustainable forestry management and FLEGT could reduce illegal logging in the medium to long run.


2.5. Conclusions


Economic and social impacts Economic and social impacts in the forestry sector in the EU are expected to be small to negligible in the EU, as output, prices and employment are not expected to change.

Trade and investment opportunities may arise, especially for forestry management services and equipment, while trade in forestry services may also be given a boost by the FTA in combination with other EU environmental policies.

Environmental The environmental impacts of the EU – Central America FTA are considered to negligible for the EU forestry sector, while at the global level – thus also affecting the EU – there is a potential increase in global GHG emissions if deforestation is not adequately addressed. On the positive side the opening up of trade and investment opportunities in forest based environmental services may have positive impact on mitigation of climate change issues.


Economic • Overall economic impacts for the forestry sector are expected to be limited as a

consequence of the relatively small size and importance of the sector and low base values of trade flows;

• A limited impact – in percentage terms – on forestry output is expected, while trade flows – mainly exports – are expected to increase for all countries.

• Increased trade flows will partially depend on the addressing of some infrastructural bottleneck in e.g. Nicaragua;

• Small increases in output for paper and pulp are expected in Guatemala, Nicaragua and El Salvador / Honduras, while all countries are expected to see a decline in the output of wood products;

• The interconnected nature of the sector and high level of informal / illegal activities may imply that outcomes are underestimated and this warrants close monitoring of developments with regards to illegal logging, biofuels production, enforcement issues, etc;

• The FTA/AA (in combination with national policies and measures) may enhance the region’s potential for developing forestry based environmental services and NWFP.

Social • The substantial involvement of informal workers and indigenous (poorer) groups in

the sector is likely to imply that employment impacts – although limited overall – may be more pronounced for these marginalised groups, potentially having a positive effect on poverty reduction. The same holds true for the possible development of forestry based environmental services and NWFP, the latter which have benefited particularly indigenous groups in e.g. Peru;


• It must be noted though that the large involvement of informal employment in the sector could imply that the employment effects will be less pronounced than the model outcomes would suggest due to the formalisation effect - i.e. part of the jobs are filled by people previously working informally in the sector, thus real employment effects are limited;

• If land use and property rights of particularly small-holders and indigenous communities are not properly protected, the increased activity in the sector could benefit only a small group of large producers and would thus have limited poverty alleviation effects.

Environmental • Although direct impacts of the FTA on the environment through increased outputs of

forestry and forest based sectors are expected to be limited and as such are not likely to affect logging practices substantially, indirect impacts may be more pronounced. For instance, competing land uses such as for vegetables, fruits and nuts and for bio-fuels production may put pressure on forested areas;

• Insofar if increased activity in the sector and linked sectors is not flanked by adequate addressing of illegal logging and wood processing, the ultimate impacts of trade liberalisation may be negative for land and water quality, biodiversity and natural resources use;

• In making these assessments we should of course keep in mind that in the grand scheme of Central America deforestation issues, the EU-CA FTA is only one of the contributors to the overall problem. Moreover, through the AA and flanking policy measures there are opportunities to address in a more coordinated way the issues at play;

• The relative lack of a well developed bio-fuels policy and framework in Central America could result in unsustainable practices which threaten forest areas and regional food security, once trade is further liberalised and demand increases.


2.6.1. Eurpean Union

• Inclusion of sustainable development chapter and of specific environmental issues in the sector chapter. e.g. related to the furniture industry, tourism, etc;

• Develop monitoring and evaluation system and conduct ex-post assessments of the implementation and impacts of the FTA and AA; consider environmental issues in an integrated manner and look at related activities / products and the entire value chains to trace impacts and address enforcement issues;

• Many of the pressures on forest resources are a consequence of complex, interlinked economic activities (forestry, processing industries, food production, bio-fuels production, etc.), which make it difficult to simply attribute cause and effect of the FTA on the sustainability pillars. In addition, conflicting information often exists on the extent of actual land use change. Therefore better monitoring of land use change is required to ensure that forestry and other natural resource legislation is being properly implemented. The EU and Central America should develop a joint monitoring programme, based on satellite imagery and GIS mapping, which can be


used to relate the requirements of formal land use and development plans to actual land cover within any member country;

• In the context of the FTA and wider AA closer cooperation is needed between EU and Central American countries on the development of policies relating to production and use of biofuels and bio-energy, including cooperation and assistance on complying with the biofuels sustainability criteria;

• Include FLEGT/VPA as part of the AA and flag the VPA in the FTA SD chapter; • Promote certification and due diligence programs and assist Central America

countries with compliance; • Explore the role that trade and investments in forest based environmental services can

play; • Provide assistance and encourage technology and knowledge dissemination on

forestry management and sustainable forest products and biofuels production e.g. through investments, fair trade programmes, exchange programmes for students and educational programmes in the region, etc.


• Also on Central American side, the role that trade and investment in forest based environmental services and NWFP can play should be explored. In doing so, Central American governments and NGOs should stimulate and cooperate with local populations and communities to develop and exploit such opportunities further. Best practice examples for such development exist in Latin America and Europe and could be used for further strategy development of national governments;

• Central American governments should promote and provide incentives and conditions for sustainable forest management – e.g. through education and awareness raising – as well as better enforcement of existing legislation relevant for the protection of forests with assistance and technical expertise from the EU;

• It is necessary to develop effective mechanisms to monitor compliance with regulations of both local and international operators, aimed at protecting the environment and fair conditions and labour practices;

• The expected negative impact of the EU – Central America Agreement in forestry linked sectors (wood products, paper and some agricultural products), especially in Costa Rica, Panama, and to a lesser extent in the other countries, will require taking active labour and other social measures in the most affected regions. Such measures should include re-skilling of labour, temporary safety nets, and promoting new employment sources in the affected countries and regions.


3. Textiles and clothing

3.1. Introduction

This chapter deals with the expected impacts of an FTA between the EU and Central America for the textiles and clothing53 (T&C) sector, which comprises: • The treatment of raw materials, including natural and man-mad fibres; • The production of knitted and woven fabrics, i.e. knitting and weaving; • Finishing activities, such as bleaching, printing, dyeing, impregnating, coating,

plasticising, etc.; • The transformation of those fabrics into products such as: garments, knitted or woven

(the so-called “clothing” industry), carpets and other textile floor covering, home textiles (e.g. bed linen, table linen, curtains, etc) and technical or ‘industrial’ textiles.54

The distribution sector constitutes the last element of the so-called “textile and clothing chain” and is therefore important for all T&C products which are sold to the final consumer. Although some T&C companies have set up their own distribution networks in the framework of their vertical integration strategy, the manufacturing and distribution sectors remain very different in their characteristics and nature, and should therefore be treated separately.55 In the current study, this sector is not included.

Generally, activities tend to become more labour-intensive further upstream in the value chain, while the average firm size becomes smaller. Thus, while yarn spinning and textile mills tend to be more capital intensive and large scale set-ups, transformation activities (essentially the clothing industry) tend to be highly labour intensive and average firm size in this segment is small.

Figure V.3.1 illustrates the textile and clothing value chain, linking the different elements discussed above.

53 The clothing industry is also often referred to as the wearing apparel or the garment industry Throughout the chapter we will

use all three terms, which are considered synonyms for the purpose of this assessment. 54 In the light of the fast pace of innovation in technical (or ‘industrial’) textiles, there is no generally accepted definition of this

part of the textile industry. It relates both to kinds of products and to the application of textiles to particular uses. Examples of (high-tech) products are high tenacity yarns, or special elastic or coated fabrics, all of which have a high technology content.

55 http://ec.europa.eu/enterprise/textile/development.htm.


Figure V.3.1 Production and application value chain in textiles and clothing sector

Non-conventional textiles processing

Source: European Monitoring Centre on Change (2008) “Trends and drivers of change in the European textiles and clothing sector: Mapping report.”


Model results are presented separately for the textiles and wearing apparel sectors in the two tables below.

Table V.3.1 Model outcomes of the FTA impact on the Textiles sector (% change)

Comprehensive FTA

Short Run

Comprehensive FTA

Long Run

Very

Comprehensive FTA

Short Run

Very

Comprehensive FTA

Long Run

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

EU

Output 0.0 0.0 0.0 0.0 0.0 0.0 0.1 0.1

Prices 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0



Skilled labour 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Costa Rica

Output -7.1 -7.1 -7.5 -7.6 -16.3 -16.3 -18.2 -18.2

Prices 1.4 1.3 1.5 1.5 3.5 3.5 4.2 4.2

Exports value -7,6 -8,3 -17,6 -21,2


Skilled labour -6.7 -6.7 -7.3 -7.3 -15.2 -15.2 -17.8 -17.9


Guatemala

Output 4.3 6.0 4.7 6.4 6.7 8.6 7.6 9.4

Prices -0.6 -0.7 -0.5 -0.7 -0.8 -0.9 -0.8 -0.9


Comprehensive FTA

Short Run

Comprehensive FTA

Long Run

Very

Comprehensive FTA

Short Run

Very

Comprehensive FTA

Long Run

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama


Imports value -0.6 -0.5 -0.7 -0.6

Skilled labour 4.3 5.8 4.5 6.0 6.6 8.4 7.1 8.9


Nicaragua

Output 0.8 1.0 1.1 1.3 0.8 1.0 1.3 1.5

Prices -0.1 -0.2 -0.2 -0.2 -0.1 -0.2 -0.2 -0.3



Skilled labour 0.7 0.9 1.2 1.4 0.6 0.9 1.3 1.5


Panama

Output -5.1 0.2 -10.5 0.3 -5.4 0.1 -5.7 0.0

Prices 1.0 -0.1 1.9 -0.1 1.1 -0.1 2.1 -0.1

Exports value -5.4 -10.5 -4.4 -9.6


Skilled labour -5.1 0.2 -8.9 0.3 -5.5 0.1 -9.3 0.3



Output 3.0 3.3 4.3 4.6 3.3 3.6 5.4 5.7

Prices -0.5 -0.5 -0.7 -0.7 -0.5 -0.5 -0.8 -0.8



Skilled labour 3.1 3.3 3.5 3.8 3.5 3.8 4.2 4.6


Table V.3.2 Model outcomes of the FTA impacts on the Wearing Apparel sector (% change)

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive FTA

Long Run

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

EU

Output 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Prices 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0



Skilled labour 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0


Costa Rica


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive FTA

Long Run

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Output -7.8 -7.7 -8.4 -8.4 -17.3 -17.3 -20.2 -20.2

Prices 1.5 1.5 1.7 1.7 3.8 3.8 4.7 4.7

Exports value -8.7 -9.7 -19.8 -24.0

Imports value 5.4 6.2 11.0 15.2

Skilled labour -7.3 -7.3 -8.1 -8.1 -16.3 -16.3 -19.7 -19.8


Guatemala

Output 1.3 1.7 1.4 1.8 2.2 2.6 2.3 2.7

Prices -0.6 -0.7 -0.5 -0.7 -0.8 -0.9 -0.8 -0.9



Skilled labour 1.5 1.9 1.5 1.9 2.5 2.9 2.4 2.8


Nicaragua

Output -0.1 0.1 0.2 0.4 -0.4 -0.2 0.0 0.2

Prices -0.1 -0.1 -0.1 -0.2 0.0 -0.1 -0.1 -0.1



Skilled labour -0.1 0.1 0.3 0.5 -0.5 -0.3 0.1 0.3

Unskilled labour -0.3 -0.1 0.1 0.3 -0.8 -0.5 -0.2 0.0

Panama

Output -2.5 0.0 -5.6 0.0 -2.5 -0.1 -5.7 0.0

Prices 0.7 0.0 1.4 0.0 0.8 0.0 1.6 0.0

Exports value -3.6 -7.6 -1.1 -5.2


Skilled labour -2.9 0.0 -4.6 0.0 -3.0 -0.1 -4.8 0.0

Unskilled labour -3.2 0.0 -5.0 0.0 -3.6 -0.1 -5.2 0.0


Output 1.5 1.6 2.4 2.5 1.3 1.6 2.8 3.0

Prices -0.3 -0.3 -0.4 -0.5 -0.3 -0.3 -0.5 -0.5



Skilled labour 1.7 1.9 1.9 2.0 1.8 2.0 2.1 2.2


Model outcomes European Union Considering the low levels of trade in EU textiles and wearing apparel with Central America, the FTA is not expected to have any significant impact on the EU, as illustrated in the two tables above. It must be noted here that the substantial difference in size of the EU economy and T&C sectors in comparison to those of the Central America countries, implies that absolute


changes in output and trade due to the FTA may translate into less than 0.01 percent change for the EU, but relatively big changes for Central America. In addition, at overall EU level this may not be much, but at lower levels (regional, national or even sub-national), these effects could potentially be quite substantial.

Model outcomes Central America The simulations show that the biggest impact of the FTA in percentage terms can be expected in Costa Rica, where output, exports and employment are expected to decrease by up to approximately 20 percent in the most comprehensive FTA, both for textiles and clothing. Combining the above model outcomes with sector value added gives a more complete picture of the impacts, as it provides some insight into where real impacts will indeed be significant. Table V.3.3 provides value added and shares of value added in total value added for the textiles and wearing apparel sectors in the EU and Central America.

Table V.3.3 Value added textiles and wearing apparel sectors EU and Central America

Country

value added

textiles

share of textiles

VA in total VA

\value added

clothing

share of clothing

VA in total VA

EU 51,097.97 0.47% 53,214.21 0.49%

Costa Rica 72.99 0.40% 126.88 0.70%

Guatemala 85.74 0.33% 322.91 1.26%

Nicaragua 65.27 1.77% 199.69 5.41%

Panama 11.82 0.10% 175.63 1.49%

El Salvador & Honduras 948.57 4.31% 817.13 3.71%

Thus while in textiles the biggest percentage increase in output can be expected, it is in El Salvador and Honduras that the increase in outputs and exports are expected to have a more significant impact, as sector value added in these countries is 4.3 percent of total value added, compared to only 0.33 percent in Guatemala. These figures also put the substantial expected decrease in output for Costa Rica in both textiles and wearing apparel in perspective, as they make up only 0.4 and 0.7 percent of total value added respectively.

In Panama the decrease in output and exports of textiles are not likely to have substantial impacts given the low share of value added of this sector. However, for clothing the impacts may be somewhat more pronounced, given its higher share of value added.

Nicaragua presents yet another picture. Although the share of value added in this country of textiles and particularly clothing is relatively high, output, employment and trade impacts are expected to be limited. This suggests a rather narrow industrial base combined with limited comparative advantage to exploit in case of further liberalisation. The sector thus shows only limited growth.

Overall the most significant sector impacts are thus likely to occur in Honduras / El Salvador and Guatemala.



Textiles and wearing apparel are often seen as exemplary of the process of internationalisation of production, or globalisation. The wearing apparel industry, which is predominantly labour-intensive, is dominated by SMEs and employs a large share of females. It was one of the first industries to become functionally disintegrated or de-verticalised, allowing for the relocation of different parts of the production chain across the globe to locations best suited for the different characteristics of each activity, i.e. labour-intensive assembly in locations with cheap abundant labour, design activities close to markets, specialised fabric production close to raw material sources, etc..

“The garment industry is one of the most globally dispersed of all industries across both developed and

developing countries, with some garment companies having their goods produced simultaneously in as

many as forty countries around the world. It is an organisationally complex industry, containing elements

of both very new and very old organisational practices, and changing constantly in its organisation and

geography. Apparel manufacturing has been employed by many developing countries as an engine for

export oriented industrialisation and employment creation. The sector has received more systematic

and persistent protection than any other and has been the subject of trade tensions between developing

and developed nations.” (Smakman, 2004).

The ongoing process of globalisation and restructuring has affected workers and economies worldwide, which in turn has led to numerous trade measures and disputes. The quantitative restrictions in place for decades have largely been removed. On of the most important trade restricting measures that dominated the sector for decades was the quota system, which was formalised in 1974 under the Multi Fibre Agreement (MFA) and later replaced by the Agreement on Textile and Clothing (ATC). The latter served to phase out the quota system, which was finally removed in 2005. Labour issues – another area for which the sector is well-known – are increasingly under the scrutiny of public opinion, leading to a degree of self regulation in the industry through corporate codes of conduct. Despite these recent developments, certain trade, social and environmental issues continue to play a role in the industry and will be elaborated on in this chapter.


Sector specific structure and issues • The textile and textile products manufacturing sub-sector contributed 3.1 percent to

total manufacturing value added in the EU27 in 2006, down from 4 percent for the EU15 in 2002. The sector’s share of total manufacturing employment in the EU was slightly higher at 7.1 percent,56 which was indicative of the sector’s high labour intensity.57 Table V.3.4 gives an overview of structural indicators for the industry in 2007.

56 Eurostat, 2008. 57 Eurostat, 2008.


Table V.3.4 Textiles and Clothing industry structural indicators (2007)

Indicator Value 2007 % growth 2006/2007

Total employment 2.474.932 -6,4

Total number of firms 175.830

Turnover (billions euros) 211,3 1.2

Investment (billions euros) 5,6 0.9

Source : EURATEX estimates (with Man-made Fibres and small companies)

• Between 2000 and 2005, the EU clothing market was characterised by limited growth in major markets (consumption of clothing as a share of total consumption has decreased), overall stagnation of prices and increasing imports from China at the cost of both domestic production and imports from elsewhere;

• Extensive restructuring of the sector between 2000 and 2005 lead to a 30 percent drop in textiles output and 20 percent drop in clothing output. In 2005 alone, the T&C sector contracted by 8.5 percent, while production in the textile and textile products manufacturing sub-sector decreased by 32 percent between 1996 and 2006. More recently the sector’s decline seems to be tapering off, with output stabilising in 2007, despite a drop in exports and an increase in imports. It thus seems that by 2006 this extensive restructuring phase was more or less completed and output stabilised again and the industry saw some improvements again, e.g. in turnover. At present the sector is feeling the effects from the economic crisis, as most other sectors do as well;

• After some positive developments in 2000–2001, apparent labour productivity in the EU textiles and clothing sector has remained at €24,300 per person employed since 2004. Between 1996 and 2006, growth in production was even more negative than that of employment, indicating stagnating productivity.58 Labour productivity and productivity growth are below EU averages for the manufacturing industry;

• The sector is characterised by strong regional concentration at the EU and sub-national levels, with a strong concentration of the sector in (regions in) Italy, Spain, Portugal and several of the new member states, such as Romania, Bulgaria, Slovenia, Estonia and Lithuania. Although the latter may not be big producers in absolute terms compared to some of the old member states (Italy and France), their industrial bases tend to still be narrower, and the T&C sectors thus make up a relatively large share of total manufacturing value added and employment in these countries and sub-regions within them;

• The average firm size in the T&C sector is particularly small: SMEs accounted for more than 70 percent of total value added in the sector in 2005.59 Moreover, the share of micro-enterprises among these SMEs is high, with an estimated 78 percent of these firms having less than 10 employees. Textile companies tend to be slightly bigger on average with the smallest firms – often small family businesses – involved mostly in clothing production. Only a limited number of manufacturers still have integrated operations;

• The EU is a net importer of textiles and clothing. In the more capital-intensive textile industry, production, export and employment decreases have been less pronounced. Consequently, the textile industry still showed a positive trade balance up until 2006

58 Eurostat, 2008. 59 Eurostat, 2008.


and even in 2007 the negative trade balance in textiles was only a fraction of that for clothing. The 2008 trade deficit for T&C was approximately Euro 43 billion, which was largely attributable to Clothing trade, which had an estimated trade deficit of 42 billion in 2008. The main contributor to this trade deficit is China;

• EU imports from China rose by 14.3 percent to € 27.5 bln in 2007, accounting for as much as 34.3 percent of the EU import market, leaving Turkey a distant second with 16.0 percent.60 The main suppliers of textiles to the EU were China, Turkey, India, Pakistan and Switzerland, while China, Turkey, Bangladesh, India and Tunisia made up the top five suppliers of clothing to the EU. Total imports amounted to approximately Euro 79 billion in 2007;

• Despite restructuring and reductions in output, employment and exports, the EU is still a sizeable player in the global T&C sectors. In 2006, exports of textiles and textile products constituted 3 percent of total EU27 exports61 and the value of total T&C exports in 2007 was Euro 36 billion. Main export destinations for clothing include – in order of importance – the more mature markets of Switzerland, Russia, the USA, Japan and Hong Kong. The latter also forms a gateway to other countries in Asia, indicating the rising importance of this region as a market. EU clothing exports are mostly in higher end segments and branded goods. For textiles, the picture is slightly different, as EU higher end textiles still have a competitive advantage and are often used as inputs for clothing production outsourced to other countries, particularly to the Mediterranean countries. Thus the top five export destinations for EU textiles included the USA, Turkey, Tunisia, Morocco and Switzerland (2007).

Main issues in the sector relevant for AA • Trade in T&C between the EU and Central America is relatively limited if compared

to other trading partners. The main focus of the Central American region is clearly on the US, while the EU’s main trading partners are other OECD countries, Asia and the Mediterranean region;

• Generally speaking the EU has a positive trade balance with Central America in textiles and woven garments, and a negative trade balance in other made up garments. In value terms trade in knitted or crocheted garments is the largest category, while imports of ‘other made textile articles, sets, worn clothing etc.’ has seen the biggest increase between 2000 and 2006. Table V.3.5 provides an overview of EU imports from and exports to Central America in main T&C product groups;

• After the phase out of the MFA and expiration of the ATC in 2005 – effectively removing all quota barriers – the main barriers to trade in T&C sectors now seem to have shifted increasingly to NTB issues, including IPR protection (particularly for branded, high-end apparel and technology-intensive products and processes); labelling requirements and standards and Rules of Origin and the customs procedures this entails. In addition, trade defence instruments such as anti-dumping measures are frequently being used in these sectors;

• The T&C sector is sometimes seen as exemplary for some more negative aspects associated – rightly or wrongly so – with globalisation, including sweat shop conditions, exploitation of (migrant) workers, child labour, unsafe working conditions, etc. With increasing public awareness in main consumer markets (the EU

60 http://www.reuters.com/article/pressRelease/idUS93173+27-Jun-2008+BW20080627. 61 Eurostat, 2008.


and US) of these issues, increasing pressure has been put on both companies and governments to address and prevent these issues, through codes of conducts, labour regulations, unionisation, etc. Another good example of emerging partnerships to address labour conditions are the CSR agreements that have been made between employers and trade unions;

• Labour exploitation practices are often seen by producers in developed countries as unfair competition – keeping labour cost low by exploiting labour and not complying with the labour standards and laws that EU producers have to adhere to. They have therefore often joined in with international labour union councils as well as NGOs in lobbying their own government for measures to address these issues, including trade measures.62 Although labour issues appear less prevalent in the textile sector – due to lower labour intensity – than in the clothing and footwear sectors, worker health and safety remain important issues in this industry as well, for instance in the process of cotton yarn spinning (dust) and chemical usage (e.g. dyestuffs, glue, tanning processes).

62 Rivoli, P. (2006) “The Travels of a T-Shirt in the Global Economy: An Economist Examines the Markets, Power, and Politics

of World Trade.”


196

Table V.3.5 EU-15 textiles and apparel imports from and exports to Central America (million Euros)

HS Products 2000 2001 2002 2003 2004 2005 2006

% change

2000-2006

59 Impregnated, coated or laminated textile fabric

Imports 77,055 19,561 17,778 14,587 15,894 9,304 6,955 -91%

Exports 3,304,640 2,156,014 1,988,812 2,220,858 1,445,557 1,862,210 3,441,746 4%

Balance 3,227,585 2,136,453 1,971,034 2,206,271 1,429,663 1,852,906 3,434,791

60 Knitted or crocheted fabric

Imports 24,264 1,030 27,964 19,134 4,278 .. 13,760 -43%

Exports 740,873 568,615 652,282 1,165,744 1,730,976 800,669 1,850,006 150%

Balance 716,609 567,585 624,318 1,146,610 1,726,698 .. 1,836,246

61 Articles of apparel, accessories, knit or crochet

Imports 33,941,986 26,783,267 28,259,151 31,903,640 42,064,767 37,821,946 70,369,248 107%

Exports 7,034,128 6,462,245 9,672,726 10,171,518 11,293,267 11,985,828 14,976,508 113%

Balance -26,907,858 -20,321,022 -18,586,425 -21,732,122 -30,771,500 -25,836,117 -55,392,740

62 Articles of apparel, accessories, not knit or crochet

Imports 8,459,108 6,090,924 6,084,585 8,161,326 7,044,029 5,873,227 9,003,794 6%

Exports 20,146,530 19,177,064 22,900,692 20,161,642 23,190,478 22,560,039 25,063,839 24%

Balance 11,687,422 13,086,140 16,816,107 12,000,316 16,146,449 16,686,812 16,060,046

63 Other made textile articles, sets, worn clothing etc

Imports 2,020,900 2,550,272 4,724,770 6,954,375 9,726,450 8,977,468 10,222,648 406%

Exports 2,199,804 3,467,033 2,474,358 4,301,660 4,396,058 1,673,884 2,961,968 35%

Balance 178,904 916,761 -2,250,412 -2,652,715 -5,330,392 -7,303,584 -7,260,680

65 Headgear and parts thereof

Imports 102,168 107,627 104,167 124,601 86,048 87,510 148,157 45%

Exports 406,523 348,818 482,014 575,631 418,929 489,809 756,547 86%

Balance 304,355 241,191 377,847 451,030 332,881 402,209 608,390

Data extracted on 02 Jun 2009 from OECD.Stat


• EU Consumers are becoming more conscious with respect to green activities, non-toxic and environmentally friendly consumer goods, etc. Major EU buyers have responded to this public awareness by viewing their products from an ecological standpoint and establishing certain requirements, incorporated into their Corporate Codes of Conduct. T&C manufacturers are encouraged to re-examine the whole life cycle of their products with the aim of minimising hazards to humans and the environment at every stage, from manufacture to disposal. They are also asked to pay special attention to the selection of dyes and chemicals, ensuring the products are low in formaldehyde, free from pesticides, heavy metals, etc.63


Sector specific structure and issues • The Central American T&C sector was estimated to employ some 394,000 people or

3.2 percent of the total work force in 2003.64 With the phase of out of the ATC and subsequent surge in Chinese apparel exports and more recently as a consequence of the financial crisis in the US,65 this number is likely to be lower today;

• The Central America T&C sectors are strongly export oriented and have formed the back-bone of the export oriented industrialisation strategies of many Central America countries. The main market for Central America exports continues to be the US and the region’s T&C sector is highly dependent on this market, for both it inputs and sales;

• Due to the geographical location and the low salaries compared with industrialized countries, Central America has for decades been a very convenient place to subcontract the cutting and sewing activities of garment production in so-called Maquila66 plants. The liberalization strategies of the Central American economies, as well as the Caribbean Basin Agreement and the Central America Free Trade Agreement (CAFTA) signed in 2005 with the United States increased the FDI in Free Trade Zones (FTZs) in Central America. This investment allowed for the rapid increase of productive exports, including clothing in all of Central America (especially Honduras, El Salvador, Nicaragua and Guatemala). The textiles and clothing industries in particular have become exemplary of maquila production and exports. As a consequence clothing production is highly export oriented in Central America;

• Overall, the textile and clothing sector depends on imports for most of its yarn and fabric requirements. This is partly due to the fact that locally produced fibres and fabrics are not available in the quality and quantity needed to meet the demands of the garment export industry, and partly because preferential access programmes and agreements with the USA have tended to encourage the use of US yarns and fabrics;

63 www.intertek-labtest.com/brochures/Eco-Textiles. 64 Assessment of long-term competitiveness of the Central American textile and apparel industries and need for Free Trade

Agreement (2003). IBERC Group, Division of ST&R for American Apparel & Footwear Association. 65 One estimate puts the job loss in the sector as a consequence of the crisis in Nicaragua alone at close to 19,000 jobs “The

country that has been most affected is Nicaragua, where this year alone some 19,000 jobs have been lost due to the close of at least 9 textile companies in the industrial parks belonging to the Free Zone Corporation.” (www.centralamericadata.com/en/article/home/Crisis_affects_textile_industry_in_Central_America)

66 Factories subcontracted to produce and assemble different products such as computer parts, footwear, textile or clothing


• There is a limited amount of intra-regional trade and specialisation in the sector, while all countries seem to have followed the same strategy, developing an export oriented (i.e. US oriented) maquila based industry with limited local linkages;

• Today, more than 170 maquilas in the Central America region are manufacturing “full package” clothing products (meaning that the subcontractor company is in charge of the full process – from buying the fabric and other raw materials to the final packaging and export);67 and 850 companies are “pure maquilas”, implying they are only involved in garment assembling and packaging.68 These approximately 1,000 maquilas are located in 85 industrial parks, where “officially” between 400,000 – 500,000 people work, mainly women (70 – 90 percent of maquila workers are women). However, subcontractors, informal workers and related industries could triple the number of people depending on this industry;

• As indicated, the entire Central America region depends heavily on clothing exports to the US market. El Salvador is the most dependent, as 68.8 percent of its manufacturing exports towards the USA are in textiles and clothing. Honduras follows with 65.8 percent, Nicaragua with 54.7 percent and Guatemala with 40.3 percent. Costa Rica is the only exception: only 7.7 percent of its exports to the US are in T&C;

• Maquila manufacturing is characterised by labour intensive activities, making the maquilas one of the main sources of employment in all countries. The investment in this sector continues to be attractive due to the availability of labour at relatively low costs, relatively good conditions of the facilities in the industrial parks and capacity of sea ports to ship the goods to their main markets in North America. For this reason, Central America governments have given the investors strong incentives and other stimuli to set up production facilities;

• According to the Maquila Association of Honduras (AHM), clothing represents more than 80 percent of the maquila industry in all Central America countries, except Costa Rica, but this proportion is decreasing with the introduction of electronics, automotive components and machinery parts manufacturing and with strong competition from China in particular. Table V.3.6 provides an overview of key figures for the maquila industry in Central America.

Table V.3.6 Key figures for maquilas and FTZs in Central America*

Country Employment

(persons)

Average wage

(US dollars)

Exports

(% Total)

Value Added

(% Total Exports)

Costa Rica69 43,060 610.4 57.7 10.2

El Salvador 79,868 167.5 48.0 16.5

Guatemala 144,361 179.4 43.3 7.4

Honduras 130,145 316.1* 60.4 20.9

Nicaragua 80,515 94.9 47.9 13.3

67 These full-package suppliers are often referred to as Original Equipment Manufacturers (OEM). 68 Often subcontractors are only involved in the cut-make and trim (CMT) activities, in which main contractors or buyers

provide the fabrics, or even just make and trim (MT), in which case cut fabrics are supplied. 69 More than 90 percent of Central America Maquila and Trade Zones industries comprise Textile or Clothing sector, except

for Costa Rica, where the T&C sector represents between 20 – 30 percent of total maquila and FTZ production. No detailed official data were available.


* More than 90 percent of Central America Maquila and Trade Zones industries comprise Textile or Clothing sector, except for Costa Rica, where the T&C sector represents between 20 – 30 percent of total maquila and FTZ production. No detailed official data were available. ** Figure is for 2005 (ECLAC) Source: ECLAC, 2006

• According to the UN Economic Commission for Latin America – ECLAC – almost

500.000 persons work for maquilas and free trade zones in Central America in 2006. Guatemala and Honduras are the countries with most workers (144,361 and 130,145 respectively). This number does not represent the real number of workers as many maquila factories and subcontracted SMEs have informal labour relations with workers. There is no official data about informal workers, but it is estimated that there are at least two persons with informal or indirect relationship per formal worker. Honduras has the highest share of exports from maquila plants. Box V.3.1 below presents a short case study of the maquila industry in this country.

Box V.3.1 Maquila production of textiles and clothing in Honduras

The Honduras case is presented as an example of the clothing maquila manufacturing, as it is the largest exporter in the region. In Honduras, the Gross Added Value of manufactured goods (in current values) represents about 7.6 percent of national GDP for the 2005-2007 period. Moreover, the contribution of the textile and clothing activity to the aggregate value of the manufacturing industry was 42.7 percent in 2007.

The number of companies in manufacturing activity during 2007 was 342. The textile and clothing industry continues to have the largest share of T&C companies, with 49.4 percent of the total.

Table 1 Number of Companies involved in Manufacturing and Connected Commercial Activities (2005-07)

2005 2006 2007

Economic Activities No. % No. % No. %

Textiles and garments 153 50 160 51 169 49.4

Commercial activities 55 18 59 18.8 71 20.8

Other activities (1) 62 20.3 60 19.2 68 19.9

Services to businesses 24 7.8 21 6.7 21 6.1

Electronic & vehicle components 12 3.9 13 4.2 13 3.8

TOTAL 306 313 342 (1) Includes tobacco, plastics, wood and other manufacturing / Source: Central Bank of Honduras

The number of persons employed at the end of 2007 in manufacturing was 134,007 persons. Textiles and garments absorbed 77.1 percent of this employment.

Table 2 Number of persons employed in Manufacturing and related Activities (2005-07)

Economic Activities Total 2005 % Total 2006 % Total 2007 %

Textiles, garments and

furrier's

100,311 80.1% 100,537 77.2% 103,377 77.1%

Electronic components

and pieces of vehicles

9,886 7.9% 12,905 9.9% 13,609 10.2%

Other activities (1) 4,543 3.6% 6,308 4.8% 7,150 5.3%

Elaboration of Tobacco

Products

3,415 2.7% 3,382 2.6% 3,427 2.6%

Manufacture of Furniture

and Wood Products

3,006 2.4% 3,509 2.7% 2,852 2.1%


Services to businesses 2,435 1.9% 1,871 1.4% 1,880 1.4%

Trade 1,628 1.3% 1,633 1.3% 1,712 1.3%

TOTAL 125,224 100.0% 130,145 100.0% 134,007 100.0% (1) includes: Fruits, plastic and paper products and plasterboard, other manufactures, etc. Source: Banco Central de Honduras

Employment by Gender At the outset, manufacturing companies employed mostly female labour (over 70 percent of total employment in the sector), but this proportion has decreased in 2007 to 53.1 percent, with male labour predominantly employed in the newer electronics industry and automotive components manufacturing industries. The textile sector remains the most important employer of female labour, due the workmanship needed in garment manufacturing.

Investment of Manufacturing Companies according to the origin of capital From the start of the DR - CAFTA Agreement, 29 new companies have been set up, of which 17 are with American capital. At present, 38.6 percent of all manufacturing companies installed in Honduras are of US origin. Nevertheless, the number of companies with Hondurean capital has also increased, so in 2007 12 new companies were set up with national capital, reaching 30.1 percent of the total. On the other hand, those companies with Asian capital diminished by 12 companies, most of them moved to Nicaragua, and therefore their participation decreased form 22.4 percent in 2006 to 17.0 percent in 2007.

Table 3 Number of Companies in Goods Manufacturing and Related Activities by Origin of Capital (2005-2007)

Origin of the

Capital

Companies

2005

Participation

%

Companies

2006

Participation

%

Companies

2007

Participation

%

USA 112 36.6 115 36.7 132 38.6

Honduras 79 25.8 91 29.1 103 30.1

Asian countries 79 25.8 70 22.4 58 17.0

Mixed 29 9.5 32 10.2 42 12.3

Other 7 2.3 5 1.6 7 2.0

TOTAL 306 100.0 313 100.0 342 100.0

Source: Banco Central de Honduras

• Regarding labour conditions, violation of freedom of association is one of the most

serious flaws at the maquila factories. Dismissal is common for employees who organise themselves, while other actions to prevent and/or to make the association or meetings difficult are also commonly applied, including:

- Hiring of young workers, with little or non trade union organizational experience;

- Pressure on union leaders to avoid the organization of other workers in trade unions;

- Temporary contracts, which facilitates the non-renewal of the contract as a way of keeping workers ‘docile’;

- Assignment of most difficult and worse remunerated tasks to unionized workers;

In the absence of rigorous inspection / enforcement of labour laws by the Ministry of Labour, and due to the dispersed geographical location of the maquilas, these practices can still take place. Nevertheless, some studies carried out in the Central America region show that workers, especially the younger ones, consider their jobs in the maquila industry as an opportunity for emancipation and liberation from


patriarchal authorities of local family and companies. “Factory workers” are perceived as having a higher value in society than being a “domestic employee”, which is usually the only other option for unskilled labour.

• It should also be noted that although the labour situation and abuses within the maquilas have often been described, the situation in small producer companies and sub-contractors of the maquilas is often worse than in the maquilas and go largely unnoticed.

• Women from rural areas, represent around 30 percent of the workforce in clothing and textile maquilas. Maquila management also prioritises hiring young women, with low qualifications and preferably single, although recent decent work certifications (Global GAP) have done much to improve their conditions and eliminate much of child labour.

Main issues in the sector relevant for AA • The maquila industry experienced a negative impact after the phasing out of the quota

system, which substantially increased trade between the United States and China at the cost of Central America-US trade. Nicaragua and Guatemala experienced the most negative impact, while the rest of Central American countries managed to soften the impact somewhat by focusing on their strength in shorter lead times to the US markets relative to their Chinese competitors. However, the rapid loss of market share in the US clearly illustrates the strong dependence of the region on this market stresses the importance for the Central American T&C industry of diversifying its markets in order to survive increased global competition. This trend of decreasing exports is clearly depicted in Figure V.3.2.

• The figures illustrate the decreasing relative trend in EU imports of clothing from Central America. Although trade in the T&C sectors between the EU and Central America is small in comparison to Central America-US trade, this decreasing trend could be reversed and some compensation for loss in US market shares could be offered by the FTA with EU.

• There still exist a number of NTBs in Central America that affect market access for the EU T&C sectors in particular. These include complicated and elaborate labelling requirements, cumbersome and in-transparent customs procedures, IPR infringements and limited alignment of technical standards and regulations with internationally accepted practices (e.g. ISO standards).


Figure V.3.2 Accumulated Growth of Clothing Exports and Inter-annual and Accumulated Growth of Clothing imports by EU

Source: BCIE


Interpreting the modelling outcomes in the context of the current situation and issues in the T&C sectors in the EU and Central America allows us to make a more in-depth assessment of the potential AA impacts.


3.4.1. European Union sustainability impacts

Economic impacts European Union As the direct expected impacts of the FTA on the T&C sector in the EU is negligible, secondary economic effects are also assessed to be too small to be of any significance. Only for textiles a marginal increase in output is expected in the case of the very comprehensive agreement. This reflects the competitive advantage that the EU still has in some – especially higher-end – textiles.

As regards market access, an offensive interest for EU T&C producers, this will depend crucially on the addressing of a number of NTBs, while overall market opportunities are not expected to be substantial.

The only impacts in the EU may become tangible at lower (regional or sub-regional levels), where the absolute impacts (e.g. closure of a company) may be concentrated and have a relatively bigger impact. However, the available information and model outcomes do not allow us to make more in-depth assessment of impacts at these lower levels.

Social impacts European Union As the direct expected impacts of the FTA on the T&C sector in the EU is negligible, secondary social effects are also assessed to be too small to be of any significance. Again, in specific regions with high concentrations of T&C activities, some social impacts could be felt, e.g. if older T&C workers become redundant and cannot immediately find / switch to another job.

Environmental impacts European Union As the direct expected impacts of the FTA on the T&C sector in the EU is negligible, secondary environmental effects are also assessed to be too small to be of any significance.

3.4.2. Central America sustainability impacts

Economic impacts Central America Real income • Effects on output in the textile sector in all countries are expected to be positive,

except in Costa Rica, with its relatively higher labour costs. However, the T&C sector of this country is quite small (2.7 percent of total manufactures70 and less than one percent of total value added) and the real income effects should not be of great significance to the economy as a whole. In selected areas or for selected groups, negative real income effects may be more pronounced though (see also below), while on the other hand the real income effects for the workers that remain in the industry could in fact be positive, as prices and factor returns increase – in other words the value of products produced increases. This is also reflected in the model results, where prices are expected to increase, while the value of total output decreases, implying a volume reduction (less products, but at higher prices). It must be noted

70 ECLAC, 2006


here that the reduction in output and employment in the sector in Costa Rica is due to a pull from other sectors, where wages are higher and which expand due to the FTA. As labour becomes scarcer, wages are expected to increase slightly.

• Honduras and El Salvador, followed by Guatemala and Nicaragua are expected to see an increase in output and labour, which could be further encouraged if coupled with investments in infrastructure to facilitate trade further. As the sector tends to employ young and predominantly female workers, real income effects for these groups could thus be positive, as employment opportunities increase. Moreover, expected employment increases are relatively smaller than output increases, implying some gains in productivity, which should translate into higher factor returns and thus have a positive impact on real income.

• The small price reductions experienced in all countries but Costa Rica could have a slight positive real income effect on consumers.

Trade • Overall trade is expected to increase for all Central America countries, with the

exception of Costa Rica and Panama (if included). Moreover, in Guatemala, and Honduras / El Salvador exports are expected to increase more (in percentage terms) than imports, implying an improved balance of trade;

• As the Textile sub-sector represents only 10 percent of the T&C sector in the Central America region (compared with Clothing) the impact for textile exports will be marginal;

• Because of the distance between EU market and Central America, it can be expected that EU clothing buyers will prefer “full package” manufacturing rather than “pure maquila” (sewing and cutting from raw material provided by client) in order to avoid material procurement risks and increase process efficiency. This situation implies the possibility that the AA will encourage the strengthening of higher value added production and trade and development of more additional activities regionally;

• Opening of new business opportunities for T&C industries from EU countries will provide a chance to diversify the exports destination and reduce the existing dependency on North American markets, and of US and Asian investment in the maquila sector.

Investment • The FTA is expected to have a positive impact on T&C investment – almost

proportional to increase of production in each country. However, it is not likely that these investments will come from EU producers. Rather, a preferential agreement with the EU is expected to make the region more attractive as an investment location for third country investors, particularly from Asia and potentially from the US, as setting up in the region could give them preferential access to the EU. The extent of this preferential access will depend in part on the Rules of Origin regime applied.

Social impacts Central America Employment/Labour issues • Overall positive employment impacts are expected for Central America, with the

exception of Costa Rica, where the sector is, however, of lesser importance in employment terms as well. This increase in employment is more or less the same for skilled and unskilled workers, with a slightly more favourable outlook for skilled


workers in the longer term. The latter implies a shift towards higher value added (more complicated) products and processes. Although it is possible that skills of existing workers are upgraded, there is also a possibility that female workers, who tend to be employed in the lowest skilled jobs, will thus benefit less than their male counterparts;

• The T&C sectors (worldwide) are known to employ some of the most vulnerable workers and have shown tendencies towards violations in terms of decent work principles. Care must therefore be taken that increased openness and competition in the sector and increased competition for attracting FDI does not lead to a so called ‘race to the bottom’, where labour rights are traded off against competitive pressures. Ultimately, focusing on low cost labour supply and production has proven to be an unsustainable road to development (see e.g. Gereffi et al, 2001; and Smakman, 2004)71 and upgrading of processes and products therefore is paramount not just for retaining competitiveness, but also for improving working conditions in the sector;

• On the positive side, if managed well, increased output, investments and exports could have positive effects in terms of labour standards in the sector. As investments and modernisation of facilities, products and processes take place, health and safety standards and other working conditions should improve. In addition, corporate codes of conduct, the continued incorporation into national policies of decent work principles, and tripartite cooperation to implement these concepts could go a long way in addressing labour issues in the T&C sector, conditional on the adoption and enforcement of better labour standards by governments and companies alike.

Poverty • One of the most important causes of poverty in Central America is the high level of

unemployment or informal employment with no benefits. Increase in the formal T&C activity through new investments and additional trade could therefore lead to increased employment opportunities and decreases in poverty levels;

• In Costa Rica poverty in some communities or areas may initially increase, as the sector contracts and workers need to find other employment. It is expected that the biggest employment impact in the sector will be caused by pull factors, in other words workers will be drawn to higher paid jobs in sectors gaining in competitiveness. Only the least flexible workers (e.g. older workers) are thus more likely to experience these negative impacts;

• The employment increases in the sector may lead to further migration from rural to urban areas and/or FTZs (maquilas), which could have a negative impacts on the rural areas they leave behind, as these workers tend to be the more productive parts of the population in these areas;

Health & education • Such increased rural to urban migration could lead to some agglomeration problems

(lack of capacity to offer adequate public services, sanitation, education, and housing) in the urban areas / FTZs;

71 Gereffi, G.; Humphrey, J.; Kaplinsky, R. & Sturgeon, T.J. (2001) “Introduction: Globalisation, Value Chains and

Development”, Special Issue IDS Bulletin, 32(2), pp.1-8; Smakman, F. (2004) “Local Industry in Global Networks. Competitive Adjustment, Corporate Strategies and Pathways of Development in Singapore and Malaysia’s Garment Industry.” PhD Thesis, Utrecht University, The Netherlands. Rozenberg: Amsterdam. (http://igitur-archive.library.uu.nl/dissertations/2004-0616-130904/inhoud.htm).


• Increases in real income and household income could have some positive indirect effect on education levels, as families are less dependent on supplemental income from children and are more able to fund education for their children.

Equality • New employment sources in the sector, especially if coupled with the possibility of

training/education will allow Central American women, especially indigenous women, to emancipate themselves and free themselves of inequitable social/family conditions.

Environmental impacts Central America Atmosphere • Increased pollution from higher levels of production and transport of materials and

finished products is expected to lead to a slight increase in GHG. To the extent that the AA encourages modernisation of plants and facilities, this could imply less polluting modes of production, thus mitigating the emissions increase somewhat.

Land • It is not expected that the small increase in output and investment will bring a

significant increase in the use of industrial land, or conversion of agricultural land into industrial use, as it is expected this can take place on existing sites.

Biodiversity • It is not expected that the small increase in output and investment will put significant

pressures on biodiversity, as it is assumed that increased production will not encroach on natural areas or convert these natural areas into industrial sites; rather output increases are expected to take place on existing sites;

• To the extent that waste and waste water produced by factories is not adequately taken care of, i.e. is dumped in natural water sources or land, biodiversity issues could become more pertinent. This warrants close monitoring of environmental standards in production plants.

Fresh water, waste and environmental quality • Some increased pollution may be expected from the increases in outputs form the

textiles sector, which uses chemicals in dyeing and other finishing processes, and thus produces potentially harmful wastewater. Considering the small overall size of the sector in Central America, this effect is not expected to be substantial, but warrants close scrutiny, as inadequate environmental standards can have significant and lasting impacts on water and other natural resources, as well as on health of both workers and people living close to the factories.

3.5. Conclusions


• Overall sustainability impacts for the EU textiles and clothing sector are expected to be marginal. Textiles output may in fact increase slightly, which could result in a more pronounced effect in some regions / sub-regions;


• Increased trade and investment opportunities may encourage outsourcing of clothing manufacturing to Central America, but this is an optimistic assessment and it is more likely that investment increases in Central America will come from other sources;

• As a market Central America is less attractive, due to its low levels of GDP and relatively small populations; with longer term predicted income growth in the region, this may change in the mid to longer term, in which case especially higher-end EU products should see market opportunities emerge in the region. Again, this is an optimistic assessment and crucially hinges on the addressing of some pervasive NTBs in Central America.


• While the T&C sector in the Honduras, El Salvador and Guatemala should grow, Costa Rica and Panama will experience negative impact. Nevertheless the size of the Textile and Clothing industry in these last countries is so small that the real impact should not be too negative for the overall economy;

• The AA is expected to have a positive impact on investments, however, we expect these to originate mainly from Asia and the US, as the AA provides access to EU markets for producers in Central America. The RoO regime plays an important role in the extent to which will take place;

• Increase in the trade relations with the European Union countries in this sector will increase somewhat exports – even if the distance is a hurdle – and improve the trade balances. It may also open up opportunities for diversification of export markets and reduced dependence on the US market, although this impact is expected to be small;

• The expected increase in employment, especially of Central American women, is expected to reduce the levels of poverty and mitigate illegal immigration to the USA. But an increase of internal immigration is foreseen towards the urban centres where maquilas are located, offering new employment opportunities;

• In the short term, the increase in production is expected to generate pressure on urban services, the quality of water and to increase pollution levels in urban communities where the maquilas are located. The increasing demands of the new internal migrants on public services, education, access to clean water, health services, etc., will undoubtedly be a problem which will have to be balanced with investment in infrastructure and services in these areas.



• Inclusion in the AA of a Sustainable Development chapter and continuation of the initiatives under the GSP+ system in the area of labour and social policy and decent work issues;

• Encourage mainstreaming of trade policy and assistance programmes to facilitate addressing of environmental and social (adjustment) issues in the context of the T&C sector and wider economies of Central America;

• Provide information, education and training to EU T&C companies and especially SMEs in understanding the agreement and its requirements, as well as Central


America markets, so as to encourage them to make us of the opportunities arising from the AA.


• Address existing NTBs, e.g. by simplifying labelling requirements, improving transparency and efficiency of customs procedures, and establishing a strong IPR protection regime. This can be done using international forums and commitments as a starting point, especially WTO proposals;

• Work towards the alignment of technical regulations and standards with international practices;

• Further promote the enforcement of labour regulations, (such as health and & safety, decent work, worker rights protection, etc.) as a means to attract EU investment in maquila plants and access critical EU markets;

• Ensure that labour laws must also protect essential workers rights such as association and trade unions;

• Promote internationally accepted and recognised certification for producers and their subcontractors and support the adoption of CSR best practices and programmes for improving the conditions of the maquila supply chain, usually informal workers and small firms;

• Strengthen forward and backward linkages (linking the domestic and external sectors), encourage further regional integration and specialisation, develop niche markets and improve the investment climate and infrastructure, as this could provide a positive impetus to the competitiveness of the Central America T&C sector and reverse the negative trend that is discernible since the beginning of this century. The EU-CA AA may encourage and promote this process through flanking and enhancing policies by Central America governments and assistance / cooperation between the EU and Central America;

• Improvement of the surrounding infrastructure and services (education, health, sanitation, roads, ports, communications, etc) is a priority, foreseeing the increase of population in urban and neighbouring areas;

• Develop flexible labour markets through e.g. re-skilling or vocational training programs in order to help workers moving from sectors that will decrease labour demand to new industries or activities that will demand them, especially in Costa Rica and Panama, which expect a decrease in employment;

• Promotion of cluster/integration programs. A goal for the region should be the integration of the domestic industries and the maquila plants in order to reinforce the local market and increase the national production.


4. Electronics

4.1. Introduction

The electronic equipment sector covers a wide range of products, from small components (e.g. batteries) to end products (e.g. power generators). The mass market for consumer electronics is well-known (e.g. TVs, mobile telephones), but the sector is also an important provider of products to other sectors (e.g. for IT infrastructure, for the transport sector, the telecom sector, etc.).

The sector consists of component manufacturers and equipment manufacturers. Equipment manufacturers can be so-called original equipment manufacturers (OEM) or subcontractors to OEM. These subcontractors can provide Electronics Manufacturing Services (EMS) or design services (ODM).


Model results for the electronics sector are presented in Table V.4.1 below.

Table V.4.1 Model outcomes of the FTA impact on the Electronics sector (% change)

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive FTA

Long Run

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

EU

Output -0.1 -0.1 -0.1 -0.1 -0.4 -0.4 -0.4 -0.4

Prices 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Exports value -0.1 -0.1 -0.3 -0.4


Skilled labour -0.1 -0.1 -0.1 -0.1 -0.3 -0.3 -0.4 -0.4


Costa Rica

Output 10.1 10.4 12.3 12.6 31.2 31.5 42.5 42.9

Prices -0.8 -0.8 -1.0 -1.1 -2.0 -2.1 -3.1 -3.1

Exports value 10.8 12.9 33.5 44.8

Imports value 7.1 8.6 22.2 30.2

Skilled labour 8.0 8.3 9.2 9.5 25.8 26.1 31.5 31.8



Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive FTA

Long Run

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Guatemala

Output 3.6 5.1 4.5 5.9 0.7 2.4 2.4 4.0

Prices -0.8 -1.1 -1.0 -1.2 -0.6 -0.9 -0.8 -1.1

Exports value -17.5 -16.9 -21.3 -20.6

Imports value -1.6 -1.8 -0.3 -0.5

Skilled labour 0.3 0.3 4.9 5.3 1.1 2.6 2.1 3.6


Nicaragua

Output 1.1 0.2 -1.6 -2.3 -7.4 -8.3 -11.3 -12.0

Prices -0.3 -0.2 0.0 0.1 0.7 0.9 1.3 1.4

Exports value 0.0 -3.3 -6.7 -10.0

Imports value -0.7 -0.2 -0.5 0.1

Skilled labour 0.7 -0.1 -1.4 -2.1 -7.2 -8.0 -1.7 -1.7

Unskilled labour 0.5 -0.2 -1.6 -2.3 -7.4 -8.2 -2.0 -2.0

Panama

Output -23.4 0.5 -26.6 0.5 -27.0 0.5 -30.3 0.5

Prices 4.7 -0.1 5.3 -0.1 5.5 -0.1 6.2 -0.1

Exports value -28.6 -32.0 -31.3 -34.7

Imports value 12.9 13.5 15.2 16.0

Skilled labour -20.7 0.5 -22.7 0.4 -24.0 0.4 -22.0 0.3



Output 16.9 16.9 23.3 23.3 39.0 39.1 50.6 50.6

Prices -2.1 -2.1 -2.8 -2.8 -4.2 -4.2 -5.2 -5.2

Exports value 21.4 28.3 53.2 66.3

Imports value -1.9 -2.1 -4.1 -4.6

Skilled labour 14.7 14.8 19.1 19.1 33.4 33.5 40.9 40.8


Model outcomes EU In the EU, production of electronic products decreases marginally in percentage terms, by 0.4 percent in the very comprehensive scenario. Employment levels for skilled and unskilled labour decrease by the same percentage. These results together therefore suggest no significant changes in labour productivity as a result of the AA. Also for trade the effects are only marginal: the value of exports decline with a maximum of 0.4 percent, while imports increase up to 0.2 percent, slightly worsening the overall the EU’s overall (already negative) trade balance for electronics.


Model outcomes Central America In terms of output, the AA has a significantly positive effect on the production of electronic equipment in Costa Rica (increase of more than 40 percent in the most ambitious scenario), and in Honduras and El Salvador (more than 50 percent in the most ambitious scenario) and to a lesser extent in Guatemala, while output declines in Nicaragua (minus 12 percent in the most ambitious scenario). If Panama would be included, the electronic sector in this country would experience a significant drop in production, mainly because resources are pulled to more competitive sectors. Without their participation in the AA, the effect on the country’s electronic equipment sector is negligible.

Similar changes are predicted for employment levels for all countries under the AA, for both skilled and unskilled labour.

The impact on trade is significant for all countries. Exports increase most in Honduras and El Salvador (up to 66.3 percent) and Costa Rica (up to 44.8 percent), while exports decline in Panama (up to -34. 7 percent), Guatemala (up to -20.6 percent) and Nicaragua (up to -10.6 percent). Imports increase most in Costa Rica (up to 30.2 percent) and Panama (up to 16 percent), but are much smaller for the other countries. These changes are in line with specialisation according to comparative advantage.

Although the percentage changes are big for many of the Central America countries, it is important to note that only in Costa Rica the sector plays a significant role in the economy, accounting for more than 7 percent of total value added in the country. For the other Central America countries, the sector plays a very marginal role in value added, employment and trade (e.g. the sectors accounts for a maximum of 0.1 percent of total value added in the other countries). For these countries therefore, the impact of the AA on the economy may be large in percentage terms, but is only marginal when considered in absolute terms.



Sector specific structure and issues In 2006, total turnover of the sector in the EU amounted to nearly EUR 320 billion. Furthermore, it employed some 2.8 million people (8 percent of total manufacturing employment) in more than 18,000 companies. The structure of the sector has two different types of companies: there are a small number of big companies producing a wide range of products, and many SMEs producing a very small number of products, particularly in niche markets. This latter category contains a relatively high number of micro-enterprises (1-9 employees).72 72 Source: Electra (2008) “Twenty Solutions for growth and investment to 2020 and beyond” and Van den Eynde-Coppin

(2005) The Manufacture of electrical and electronic equipment in the EU, Statistics in Focus 6/2005, Eurostat.


The electrical and electronic sector is considered to be a very important sector, not only in terms of production and employment, but also because the sector is an important driver of innovation in the EU, as it provides high-technology inputs to other industry and services sectors. The sector faces competitiveness challenges, in light of the increasing competition of China, but also because of lower productivity and R&D levels as compared to e.g. the USA. As a result of these competitive challenges and the role of the sector in innovation, the sector receives special attention as part of the Lisbon Agenda.

The sector employs both high and low skilled labour, with the latter category mainly in production. As subcontracting in the sector has steadily increased over the past two decades, production is increasingly relocated to lower wage countries. Within the EU, there has also been a relocation of production. Eastern Europe is emerging as a new global hub for the electronics manufacturing industry. This development started during the mid 1990s with the manufacturing of high-volume electronic products for Western Europe-based firms and shifting to the region.

The sector currently suffers from the global economic crisis, and a sharp contraction of the sector is expected in 2009. It is therefore likely that employment in the sector will further decline, while the trend towards outsourcing may accelerate as companies have to find ways to remain competitive. The electronic sector is also considered to be important in the context of climate change. On the one hand contributes to pollution (mainly through energy use, use of chemicals and heavy metals, and waste), and the EU therefore aims to cut 20 percent CO2 emissions in ICT industries. The growing energy consumption related to the use of electronic equipment is a cause for concern. The International Energy Agency (IEA) reported in May 2009 that measures to reduce the energy consumption of mobile phones, computers, TVs and other electronic devices are failing to keep up with soaring global demand for new appliances. The IEA predicts that energy use by new electronic gadgets will triple by 2030. This acts against efforts to improve energy security and keep emissions of global warming gases under control. At the same time, the sector can also positively contribute to the environment. It continuously develops new products with higher energy efficiency, and also helps to make production processes more efficient in other sectors. The EU has a relatively strong focus on energy equipment, as compared to other big producers of electronic equipment (USA, Japan, and China).

Main issues in the sector relevant for the AA Trade between the EU and Central America in the electronics sector is limited. Costa Rica is the most important trading partner for the EU in the sector, although it still only accounts for a very small part of total EU imports (less than 1 percent). EU exports to the region are even smaller. Given that both production of electronic products (supply) and the market for electronic products (demand) are relatively small in Central America, compared to other regions in the world, and the competition for EU exporters from North America and Asia is relatively large in the region, the sector will not show a great interest in this AA.


The EU has relatively high standards with respect to health, safety and in particular environment. This implies that EU products will be relatively environmentally-friendly and less hazardous for humans. At the same time, these standards pose barriers to trade, including for Central American exports to the EU. A number of notable examples include Registration, Evaluation and Authorisation of Chemical substances (REACH), which limits the use of certain chemicals, the Waste Electrical and Electronics Equipment Directive (WEEE), under which producers are held liable for the collection, treatment and recycling of waste arising from their products, the Restriction on the Use of Hazardous Substances (RoHS), which restricts the use of certain heavy metals, and ecodesign requirements for energy using products. Other examples of standards include the Electromagnetic compatibility Directive and the Low Voltage directive.


Sector specific structure and issues As already noted earlier, in terms of production, value added and trade, the electronics sector is not of major importance for most Central American countries, except for Costa Rica. Costa Rica is the only country that has been able to create a comparative advantage in electronics (CEPAL, 2007). CINDE, an important promoter of foreign direct investment in Costa Rica, shows the increase in relative importance of the electronics sector since the late 1970s, today being the largest contributor to the Costa Rica’s manufacturing output, capital investment and exports.

The main electronics products produced in and exported from Costa Rica are integrated circuits and electronic microstructures (45.3 percent of total electronics exports, with a F.O.B. value of 1,211 million US dollars), computer parts (23.7 percent, with a F.O.B. value of 633.3 million US dollars) and electronic cables and other material (8.9 percent, with a F.O.B. value of 237.2 million US dollars).

This expansion of the electronics sector in Costa Rica is a result of an active government of export diversification in manufacturing products. Especially as of 1994, an aggressive policy of investment attraction was followed. Investment was also attracted by the creation of Free Trade Zones and other special investment regimes. The investment of Intel is the biggest success of this policy, after which others followed (e.g. Abbot, Procter and Gamble, and Microsoft). Also, Costa Rica’s long term investments in education and health created the necessary human capital conditions for this diversification.

Intel accounts by far for the largest share of electronics production (PROCOMER, 2007), and has a huge impact on the country’s GDP (to a point that several studies consider a GDP with and without Intel’s production). Within the sector, Intel is far outdistancing Sawtek and Remec, the number 2 and 3 in the industry, respectively.

In terms of employment, the sector is an important source of work, especially for high skilled workers. According to a World Bank (2006) report the electronics sector employs around 12,000 people, with Intel the being the biggest employer. On the one hand, this has positive effects in terms of employment; on the other it creates a dependency on one powerful multinational corporation.


Regarding the environment, the electronics sector does not have the same large negative impact on the environment like, for example, the pineapple, banana and coffee sectors do. The reason for this is that the sector does not extract natural resources from the region, nor does it need a lot of land, but uses the available human resources, albeit almost exclusively in Costa Rica. The main environmental effect of the sector is related to energy consumption and related CO2 emissions. According to a World Bank (2006) study, the arrival of Intel to Costa Rica could have positive impacts on the environment because of programs implemented under the flag of corporate responsibility, but this effect should not be overestimated when considered on a regional scale.

Main issues in the sector relevant for AA Most countries are net importers of electronic equipment from the European Union. That said, the United States and Asia are the main import and export destinations for the region. Especially China has increased trade with the region considerably. For example, from 2006 to 2007, the computer parts exports to China increased by 232 percent (PROCOMER).

For none of the countries is electronic equipment an important export product to the EU, save for Costa Rica. For Guatemala, Nicaragua and Panama, electronics represent less than one million Euros in export value, compared to Costa Rica, which exports almost 2 billion Euro in value of electronics to the EU.

In general, Costa Rica is a net exporter of electronics products. Asia and the United States make up for the lion’s share of trade of this country (around 70 percent of the total) while the EU represents around 10 percent. However, this varies according to specific products. For example, for integrated circuits, Asia and the United States are the main partners, but for computer parts, the Netherlands is the third largest partner (18 percent) after the United States (33 percent) and China (27 percent). This higher export to the EU is almost single-handedly explained by the in‐house trade flows of Intel from Costa Rica to Amsterdam.

The electronics sector in Central America is dominated by multinational companies like Intel, and receives a special treatment from the respective governments in terms of taxes. The AA might facilitate trade between these multinationals and the EU. The impact of this increased trade of multinationals is however not entirely clear. This relates to the more general debate on the role of these multinationals in the Costa Rican economy. On a positive note, the World Bank (2006) shows that besides the 3000 jobs Intel has created, indirectly at least another 2000 people are employed. On the other hand, there are studies that show a lack of backward linkages, arguing that Intel and other high-tech firms are somewhat detached from the rest of the economy, mainly because most inputs are produced in-house. For example, the share of local purchases in total electronics exports has decreased considerably since the 1990s (Sanchez-Ancochea, 2006).


4.4. Sustainability Impact assessment

4.4.1. European Union impacts

Economic impacts European Union Real income • With respect to GDP per capita, the AA will have a negligible effect, given the share

of the sector in overall GDP and the relatively small decrease of the sector as a result of the AA (maximum decline is estimated to be (minus) 0.4 percent in the very comprehensive scenario);

• No price changes are expected in any of the scenario’s, which implies that neither consumers nor producers that use electronic goods as inputs will benefit from lower prices and hence an increase in real income.

Trade • Exports are expected to decrease by 0.4 percent, while imports will increase by 0.2

percent. In the comprehensive scenario, these figures are -0.1 and 0.1 respectively; • Although the changes are marginal, the overall trade balance for the electronics sector

in the EU will slightly deteriorate. The EU traditionally has a deficit in computer-related goods, and the AA is likely to increase the deficit in this area further, given that this is the main export product of Costa Rica.

Investment • Given the small expected effects on output and trade, and the limited importance of

EU-Central American Trade, the AA will not have a significant impact on investments in the EU for the sector overall;

• The level of investment (as well as output and trade) in the sector will much more depend on the global economic situation (recovery or deepening of the economic crisis).

Social impacts European Union Employment/Labour issues • According to the CGE model, the AA will have a small negative impact on skilled

and unskilled labour in all scenarios (up to minus 0.4 percent in the very comprehensive, long-run scenario);

• In all scenarios the effect on skilled labour is equal to the effects on unskilled labour; • In countries where employment in the electronics sector is relatively high (e.g.

Finland, Ireland, Malta), the effect on employment maybe significant. As in some countries (notably Malta), single companies account for the major part of employment in the sector, this will largely depend on the effects of the AA in the various subsectors. If one subsector is hit particularly hard and companies have to close down, it will have an impact on employment where these companies are located. However, the available information and model outcomes do not allow us to make more in-depth assessment of impacts at these lower (subsectoral or regional) levels.


Poverty and equality • The poverty effects are closely linked to the employment effects. Reduction of

employment in the sector increases the risk of poverty, although this will depend on social security systems in the various EU member states, as well as the opportunities for alternative employment. Given the size of the employment effect, poverty is unlikely to be affected much at EU level, but again at subsectoral and/or regional level, there could be a more significant impact;

• Female employment in the manufacture of electrical and electronic equipment in the EU is relatively high (30-40 percent)73. Women form the major part of the workforce in the manufacture of electrical and electronic equipment especially in the Czech Republic, Hungary, Slovenia and Slovakia.74 The decrease in employment could therefore have a small but negative impact on gender equality.

Other social indicators • The impact on other social issues, such as health and education will be closely linked

to the employment impacts. However, these impacts will be very small.

Environmental impacts European Union Atmosphere • Growing output of electronics in the EU27 will directly increase CO2 emissions.

However, this impact is considered insignificant compared to the current baseline of the EU27 electronics industry. In addition, positive output changes in the Central America will increase (although only very marginally) global CO2 emissions;

• Impact on air quality and on quantity of dangerous chemicals in atmosphere (dangerous to ozone layer or to humans) is assessed to negligible.

Land • No changes are expected for the EU27 land use in agriculture, forest, desertification,

and urbanization due to the insignificant change in the production output. This assessment is based on the assumption that no changes in existing production facilities are required;

• Growing output of electronics in the EU27 will directly increase use of natural resource stocks. Again, however, the overall increase is assessed to negligible compared to the current usage of natural resource stocks in the EU27.

Biodiversity • Insignificant changes expected on the EU27 number of species, protected areas, and

ecosystem due to increased output and trade volumes.

Environmental quality • Growing output of electronics in the EU27 will directly increase use of energy

resources, albeit negligible compared to the current use of energy in the EU27. • Pressures on electronic waste management will insignificantly increase in the EU27.

73 Van den Eynde-Coppin (2005) The Manufacture of electrical and electronic equipment in the EU, Statistics in Focus

6/2005, Eurostat. 74 http://epp.eurostat.ec.europa.eu/cache/ITY_OFFPUB/KS-NP-05-006/EN/KS-NP-05-006-EN.PDF


Fresh and waste water • Growing output of electronics in the EU27 will directly but only very marginally

increase quantity of water use and quantity of waste water; • Other water indicators (access to safe drinking water, water quality, cleaning of waste

water and water supply) remain unchanged.


Economic impacts Central America Real income • With respect to GDP per capita, the increases in output estimated by the CGE model

should show up in national accounts as well. Especially in Costa Rica, the only country with a significant electronics production, output is expected to increase, by 12.3 percent in the long run for the comprehensive AA scenario, and 42.5 percent in the very comprehensive AA scenario;

• For the other countries, changes are positive but variable: El Salvador (viewed together with Honduras) would undergo strong expansion (up to 50.6 percent), due to the already high degree of industrialisation. However, it is important to note that electronics production is not an important sector in these countries, and the impact on GDP per capita is therefore expected to be much smaller than in Costa Rica. Guatemala also stands to gain, but in Nicaragua the sector is expected shrink;

• For some countries that sign the AA (Honduras & El Salvador, Costa Rica, and Guatemala), the prices of electronics are expected to drop slightly (between -0.8 to -5.2 percent), according to the CGE model, contributing positively to real income. For Nicaragua, prices are expected to increase slightly in the very comprehensive scenario (up to 1.4 percent). This combined with a decrease in electronics production will affect real income negatively. Panama will experience a price increase if it is included in the AA (up to 6.2 percent), while prices will decrease marginally when it is excluded;

• The effects of the AA on prices are, on the whole, relatively small, and given the small share of electronics in total consumer purchases, the effect on real income will be negligible.

Trade • The CGE model predicts an increase of electronic equipment imports in Costa Rica,

more than 8 percent in the comprehensive scenario, and up to 30 percent in the very comprehensive scenario. For Guatemala and Nicaragua, the effect on imports is almost negligible. Panama is expected to import up to 16 percent more in the very comprehensive scenario. In Honduras/El Salvador imports are estimated to contract by up to 4.6 percent. The effects on all countries except Costa Rica should be placed in the context of the low relative importance of the sector in the overall economy;

• The increased Costa Rican imports are likely to be the same products as it imports at present, which are integrated circuits and electronic microstructures (37.6 percent of total electronics imports), print circuits (10.4 percent), electric cables (2.5 percent) and computer parts (2.0 percent). These imports, but especially the first can be related to Intel’s production of microchips in Costa Rica. The AA may however also stimulate trade in other electronic products;


• On the other hand, in the CGE model, exports are predicted to increase as well. Costa Rica is expected to export more electronics, by 9 percent in the comprehensive scenario and up to 45 percent in the very comprehensive scenario. In Honduras/El Salvador, these changes are even higher, with an expected increase of exports up to 66 percent. Panama, Guatemala and Nicaragua are expected to export less in all scenarios (decreases up to 35, 20 and 10 percent, respectively);

• In the case of Costa Rica, both imports and exports increase, which is not surprising as much of the input for Intel’s production is imported, processed and then exported;

• Overall, changes in trade patterns are in line with specialisation according to comparative advantage, with Costa Rica and (to a much lesser extent) El Salvador (/Honduras) further specialising in electronics.

Investment • Investments in the Central American electronics sector in the coming years are likely

to depend less on the conclusion of an AA than on the prospects for global recovery. At least two mechanisms will influence investments in the region: first, the demand of intermediate products in the industry of computers and consumer electronics; second, the competitiveness of the region in terms of skilled labour, cost of labour and other production factors, proximity of end markets and the stability of civilian society.

Social impacts Central America Employment/Labour issues • According to the CGE model results, the effects on employment vary across the

region. They are positive in Guatemala (up to 5 percent) and Costa Rica (up to more than 30 percent) and Honduras/El Salvador (up to 40 percent), negative but relatively small (up to -2.3 percent) in Nicaragua and relatively large decreases in employment (up to -26 percent) in Panama, if included in the FTA. However, as repeatedly mentioned above, relatively the employment in the electronics sector does not represent an important economic activity for the region, except in Costa Rica;

• The employment effects in this scenario for Costa Rica are positive, for both unskilled and skilled labour. This is not surprising, as the electronics sector employs both, yet has a relatively large share of skilled labour compared to other sectors (mainly in engineering and software development), as it is a high tech industry;

• The expected effects on employment that the FTA causes for the electronics sector in Costa Rica are significant, given that the industry employs about 12,000 people;

• For the region as a whole, positive employment effects should not be overestimated given the large number of unemployed in the region combined with high number of informal workers.

Poverty • The growth in output and employment in electronics sector in some of the Central

America countries (notably Costa Rica) is not expected to contribute significantly to the reduction of poverty;

• According to the CGE model there are some increases in the unskilled labour hired by the electronics sector (highest in Costa Rica, around 30 percent in the very comprehensive FTA scenario, much less or even negative for the other countries), but the sector is relatively intensive in high(er) skilled (not unskilled) labour, and


therefore these effects in absolute terms would not have a major impact on the employment opportunities of the poor;

• Although the AA between the EU and Central America is beneficial for the sector, many of the firms in the sector are not from the region (in Costa Rica, 42 of the 55 companies are foreign, according to the World Bank) and have limited backward linkages to the rest of society (Sanchez-Ancochea, 2006). These benefits will therefore not be fully shared the Costa Rican population, let alone by the inhabitants of the other Central American economies.

Health and Education • The Association Agreement is expected to have little or no immediate effects on the

health care or education sector through the electronics sector immediately; • As part of the corporate social responsibility programs of some of the multinational

corporations there might be some minor investments in health care or education programs, but this is not expected to have an important impact;

• That said, Intel in Costa Rica has several programs of technical education, and cooperation agreements with the national public universities;

• Increases in operations and profit of the multinational companies in the electronics sector, might have an indirect positive effect on some technical tertiary education programs aimed at preparing a labour force that has the human resources these same multinationals need in the longer run;

• A positive spill-over may also be expected through indirect mechanisms: industrial labour conditions are set to follow the standards in the investor’s country of origin. The Intel experience is generally viewed to have positively contributed to worker safety and health in Costa Rica. A favourable national environment has also proved to be instrumental.

Equality • In terms of income equality, the electronics sector is not expected to have a positive

impact. Whereas the jobs created in the sector are on the whole relatively good quality jobs, especially when compared to most jobs in the fruits, nuts and vegetables sector, they are accessible to a small group of people that typically has access to tertiary education;

• In terms of gender equality, there are no changes expected in the region as a result from changes in the electronics sector. Typically, women have inserted themselves massively in low skilled sectors (mainly maquila production), but much less so in high skilled sectors. The gains the region, but mainly Costa Rica, is expected to reap from the AA in the electronics sector, therefore, are unlikely to contribute to more gender equality.

Environmental impacts Central America Atmosphere • Air quality is a serious problem in Central America, especially in the larger cities.

The projected increased output caused by the AA will increase CO2 emissions. Though the effect of this sectoral change is limited relative to the overall level of GHG emissions, it nonetheless may lead to some further atmospheric deterioration if unchecked.


Environmental quality • Growing output of the sector will increase the use of energy; • At this moment, there are no key environmental performance indicators for the

electronics sector, which limits the information of environmental quality.

Other environmental indicators • No immediate significant changes in land use for the electronics sector are expected

as a result of the AA, and depend more on government policy towards the sector than the AA specifically;

• Insignificant changes are expected on biodiversity: Central America’s number of species, protected areas, and ecosystem due to increased output and trade volumes of the electronics sector;

• The effect on water use and quantity of waste water, and other water indicators (access to safe drinking water, water quality, cleaning of waste water and water supply) will be insignificant.

4.5. Conclusions


• Economic: As a result of the AA, the sector is expected to contract in terms of output, employment and exports. The contraction is however only marginal (less than 0.5 percent). Real income will decrease as a result of the effects of the AA on the sector. As imports increase, the trade balance for the electronics sector will deteriorate, although the change will again be small;

• Social: the AA is expected to have small negative effect on employment, for both skilled and unskilled labour. In certain subsector or regions the effects could be larger. As the sector had a relatively high female employment, the AA will have a marginal negative effect on gender equality. The effects on other social indicators is negligible;

• Environmental: The overall environmental impact of this AA is considered to be negligible in magnitude as in the long run the EU 27 electronics industry is expected to have less than 0.4 percentage change in the annual production output. In addition, the EU will be affected by the positive impacts on Central America electronics industry output and the resulting global CO2 emissions, but this increase is negligible when compared to total global CO2 emissions.


• Economic: While the electronics sector is not an important sector in most countries in Central America, it is a very important sector in Costa Rica, among others as a result of the availability of skilled labour and active government policies to attract foreign investments, which culminated in the attraction of Intel a decade ago. According to the CGE model, in this country the CGE stands to gain from the AA in terms of output, employment (both skilled and unskilled) and trade. While in other


countries the effects are also significant in percentages, they are small in absolute terms;

• Social: The employment effects in Costa Rica are positive and high. Nevertheless, the AA’s impact the impact on poverty and equality will be limited, given the dominance of high-skilled labour in the sector, and relatively low involvement of female labour. On a similar note, the changes in the electronics sector caused by the AA are not expected to have significant effects on the health care or educational system, although multinationals may set up educational programs (in cooperation with public universities) and health programs as part of their corporate social responsibility and to ensure future human resources;

• Environmental: While the environmental conditions in Central America are reason for concern, the electronics sector’s direct impact on the environment is relatively small. The impact of the AA through this sector specifically is expected to be negligible.



• The contraction of the sector, albeit small, is not in line with what was envisaged in the Lisbon Agenda. This further stresses the need to stimulate the sector, also given the sector’s role in the EU economy (back- and forward linkages, driver of innovation);

• Governments could help stimulate innovation and productivity in the region by investing in education and R&D, promoting public-private partnership (co-operation between universities and the business community) and possibly by FDI attraction;

• If the impact of the AA would prove to be large in certain subsectors or regions, and cause high unemployment levels, governments may support the unemployed by providing education for these people to get them employed in other sectors, or use existing measures like Structural Funds;

• Given the relatively strict environmental standards in the EU, it is important to monitor non-compliant imported electronics entering from Central America;

• Energy efficiency could be further supporter by promoting stimulus packages to invest in smart technology, introducing targeted regulation, and sharing of best practices.


• Costa Rica’s model to attract foreign investment in high-tech sectors, and electronics in specific, is considered a successful example of how a country can move into new comparative advantages. The AA, therefore, should allow for similar policies and provide measures that support the moves into new comparative advantages in high-tech;

• The attraction of new investments in high tech sectors also builds on investments in the educational sector, as the presence of skilled labour is a necessary condition for such investment. Therefore, both public and private funds and initiatives to improve


the education sectors in the different countries in the region should be stimulated. This is a major challenge, since many countries have weak secondary and tertiary education systems;

• At the same time, given the current limited backward linkages of the electronics sector with the rest of the economy, linkages between the sector and the rest of the economy should be stimulated. Preferably SMEs should be involved in this;

• To stimulate gender equality in the sector, affirmative action, both in tertiary education and in hiring policies, could be recommended;

• Although the effects of the electronics sector are not expected to be significant in terms of the environmental impact, an important recommendation is to put in place monitoring systems in general, and for the sector in specific. At this point, there is little information available;

• TA should be provided to exporters in the region for raising awareness on EU regulations on electronic products and for compliance with these regulations (e.g. related to design or use of hazardous substances).


5. Maritime transportation services

5.1. Introduction

The maritime transportation services (or water transport services) sector covers all transportation by sea (or inland waterways) that involve carriage of passengers, the movement of goods (freight), rentals (charters) of carriers with crew, and related supporting and auxiliary services.75 Such supporting and auxiliary services do not include e.g. freight insurance and the repair of transport equipment.

Services performed by residents of one economy for those of another are recorded in international trade statistics (taken from balance of payment statistics).76 For transport services, the operator of the ship is considered as the provider of the transport service (where the owner and the operator are not the same, the owner is the lessor of the vessel). The flag of convenience is mainly relevant for legal registration of the ship. Royalties and registration fees are part of the balance of payments section on which international trade statistics are based.


Table V.5.1 summarizes the CGE modelling outcomes relating to water transport services.

Table V.5.1 Model outcomes of the FTA impact on the water transport services sector (% change)

Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive FTA

Long Run

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

EU

Output 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

Prices 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0



Skilled labour 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0

75 IMF(2002), Manual on Statistics for International Trade Services, jointly published by UN, EC, IMF, OECD, UNCTAD and

WTO. 76 This implies that GATS Modes 1, 2 and 4 are in principle included in these data, while mode 3 (including FDI) is not.


Comprehensive

FTA Short Run

Comprehensive

FTA Long Run

Very

Comprehensive

FTA Short Run

Very

Comprehensive FTA

Long Run

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama

Incl.

Panama

Excl.

Panama


Costa Rica

Output -0.2 -0.2 0.3 0.3 -2.4 -2.4 -0.2 -0.3

Prices -0.4 -0.4 -0.5 -0.5 0.2 0.2 -0.1 -0.1


Imports value 5.7 6.8 11.4 12.5

Skilled labour -0.8 -0.8 -1.2 -1.3 -1.9 -1.9 -3.9 -4.0


Guatemala

Output 0.2 0.2 0.3 0.4 0.1 0.1 0.4 0.4

Prices -0.3 -0.3 -0.3 -0.4 -0.4 -0.5 -0.5 -0.5



Skilled labour 0.5 0.5 0.3 0.4 0.6 0.7 0.3 0.3

Unskilled labour 0.1 0.1 -0.1 -0.1 0.0 0.0 -0.3 -0.3

Nicaragua

Output 1.0 1.0 0.9 0.9 1.4 1.4 1.3 1.3

Prices -0.7 -0.7 -0.7 -0.7 -1.0 -1.0 -1.0 -1.0



Skilled labour 0.9 0.9 1.0 1.0 1.2 1.2 1.3 1.3


Panama

Output 1.2 0.1 0.8 0.1 1.5 0.1 1.1 0.1

Prices 0.0 0.0 0.1 0.0 0.1 0.0 0.2 0.0


Imports value -2.5 -2.5 -5.0 -5.0

Skilled labour 0.4 0.1 0.9 0.1 0.6 0.1 1.1 0.1



Output 0.5 0.6 1.0 1.0 0.6 0.6 1.3 1.4

Prices -0.7 -0.7 -0.7 -0.8 -1.0 -1.0 -1.0 -1.0


Imports value 9.4 10.1 14.9 15.9

Skilled labour 1.0 1.0 0.5 0.5 1.2 1.2 0.5 0.5

Unskilled labour 0.4 0.4 0.0 0.0 0.5 0.5 -0.2 -0.2

European Union For the EU, the expected impacts are virtually none. This can mainly be explained by the low share of water transport services between the EU and Central America as a share of total value of EU transport services. Also, the fact that Europe owns and operates a large


share of the world fleet is important, because if a European operator performs a transportation service for a European entity importing from Central America, this is recorded as an intra-EU service transaction (so this is reported to a certain extent in overall output, but is not included in trade figures).

Central America On the Central American side, Panama, Nicaragua, Guatemala, Honduras and El Salvador are expected to increase their output by a small percentage (roughly 1 percent). Export value is expected to increase slightly in all Central American countries. With the exception of Panama, domestic prices in the sector are expected to decline slightly, in line with expected output and export growth. In all countries except Costa Rica, both skilled and unskilled employment is expected to increase. Relatively, skilled employment is expected to increase more than unskilled employment. For Costa Rica, output is expected to decrease very slightly in the short run, while imports are expected to increase somewhat more than exports, implying a deterioration of trade balance. In addition, employment is also expected to decrease slightly.

For Panama, the water transport sector makes relatively the largest contribution to the national economy as compared to the other republics (7.5 percent of value added in Panama’s economy comes from the water transportation sector), implying that the percentage change for Panama represents by far the largest absolute increase in output. In line with this, the expected increase in unskilled employment in Panama (between 0.4 and 1.1 percent when Panama joins the AA) has the largest absolute impact, as the sector hosts roughly 11 percent of total unskilled labour working in the economy.

The growth expected in the water transport services sector is directly associated with increased trade flows in both regions as a result of the trade-part of the AA. The overall macro-economic import and export values in the economies are expected to increase considerably for all six Central American republics (for Panama only when participating in the AA). For the EU, this increase is negligible in relation to its total trade flows.

As a result of the overall increase in trade flows and the associated increase in water transport services, a broader range of related maritime products services are expected to increase as well (e.g. repair in ports, transport equipment, related logistic services etc). Although this is not directly visible in the modelling results of this (narrowly defined) sector, this indirect effect on auxiliary services can be quite considerable. Especially in the context of this AA, auxiliary and port services are important. For Panama, this broader definition of maritime (transport) services (including Canal operations) touched upon a very vital part of its economy. For the EU, it is also relevant, as Panama is its main export destination constituting half of all EU exports to the region. A large share of EU exports to Panama consists of transport equipment. Indeed, as can be seen in the Annexes, Panama’s transport equipment imports are expected to increase between 16 and 21 percent, while exports (and output) are set to decline. For the EU, there is hardly any impact expected in this sector.




Sector specific structure and issues The EU’s maritime transport services sector has an important facilitating function and has been crucial as a catalyst of trade and economic development. It is estimated that in terms of volume, 90 percent of freight exchanges between Europe and the rest of the world, are seaborne.77

Although the direct value added generated by this (narrowly defined) sector for the EU economy is not very large (around 0.5 percent of direct value added as a share of total value added in the EU), the strategic importance of the sector as a facilitator of trade and mobility in the globalised EU economy is considerable.

Moreover, in addition to the specific water transport services sector, there is a broader range of interlinked maritime (cluster) services, which are of significant importance to the EU. These interlinked activites include shipbuilding, all seaport services, cargo handling, offshore supply, classification and inspection, maritime insurance and financing, etc. The direct production value of such services in the EU economy is estimated to amount to € 267 billion annually78 – indeed, transport of freight and passengers contributed € 25 billion to the EU balance of payments in 2006. It is estimated that over 400 million sea passengers travel through European ports each year and that 1.5 million people are employed in maritime transport-related activities (70 percent of whom work onshore in related services).79

Maritime transport between the EU and Central America constitutes just a small share of total maritime transport flows to and from the EU. The largest container routes in the world (in volume) are firstly intra-regional in Asia, followed by transpacific and then by Europe–Far East. Of total world container trade in 2007 (142 million teu80), inter-regional trade between Europe and Latin America made up 2.3 percent (for comparison, Europe – Far East was 13.1 percent). The container transport volumes between the EU and Central America only form a small part of these EU-Latin America statistics81.

Main issues in the sector Some issues that are of specific importance to the EU water transport sector and in relation to trade with Central America include: • Environmental and safety legislation: the EU legislation linking environment and

maritime services was reinforced in February 2009 when the Minsiters of Justice and Home Affairs approved six legislative proposals related to the EU's third maritime

77 The European Union’s maritime transport policy for 2018; Com(2009) 8 final, Brussels, 21-1-2009, Communication from the

Commission to the European Parliament, the Council, the European Economic and Social Committee and the Committee of the Regions: Strategic Goals and Recommendations for the EU’s Maritime Transport Policy until 2018.

78 See website EC, DG Enterprise, Maritime, at http://ec.europa.eu/enterprise/sectors/maritime/shipbuilding/index_en.htm. 79 The European Union’s maritime transport policy for 2018; Com(2009) 8 final, Brussels, 21-1-2009. 80 Twenty-foot equivalent units. 81 Latin America includes ECSA, WCSA, Central America and Caribbean.


safety package, which aims to reduce maritime accidents and pollution in Europe. 82 In addition, all relevant International Maritime Organisation (IMO) rules on maritime safety apply. All maritime services thus have to comply with these new requirements for improved sea safety and clean and efficient shipping, which is directly relevant for increases in trade by sea between the EU and Central America as a result of this AA (especially for Panama, being the main partner in this respect). Also, pollution at sea is criminalised in the EU-27;

• Short sea shipping (SSS): SSS at present represents roughly 40 percent of intra-EU exchanges in ton-kilometres.83 In the EU’s Maritime Transport Policy for 2018, SSS is seen as a key element in reducing congestion and pollution, and thereby contributing to sustainable development in the EU.In Central America, this issue is also of growing importance within the region;

• Market volatility in seaborne trade: in general, there is a strong link between world economic growth and demand for maritime transport services, as world merchandise trade (and thus seaborne freight transport services) tends to react strongly to economic growth and decline. During 2007 for example, world GDP grew by 3.8 percent, while world merchandise trade grew by 5.5 percent.84 The same pattern can be observed over longer periods. For example, between 1985 and 2002, GDP grew by approximately 40 percent in the EU15, while freight transport increased by over 60 percent.85 This volatility implies that the current financial and economic crisis is likely to hit demand for waterborne transport services considerably. The latest estimates of the WTO predict a decline in world trade volume over 2009 of 9 percent, while the OECD even estimates 13 percent. Although it is unclear what the longer term effects of the current crisis will be, at least in the short run, the EU water transport sector, given its prominent position in world trade, is likely to be negatively affected;

• Door-to-door solutions: from the perspective of a European service provider, door-to-door rather than port-to-port solutions are required to remain competitive in world markets. This implies that auxiliary and port services are crucial complements to the maritime transport service. Opportunities for the provision of multi-modal services, or contracting work locally in an efficient way, are therefore of the upmost importance. Such provision is often hindered due to publicly-owned port services or other foreign investment restrictions. This is also relevant in the context of this AA.


Sector specific structure and issues The trade balance of containerised trade between Central America and the EU is positive for Central America, representing 15 and 12 percent of its overall exports and imports, respectively. The Central American region shows a mixed record in the upgrading of

82 Rules on ship inspection, port state control, monitoring vessel traffic, investigating accidents, and on common standards for

maritime administration activities and passenger carriers' liability for accidents. Two further laws on flag-state obligations and shipowners' civil liability are still to be agreed upon by ministers.

83 See EC website, Maritime transport, at http://ec.europa.eu/transport/maritime/index_en.htm. 84 Review of Maritime Transport 2008, UNCTAD, available at http://www.unctad.org/en/docs/rmt2008_en.pdf. 85 T&E (2002), European Federation for Transport and Environment, Safe and Sustainable Freight Transport – Our common

challenge, available at http://www.transportenvironment.org/Publications/view/cid:515-start:10.


maritime services over the last decade. It is now served by 39 ports of which 12 are located in Panama. These figures understate Panama’s importance, as this country accounts for 40 percent of shipping movements in Latin America.

At present, poor overland infrastructure in Central America is restricting the access of north-south intra-regional cargo to water transport. There are no regional railways, and, except in Panama, the Pan American Highway is mostly a two-lane road. The Highway is mainly inland and often congested during harvest seasons, which leaves Panama as the principal hub for maritime transport. The Panama Canal generates close to 19 percent of Panama’s GDP. In 2007, Central America registered 20 percent of port activity in Latin America and the Caribbean86 and did not lag far behind Brazil (26 percent) and Argentina, Chile and Mexico together (23 percent). In terms of country ranking, Panama (12 percent) still ranks higher than Mexico, based on two ports (Colon and Balboa) which registered more throughput than their northern counterparts. The position of the Isthmus is significant in view of the underlying expansion in containerised trade between 2004 and 2007. Central America showed more growth in this period for exports (67 percent) and imports (40 percent) combined, than any other country or sub-region on the continent. Employment related to maritime services varies significantly in each country. In Panama (3.9 million teu), about one sixth of all national employment is generated by the Panama Canal. In contrast, Nicaragua’s maritime transport sector (59,000 teu) offers little employment. The condition of its harbours, with port activity far below the Netherlands Antilles and only just higher than in Belize, was only improved upon as recently as 2005. At present, about 70 percent of Nicaragua’s exports are shipped through ports in neighbouring countries which involves expensive road transport. Maritime services could offer more structural employment after realisation of at least one “dry canal” project, linking Nicaragua’s south-east Atlantic Coast with its north-western port of Corinto. According to existing strategies and policy documents, the regional aggregate investment needed in order to (a) improve and expand existing ports (Guatemala, Honduras, Nicaragua and Honduras), (b) build new ports and terminals (El Salvador and Panama), and (c) construct dry canals from El Salvador to the Caribbean coast of both Guatemala and Nicaragua, will reach at least US$ 2.5 billion. This does not include the US$ 5 billion needed for expansion of the Panama Canal, which is scheduled for completion in 2014. The major part of the investments will be financed from public sources, with loans from regional investments banks. However, increased financing of parts of projects by European companies is being considered, for example in the form of public-private partnerships. Main issues in the sector relevant for AA Major issues in the maritime service sector include: • Auxiliary and port services. Issues of shipping, freight forwarding, cargo handling,

import and customs duties have been notoriously crippling factors for Central

86 Data considered in container volumes, expressed in millions of Twenty feet Equivalent Units (teu), allowing for 33 cubic

meters with a maximum weight of 28.230 kilograms.


American ports. Public services are viewed as suboptimal in cost, efficiency and institutional conduct. Privatisation in a number of port and auxiliary services is under way, but has been stopped or slowed down occasionally. In addition, there is a drive to apply the door-to-door rather than the port-to-port concept as a criterion with a view to create forward linkages and to improve performance and delivery. In this context, liberalisation of auxiliary services like inward transport services, freight forwarding and customs as well as non-discriminatory access to port services is advocated for. While the Panamian service-oriented economy has a relatively liberal trade and investment regime surrounding the Canal and its ports and not too many NTMs in place,87 this is not true for the whole region. Overall, measures such as port privatisation and liberalisation of regulatory frameworks have not automatically led to a conducive and enabling environment;

• Logistics and transportation. Inadequate infrastructure is still viewed as a serious problem by Latin American businesses. Limited accessibility to hinterlands is contributing to the high level of transport costs. Even if the rehabilitation and expansion plans materialise, the transitional bottlenecks will, at least temporarily restrain growth;

• Labour issues in ports. The uneven character of trade throughout the Isthmus has allowed for oligopolistic market structures to arise in countries with lower trade volumes. This has been observed for both Nicaragua, El Salvador (145.000 teu) and Honduras (636.000 teu), but also Costa Rica (976.000 teu). As a result, and mainly in combination with the overall problem of the status of labour legislation and especially its enforcement in the region, labour relations have reportedly come under strain in a number of port and related transport sectors, where employers (including multinationals) have endeavoured to secure reductions in wages and pension benefits. In El Salvador and Costa Rica, legal procedures have been started in the protection of workers’ rights. Labour inspection and protection mechanisms are not always in place, leading to infringement of ILO adopted norms in worker rights and health;

• Drug-related crime. Over the last years, some major problems have compounded the problematic workings of maritime services. The most directly visible is the crime factor, which has been identified as a statistically significant factor in determining the efficiency of ports and maritime transport, increasing transport cost.88 Data available for Central America demonstrate indices – on a scale between 1 (high crime) and 7 (low crime) – of 2.3 for El Salvador and 3.28 for Costa Rica, which is higher than most Andean countries, for example. In addition, prima facie evidence suggests a much stronger influence of narcotics-related crime in the core countries of the Isthmus;

• Environmental concerns. Environmental issues now constitute an overwhelming source of concern. Air pollution from maritime vessels is viewed as a major contributing factor to greenhouse gas emissions. Unofficial estimates indicate that over 45 million metric tons are being emitted, mostly consisting of a variety of nitrogen and sulphur oxides. Carbon dioxide emissions alone have doubled over the last two decades. LNG is viewed as less polluting, but by and large, consumption of fossil carburant has risen in close connection with trade itself. Most of carbon dioxide emissions are produced not by coastal but by transatlantic transport.

87 WTO Trade Policy Review Panama, September 2007, see http://www.wto.org/english/tratop_e/tpr_e/tp287_e.htm. 88 Clark, Dollar and Micco, 2004.



5.4.1. European Union impacts

Economic impacts Real income and trade As can be seen from Table V.5.1 above, the economic impacts on the EU maritime transport sector as a result of the trade-related part of the AA, are expected to be virtually zero. This can mainly be explained by the low share of water transport services between the EU and Central America as a share of the total value of EU transport services. Only for the very comprehensive long-run scenario including Panama, a minor increase in output is expected.

The potential impact for the EU sector mainly depends on the extent to which auxiliary and port services can be improved. For EU service providers and investors, the opportunity to provide door-to-door solutions - whether by providing multi-modal services or by contracting efficient local companies -; non-discriminatory access to port services; and increased efficiency (lower costs) of auxiliary services like cargo handling, freight forwarding and storage, could be of considerable impact. At present, the inability to do so is inducing high costs and deterring investment.

In addition to the narrowly defined maritime transport services, given the overall increase in trade flows and the associated increase in water transport services, a broader range of related maritime products and services are expected to show a slight increase (e.g. repairs at ports, transport equipment, related logistic services etc). In addition, a (very) slight increase in EU exports of transport equipment is expected.

Investment The fact that European companies own and operate roughly 40 percent of the total world fleet (in dwt) illustrates the international nature of the maritime transport services sector. Potential economic impacts generated through investment can be positive for the EU sector, but depend largely on the extent to which (foreign) private investment in port and auxiliary services is allowed and door-to-door solutions can be provided. Some existing constraints in for example. establishing shipping agency activities, contracting local (private) firms as well as free access to international cargoes, are still limiting investments. Unlike in other Central American republics, there are no nationality restrictions in Panama for the provision of domestic maritime transport services.

In the CGE model, FDI is not directly included, implying that the actual impacts for the EU sector might be more positive, provided that investment conditions are improved and NTMs reduced in Central America, both of which are crucial for the materialisation of positive impacts in this sector.

Social impacts Given the output and trade effects (from the CGE results), hardly any employment effects are expected for the EU maritime transport services sector.


Employment Allowing for dynamic investment effects and a reduction of NTMs, especially in Central American ports, as described under economic impacts, could bring economic benefits to both regions. This in turn could have a small indirect yet positive effect on employment, especially in auxiliary logistic and transport services (e.g. door-to-door solution providers). The impact is expected to be felt mostly in the main maritime services centres such as the UK, Germany, France and the Netherlands.

If any effect on employment should occur, this would mainly involve unskilled labour, given the high proportion of unskilled workers in the maritime sector (which in turn links to relative poverty in the EU). In addition, the effects may be somewhat regionally concentrated. The UK is the hub of the maritime services sector in Europe with almost 33 percent of all maritime service-related jobs in the EU (27,000). 16 percent of total employment is in Germany (14,000), 12 percent in France (11,000) and 11 percent in both Greece and the Netherlands (10,000)89.

Other social indicators Given the fact that the direct impacts on employment are expected to be small, the AA is not expected to have any effect on issues such as female labour market participation , poverty, health or education.

Environmental impacts In general for the EU, the most threatening potential environmental marine hazard arises from the fact that some 1 billion tonnes of oil and oil products enter EU ports or cross the waters surrounding its territory each year. In relation to this AA however, the environmental themes are more linked to the fact that almost 90 percent of EU external trade in goods and more than 40 percent of its internal trade is transported by sea. The European Maritime Safety Agency (EMSA) is responsible for improving the drafting and enforcement of EU rules on maritime safety.

Atmosphere • Increasing overall maritime transport (as a result of increased trade flows) will

directly increase global CO2 emissions. However, the magnitude of this increase for the EU is assessed to be negligible in comparison with the current EU baseline;

• Similarly, increasing the amount of marine transport will increase pressure on air quality and on the quantity of dangerous chemicals in the atmosphere (harmful to the ozone layer and/or humans) near EU-27 harbour areas. The overall impact is assessed to negligibly negative.

Biodiversity • Increasing marine transport will increase the risk of marine pollution and the potential

entry of alien species into the EU-27. The impact on the number of species, protected areas, and EU ecosystem is assessed to be very small or negligible, but close monitoring is nevertheless warranted.

89 http://ec.europa.eu/maritimeaffairs/studies/employment/summary_report.pdf


Other environmental indicators • Increased overall maritime transport can directly impact urbanisation near harbour

areas. Pressures on waste management in coastal areas and harbours as well as increases in the use of transport fuels and energy resources in harbours could all increase slightly. Also, the quantity of water use and amount of waste water generated could increase. No impact is expected on land use in agriculture, forest and desertification;

• Given the overall small impacts expected for the EU maritime transport sector as a result of this AA relative to the baseline of the EU, these effects are estimated to be either very small or negligible.


Economic impacts Real income According to model computations for the maritime transport services sector, output changes are expected to be moderately positive (roughly 1 percent) for five out of the six Central American countries. The exception is Costa Rica, where in three out of the four scenarios the maritime service sector is projected to slightly contract. Three mechanisms exert influence: first, the expansion in Costa Rica will be experienced in particular in its primary and secondary sectors. Second, growth in the maritime service sector would have to be preceded and accompanied by sector-wide investment and promotion strategies. In other Central American countries, primarily Panama, these are in a more advanced state than in Costa Rica. Third, growth in the maritime service sector will remain determined more by economic factors in the Americas rather than along the transatlantic dimension.

With the exception of Panama, domestic prices in the sector are expected to decline slightly, in line with expected output and export growth. Combined with the observation that output expansions are only moderate, no major changes in GDP per capita resulting from this sector are expected.

In the long run however, when taking in account dynamic investment effects, improved investment conditions and the reduction of NTMs could potentially increase competitiveness, especially of smaller ports outside Panama. These NTMs include mainly customs procedures, but also other issues such as SPS standards, labelling requirements and TBTs.The broader snowball-effect stemming from this sector onto maritime products and services and auxiliary services could bring about positive changes in other areas. Similarly, increased integration in global supply chains and transportation networks can have the important secondary positive effect of facilitating the expansion of the FVN sector for example (and niche products therein, especially the ones of a perishable nature that require good transport networks).

Trade Trade in maritime transport services is expected to increase – partly as a direct result of overall increased trade flows as a result of implementation of the AA. Export values are expected to increase slightly in all Central American countries. For Panama – which generates the largest absolute impacts given that the baseline is by far the largest – this


expansion is directly linked to Canal activities and expected to be between 0.9 and 1.7 percent. With the exception of Panama, import values are also expected to increase for the Central American region.

If Panama decides not to join the AA, only very limited expansion in the sector is observed for Panama.

Trade in goods between the blocs and within Central America will depend less on the AA itself than on the national sector strategy for the maritime service sector and progress made in the context of regional integration and trade facilitation. Also, most of the expansion in the sector will be allowed by efficiency gains in public-private interface when dealing with border operations.

Investment Panama is currently the only country with a sector development plan including a forward-looking perspective into the next decades. Plans for the expansion of port services in El Salvador exist, but are less relevant to transatlantic trade. Investment strategies on the Atlantic coast, at least in Guatemala and Honduras, are more oriented to relations with North American trade partners than with the EU. Nicaragua’s ambitions on Atlantic port development still need funding, whereas Costa Rica is not expected to overcome the structural obstacles to port service growth on the Caribbean coast. In regional terms, the Plan Puebla Panamá is tangentially focused on improving the Atlantic port infrastructure. The AA could provide positive incentives to such a broad development by also taking a broad geographical approach, i.e. promoting further regional integration, the development of region-wide infrastructural structures and reducing costly and mobility-inhibiting NTMs within the Central American region.

To the extent that the AA manages to encourage improvements in investment conditions and reduce NTMs, we expect increased investment flows which could have a potentially positive effect on the maritime services sector, as well as on related auxiliary products and services.

Social impacts Employment/Labour issues With the exception of Costa Rica, both skilled and unskilled employment in the maritime transport services sector is expected to increase slightly. In absolute terms, this effect is expected to be most pronounced in Panama, where employment level in the sector is highest.

The privatisation of port and auxiliary services has previously been a controversial issue in Central America. There is a constant trade-off between efficiency, supposedly enhanced by privately managed services, and equity in labour relations, guaranteed in public intervention. Long term pension entitlements are part of the debate in strategies on change in property. At least as relevant will be the safety concerns in the related road transport sector, where working hours, technical conditions and load limits need to be assured. Further developments in this field will influence employment and labour issues.


Poverty As mostly unskilled workers are employed in this sector, the slight increases in employment opportunities in the sector can have a positive effect on poverty alleviation. Also, indirect effects might include the increased availability of goods and services, contributing to positive welfare effects for consumers.

Throughout the region, the issue of modernisation and privatisation is a matter of public debate. The effects are viewed as mixed: on the one hand, considerable efficiency gains are known to be achieved on the Pacific coast. On the other, wage cuts have reportedly taken their toll on the fragile social texture of El Salvador, involving a major trans-national European company.

Inequality Given the already high Gini-coefficients of the Central American economies and the fact that there is not much difference between the expected impacts on skilled and unskilled employment, there is little reason to believe that the moderate effects in the maritime services sector will be a mitigating factor in welfare distribution. This would be different if EU private sector standards would be observed in the regional context. Experiences in other sectors (electronics, horticulture, education) prove that exposure to EU-markets does not necessarily lead to greater inequality.

Health Occupational safety and health in the maritime service sector is an issue of concern, not limited to Central America. Seventy percent of the merchant fleets of Latin America and the Caribbean are registered in Panama. This is partly due, in addition to tax factors, for example, to generally permissive legislation with regard to hazardous working conditions in the sector. Precarious employment conditions are viewed as a key determinant to the either bad or deteriorating state of occupational safety and health in the sector.90 Although the AA might positively stimulate such conditions, there is a risk of increased competitive pressure cancelling out such an effect.

Education As a rule of thumb, there are two unskilled labourers for each skilled labourer working in the maritime service sector. Even so, specialised and vocational training is lacking and well-trained professionals are scarce. The Panama International Maritime University (UMIP), operational since 1995, has a training and exchange programme with the University of Texas. The vacuum in advanced training is also filled with educational programmes (CERPA and IMMOP) in Panama. Upgrading services is essential for the Central American maritime sector to reap the benefits of the AA and on-the-job training is key to achieving this. The increase in the sector and associated services might serve to stimulate this training and education further, though on the unskilled side, the increased demand might also partly cause a disincentive to invest in the unskilled part of the sector’s labour force.

Environmental impacts Atmosphere 90 Quinlan, Mayhew and Bohle, 2001.


• Increasing overall maritime transport levels between the EU and Central America are expected to increase global CO2 emissions, although the magnitude of this increase – relative to the baseline levels of emission – is assessed to be negligible at the global level.

• Due to the modest changes in output and service delivery, slightly higher levels of atmospheric pollution (air quality and the quantity of dangerous chemicals in the atmosphere) can be expected in harbour areas.

• International standards e.g. on emission levels for distinct vessel types, are expected to become stricter, and the size of transatlantic vessels to increase, which may be conducive to lower emission. However, the spill-over effect in increased road transport could negatively affect the atmosphere and would require national authorities to tighten strategies to encourage lower emissions.

Land Wetlands are under threat in most of the coastal areas of the Isthmus due to climate change causing more frequent and intense hurricanes. These may well come under further pressure when port areas are enlarged and maritime frequency would increase on coast lines as a result of the AA. This could in turn impact upon the security of assets, infrastructures, ecosystems and human communities are at stake.

Biodiversity Diversity is under threat and remains, as it is related to port development and investment strategies, a vital concern, especially in Costa Rica, Nicaragua and Honduras. A higher occurrence of maritime services is regarded as a threatening factor for the viability of sea turtle communities, for instance. The AA could positively impact this effect as EU regulations on biodiversity issues are more advanced and, if these were to be applied in Central America, could mean positive results in the region. In addition, the envisaged liberalisation of coastal shipping regulations in the region, would also have a large bearing on the ecological balance of coastal ecosystems. Environmental quality • The expected increased maritime transport and harbour activity could induce

pollution and issues of waste management in harbour areas. • The Panama Canal expansion project deserves special attention, as it would entail an

entirely new lane of traffic along the Canal through the construction of a new set of locks. Water-saving basins will be built next to the new locks, designed so as to reuse 60 percent of the water in each transit. This technology would eliminate the need for constructing dams, flooding or displacing communities along the watershed. This is a process with the AA could stimulate by encouraging the use of cleaner technologies through incentives and capacity building.

Fresh and waste water Norms on (water) waste management as well as on the discharge of effluents in and beyond the 20 miles zone are crucial. State-sponsored services in charge of guarding reserves and protected areas on the Isthmus’ main land often lack funding, and therefore generally lack influence. This is not auguring well for the regional and national apparatus needed for implementing and overseeing water quality norms.


5.5. Conclusions


• Economic: For the EU maritime transport sector, the direct economic impact as a result of the AA is expected to be very limited, given the large size of the overall sector in the EU as well as the relatively small transport flows between the EU and Central America as a percentage of total EU flows. Given the overall increase in trade flows between the EU and Central America, a potential positive impact – though small – can be expected in the broader field of maritime products and services (including exports of transport equipment from the EU). The potential impact for the EU is mainly dependent on the extent to which auxiliary and port services (cargo handling, freights forwarding, but also onward transportation possibilities) in Central America are improved and NTMs such as divergent customs procedures and SPS measures are reduced and the investment climate improved (allowing improved door-to-door services through multi-modal service provision or efficiently contracting local companies).

• Social: Given the small output and trade effects, hardly any employment effects are

expected for the EU maritime transport services sector. Depending on the extent of increased investment effects and the reduction of NTMs especially in Central American ports, there could be economic benefits for both regions, which could have a small indirect yet positive effect on employment, especially in auxiliary logistic and transport services. A positive effect on employment would mean additional opportunities for unskilled workers as they are particularly active in this sector.

• Environmental: The overall environmental impact of increased marine transport

between the EU-27 and Central America will very slightly increase global CO2 emissions and there is some risk of increased marine pollution and the entry of alien species into the EU-27. All other environmental impacts are assessed to be negligible.


• Economic: The Central American maritime transport sector is expected to expand slightly as a result of the AA, both in terms of output as well as export value (for all Central American countries, except Costa Rica). In line with this effect, domestic prices in the sector are expected to decline slightly (with the exception of Panama). Overall, these changes are expected to have no major effect on GDP per capita. In general, sector growth will rather depend on a synthesis of intra-regional facilitation of transport services, both for road and water, as well as viable investments for improving the regional port infrastructure. The expansion strategy of Panama in relation to the Canal is expected to strengthen its current predominant position. In addition, the introduction of the AA could serve to stimulate trade facilitation and NTM reduction which in turn encourages transparency and thereby leads to a better functioning of the sector. A secondary effect of such efforts can be increased


integration in global supply chains and transportation networks that can in turn better facilitate the expansion of the FVN sector, for example.

• Social: In line with slightly increasing output and exports, employment in the sector

in Central America is expected to increase slightly (for all Central American countries except Costa Rica). Given the large absolute number of unskilled labour in this sector in Panama, the percentage change is expected to have most impact there. The fact that unskilled labour in particular is expected to benefit, may have some small positive effects on poverty and income inequality. With respect to labour issues, if these standards are improved, this could in turn improve productivity and thus services will become more efficient. The risk exists that there could be a lack of enforcement of labour regulations in a context of increased competitive pressure. Convergence with EU standards in this field through Corporate Social Responsibility initiatives, improved legislation and enforcement, could improve transparency and may positively affect labour conditions. Under state control however, maritime services tend to lose effectiveness and their long term purpose.

• Environmental: As a result of the fact that the level of maritime activity has doubled

during the last decade and a half, atmospheric pollution has increased accordingly. Increased trade flows as a result of the AA are expected to increase global emission levels from long-haul shipping, though these increases will be relatively small compared to the baseline values. Existing threats in the Central America region regarding air quality, land and water conditions (wetlands, marine biodiversity and waste management), aggravated by fragmented sectors and scantly empowered environmental bodies in the region, could increase slightly as a result of increasing trade flows. On the other hand, the AA could help in providing incentives to further reduce emissions and environmental distress by using cleaner technologies as well as improving standards along with the monitoring and enforcement mechanisms of those standards.



• Incentives to further gradually liberalise the whole door-to-door transport services chain could improve the investment climate in the Central American sector considerably, inducing increased investment opportunities (e.g. in public-private partnerships) involving European investors;

• In line with the EU environmental policy priorities, the AA could further contribute to creating incentives to reduce emissions from seaborne trade on this route, e.g. by promoting the use of greener technologies and better enforcement of standards;

• Improved Flag State control between Central America and the EU could reduce the risk for sea polluting incidents.



• Overall, a broad approach to port development, including auxiliary, transport and logistic services, and infrastructural improvement (door-to-door) is required for economic benefits in this sector to materialise. This can be achieved through national and regional policies taken in both the EU and Central America in order to upgrade port facilities and logistics;

• The use of EU expertise and examples of EU best practices, can be used to map existing bottlenecks and to identify the main factors contributing to the presently high transport costs in the Central American region thus contributing to making the system significantly more efficient;

• A regional and EU-Central American concerted approach is needed for updating the Plan Puebla Panama, specifically aiming at the intraregional facilitation of short sea shipping (SSS) potential, as well as upgraded outlets from agrarian production centres to ports;

• The investments now planned for upgrading port infrastructure in the period until 2020, deserve to be incorporated in a regional maritime development plan, covering aspects of economic and commercial integration, investment planning, as well as maritime environmental regulation and protection.

• The regional maritime transport structure is to be critically reviewed in the wake of alternative, more efficient and environmentally cleaner systems, applying to the trading of goods as well as to public transport. However, the establishment of more rail transport is extremely expensive and would not create benefits worthy of an investment of this magnitude;

• Port training centres, established throughout the EU, may well be involved in Central American educational programmes aimed at efficiency enhancement, based on exchanges and fellowships as already practiced with Central America’s other partners;

• Worker rights and entitlements require fairness, transparency and defence mechanisms, in particular in a context of evolving investments from the EU and other foreign sources in the context of further internationalisation and privatisation. This can be achieved through strengthening labour standards and ensuring their enforcement, and increasing the use of social dialogue to give voice to the labour concerns of various groups;

• Vast lowland areas are regularly flooded and thus coastal protection schemes should be included in flanking programmes resulting from increased technical cooperation between the two regions.

• Strategies to combat crime – narcotics-related and otherwise - are needed in the context of cost cutting strategies. Around larger port centres (in particular San Salvador), the economic cost of delinquency has now risen to dimensions of non-tariff measures. This could include more trade facilitation to improve customs procedures and encourage more transparency.

• If environmental standards could be included in the overall regulation system, inspections, intensive controls and paperwork, now connected to cross-border transactions in the Isthmus, this could amount to a win-win outcome of improved environmental conditions and reduced economic barriers

• Environmental management would require an integrated approach in which lower pollution levels are actively sought in combination with early alert systems, rule


enforcement and environmental emergency control. The national ministries for environmental affairs would, therefore, have to play a much more prominent role in the articulation and implementation of guidelines together with their regional as well as transatlantic counterparts, if the further introduction of international norms and standards is to have any effect

• In order to reap the benefits of the AA, Central America needs to focus on upgrading its services. One vital way of achieving this is by the provision of on-the-job training in Central American firms in order to allow this upgrading to occur.


6. Investment conditions

6.1. Introduction

This chapter analyses investment conditions as a horizontal issue in the context of the trade part of the AA under negotiation between the EU and Central America. As a horizontal issue, investment conditions have cross-sectoral relevance and therefore touch many layers of the economy. Improved investment conditions serve to increase foreign direct investment (FDI) and trade flows.91 The secondary impact of such improvements are modernisation, cleaner technologies, poverty reduction in areas and sectors where FDI increases.

6.2. Investment Climates and FDI Flows in the EU and Central America92

6.2.1. European Union Investments and Investment Conditions

General Overview Investment conditions are determined by applied legal and regulatory frameworks which create the investment climate influencing a country’s attractiveness for foreign investors. Relevant themes in this area include entry regulations, institutional provisions, screening and approval procedures and investment incentives as well as infrastructure and available land for investors.

The EU considers FDI as a key means to promote development and economic and social growth. The interdependence and complementarity between trade and FDI is widely recognised. International rules on FDI contribute to improving the business climate by increasing legal certainty for investors and by reducing the perceived risk to invest. Improving investment conditions may lead to access to cheaper inputs, more efficient technology and wider market increases in domestic company competitiveness and, in turn, leads to higher investment rates, growth and jobs.

At present, the EU27 is a major destination for FDI in terms of flows and FDI stock and it is generally the most open of the OECD countries in terms of investment conditions indicators such as operation, screening and equity restrictions. Total EU FDI flows grew 91 Red Reginoal de Monitoreo del DR-CAFTA (2008) notes that FDI increased in some countries as a result of DR-CAFTA

and not in others. Reasons for this should be addressed at the national level. 92 FDI flows between the EU and Central America were examined in our Interim Technical Report (ITR). See Annex II for

more details.


for the fourth consecutive year in 2007 with a growth rate of 31.6 percent– 20.1 percent more than in 2006.93 Over the last decade, the EU has played a major role in global investment, with outward flows and stocks consistently surpassing inward ones. In 2007, FDI inflows increased further, making the EU the largest host region within the developed world (two thirds of total FDI inflows), while outflows from the EU almost doubled. However, the current economic downturn has had serious effects on the outward FDI flows from the EU. In 2008, FDI to non-EU countries dropped by 28 percent and FDI into the EU from extra-EU countries fell by 57 percent.94

The EU investment framework includes multilateral and regional instruments, as well as bilateral treaties. The effects of these measures can be analysed by sector (manufacturing, services, and agriculture). Trade barriers for manufactured goods are relatively low, except for certain processed food products. The continued liberalisation of the internal services market provides new opportunities for service providers from outside the EU as access to one EU member state implies easier access to other member states.

According to the OECD, EU countries (notwithstanding differences between the Member States) have lower levels of FDI restrictiveness than non-OECD countries which in part explains the high levels of FDI inflows. As concerns particular sectors, OECD countries (including the EU) have most restrictions in the electricity, transport, telecommunications and finance sectors, while manufacturing, tourism, construction and distribution are among the least restricted.95

FDI and international investment are often linked to national security issues. The changing international environment for national security means measures such as the protection of technologies considered vital to national sovereignty are becoming more prevalent. Some national security concerns can provide grounds for limiting investment opportunities. These developments could potentially be harmful for global welfare and economic growth. However, it is expected that issues of concern for national security will play an insignificant role in the context of this AA, although the recent situation with narcotics in the Central American and Mexican regions could potentially be of concern to some EU investors.

Main Investment-related Issues Relevant for the AA Improved investment conditions in Central America can serve to increase the attractiveness of the region as an investment destination for European entities. As levels of development and thus the different comparative advantages and resources they each possess vary considerably between the countries, investment opportunities are different in each. Generally, within the EU there is a high level of dynamism and willingness to use investments to further growth and economic development, as evidenced by the growing levels of EU FDI into developing regions in recent years.

European firms also face challenges however, when looking to invest in Central America. These challenges are caused by a lack of regional integration as, at present, the Central

93 UNCTAD (2008), World Investment Report 94 Eurostat (2009) Press release: EU27 Foreign Direct Investment. 95 OECD (2008), Foreign Direct Investment Restrictions in OECD Countries.


American countries are far from being a unified market. Despite the customs union in the form of the Central American Common Market (CACM), there are still several NTMs hampering intra-regional trade between the countries. The particular issues in the region include differences in SPS (sanitary and phytosanitary) regimes and customs procedures which in turn make the movement of goods, services and capital across intraregional borders inefficient and expensive. Investors therefore lose opportunities to benefit from economies of scale (e.g. through the establishment of regional production centres) or to operate international or interregional offices in an efficient manner as importing goods is hampered by these NTMs. The Sistema de Integración Económica Centroamericana (SIECA), responsible for the provision of technical and administrative support to the Central American economic integration process of the Central American Integration System (SICA - Sistema de la Integración Centroamericana), is specifically working on reducing these intraregional NTMs. As well as this, the Central American Ministers of Finance recently agreed to develop a general FDI framework with a focus on harmonising tax policies by producing a joint booklet to establish the general policies which will apply once the AA comes into force.96 This ongoing positive initiative will allow governments to collect taxes without compromising social programmes and reduce advantages due to tax incentives among Central American countries. And generally reducing NTMs could help the region become more efficient and attractive as a production base which would subsequently attract and enable more foreign investors to establish there.

According to a 2008 study, European companies find the investment climate in Central America generally very fragile. A 2007 survey of 500 companies in Europe and Central America identified the main concerns on both sides of the Atlantic.97 Corruption, political instability and unclear investment-related rules are the main issues raised by European companies. Another was the lack of awareness among the business communities in both regions of existing treaties and investment protection tools between the two. Other challenges, particularly for EU investors in Central America, include: protection of investors (foreign investment restrictions, work permits), starting a business (bureaucracy, ease of investment, property rights), employing workers (labour market flexibility), and registering property (property rights).


General Overview FDI in the Central American region experienced steady growth between 1995 and 2007 (except for a sharp drop between 1999 and 2001, mostly due to a sudden decrease in foreign investment in Panama during this three-year period.)98 The privatisation of large public enterprises, particularly in the telecommunications sector, was the primary source of foreign direct investment growth during the high growth period of the late 1990s.

In 2000-2006, FDI in the region increased sharply from $258 million to $2,632 million (average annual growth of 15 percent). During the early part of this period, most

96 SIECA (2008), Declaración de San José. 97 Eurochambres (2008) Economic Obstacles for EU-Latin American cooperation: The view of the private sector. 98 ECLAC (2007), Foreign Investment in Latin America and the Caribbean.


investments were in the electronics and the textile and clothing (maquila99) industries and many were of Asian origin. Later, investment diversified more to include natural resources, tourism, technology and light manufacturing industries, with continuing investment in traditional maquilas. Despite these peaks in recent years, however, the current economic downturn has already had effects on FDI levels in Central America with a five percent drop in the region being recorded during 2008. Decreases are also expected in 2009 or at best to stabilise at the 2008 level.100 The region’s close links with the United States following the implementation of CAFTA mean the region is worse hit than other Latin American countries.101 However, the financial services sector and natural resource-based sectors have also held the interest of foreign investors and have thereby mitigated these effects slightly.102

Investment climate indicators in the Central American region as a whole have all shown a positive trend in the last five to six years with the export of goods and services increasing by an average of 7.74 percent since 2003.103

Investment has increased in sectors such as electricity, combustibles, telecommunications, free zones, tourism, mining and banking.104

There are, however, several differences between the countries themselves. The World Bank’s ‘Ease of Doing Business’ Index ranks countries on how conducive their business environment is to investment based on several indicators.105 Based on this index, El Salvador is by far the most business-friendly environment (with a low index), following measures undertaken since 2007 to attract more FDI. El Salvador is followed by Panama. Nicaragua, Guatemala and Costa Rica have a relatively high index (i.e. environments which are non-conducive to investment), a result which is surprising in Costa Rica’s case as it tends to attract the most multinationals and technology companies. Honduras has the least business-friendly investment climate in the region which is surpassed only by Venezuela in the whole of Latin America (see Figure V.6.1).

99 Maquila: firms subcontracted by large multinationals to manufacture (mostly) textiles and clothing 100 BCIE (CABEI) (2009), Implicaciones de la crisis económica internacional para el sistema financiero Centroamericano.

Tegucigalpa. 101 ECLAC (2009), Foreign Direct Investment in Latin America and the Caribbean in 2008. 102 UNCTAD (2008), World Investment Report. 103 ECLAC (2007), Foreign Investment in Latin America and the Caribbean. 104 Red Regional de Monitoreo de DR-CAFTA (2008), Il Informe Regional sobre los Impactos del DR-CAFTA en

Centroamerica y la Republica Dominicana. 105 The Ease of Doing Business Index runs on a scale from 0 to 100. The higher the value, the less business-friendly a country

is considered to be.


Figure V.6.1 Ease of Doing Business Index in Central America versus the rest of Latin America, 2009

Source: World Bank (2009), Doing Business Index NB: The Ease of Doing Business Index runs on a scale from 0 to 100. The higher the value, the less business-friendly a country is considered to be.

*LatAm: Latin America without Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama

While these indicators show the ranking of the business environment, the FDI inflows for 2007 show the actual amounts of investment each country is able to attract (see also ITR Annexes). While Panama leads the way with $2,574 million, Costa Rica is second with $1,469 million. Despite its ranking as the environment most conducive to investment, El Salvador comes in at third place attracting $906.8 million in 2007. Honduras and Guatemala follow with $814.9 million and $723.5 million of FDI inflows in 2007, respectively and Nicaragua has the lowest inflows at just $282 million.

Each Central American country has seen FDI growth in different sectors: fisheries and the maquila industry have been the main destinations of FDI in El Salvador, Guatemala, and Honduras; and to a lesser extent, in Nicaragua. The telecommunications sector has seen investments in call centres, particularly in Guatemala and El Salvador. In Panama, most FDI went into the real estate and financial sectors, while in Costa Rica it was technology and software development, pharmaceuticals, consumer products and tourism which attracted most investment. The results of these varying comparative advantages can be seen in Figure V.6.2 below which shows a clear lead by Panama, Costa Rica and El Salvador in attracting FDI to the region.

Figure V.6.2 Breakdown of FDI Inflows by Central American Country (2007, millions of dollars)


Source: ECLAC (2007), Foreign Investment in Latin America and the Caribbean.

Main Investment-related Issues Relevant for the AA Following the results above provided by the World Bank Doing Business Index on the ease of investing in each of the Central American countries, we now turn to the reasons why some countries attract more FDI than others and thereby identify the main issues in the area of investment conditions which need to be solved.

The Freedom Economic Index ranks countries on these and other FDI indicators (see Table V.6.1 below).106 As can be seen from this table, the main reasons why foreign companies are hesitant to invest in Central America are investment freedom, financial freedom, changes in legislation, weak property rights enforcement, bureaucracy and corruption. El Salvador has the freest environment thanks to a high index of trade, fiscal investment, financial and labour freedom followed closely by Costa Rica which receives the highest scores for government size and freedom from corruption. Panama received a high score for government size and financial freedom. Nicaragua and Guatemala follow despite a very high index for government size for Guatemala and relatively high labour and investment freedom for Nicaragua. Honduras brings up the rear with high fiscal freedom but a low score for corruption.

Table V.6.1 Business and Investment Freedom Index in Central American countries

Country Guatemala El Salvador Honduras Nicaragua Costa Rica Panama

WORLD RANKING 87/183 33 /183 91/183 84/183 46/183 55/183

Latin American rank 18 / 29 4/29 20/29 17/29 8/29 10/29

Overall Score 59.4 69.8 58.7 59.8 66.4 64.7

Details of the overall score

Business Freedom 54.1 67.4 64.4 57.6 60.3 74.5

Trade Freedom 78.4 81.8 78 79.2 81.8 76.2

Fiscal Freedom 79.4 85.7 85.1 78.8 82.8 82.6

Government Size 93.5 87.9 79.7 71 88.4 89.8

Monetary Freedom 73.3 77.4 73.5 69.5 69.7 77.9

Investment Freedom 50 70 50 70 70 70

Financial Freedom 50 70 60 50 50 70

Property Rights 30 50 30 25 50 30

Freedom from Corruption 28 40 25 26 50 32

Labor Freedom 57.3 67.5 40.9 70.6 61.2 44.1

Source: Freedom Index, Heritage foundation and WSJ (2009). www.heritage.org NB: The Business and Investment Freedom Index ranks countries on their level of business freedom with 100 indicating the freest environments and 0 the most repressed.

Aside from these, an important limiting factor for increasing FDI in the region is a lack of security. Violence and crime have increased significantly due to the drugs trade and gang violence in the region. This impacts negatively on investor perceptions (both regionally

106 This index was selected for two reasons: 1) The US is the traditional investor in the region due to its proximity and the index

reflects the opinion of traditional investors. 2) In contrast to Doing Business 2009, the Freedom Index includes corruption and government size.


and internationally) of Central America. In addition, Central American countries have low production costs (i.e. through low wages and transport costs). However, although this may be an advantage for investors in the short-run, it serves to attract ‘footloose’ investment by firms which do not stay in the country.

The AA could help to increase investment in Central America by improving market access, improving the quality of products made there and making delivery services reliable. This attracts more sustainable investment. Certain sectors may benefit from this such as financial services, although these effects will be marginal given the current economic situation. In general, as well as being beneficial from an EU investor perspective, the entry of foreign banks into Central America would be beneficial to the region for two reasons: an increased amount of capital on the market could reduce typically high interest rates in the region and thereby improve lending conditions for firms; and, during internal crises, banks which have access to foreign capital are still able to lend. New investments such as these in turn stimulate sectors which play a facilitative role, for example in improving local infrastructure (particularly transport from the rural areas to the ports; access to electricity, water and sanitary services) which in turn have positive consequences for employment and poverty among the local population.

In conclusion, whilst in the relatively harmonised EU market, differences in investment conditions remain, these differences are significantly larger and more persistent in the Central American market. Further harmonisation through regional integration in Central America is imperative and the AA is an important tool in achieving this.

6.3. Impact Assessment

6.3.1. CGE modelling results

Neither FDI nor investment conditions are directly included in the CGE model and it is therefore hard to provide specific estimates for the effects coming from an improvement in investment conditions as a consequence of the AA. There are however some aspects of the model from which conclusions can be made on the effects of improving investment conditions on certain sectors: • The assumption that capital is mobile in the long run, implying that some dynamic

investment effects are allowed for in the long run scenarios; • The comprehensive scenario includes NTM reduction worth one percent of the value

of trade and the very comprehensive scenario three percent of the value of trade. As the macroeconomic results showed (see annex), overall exports and imports were significantly increased when a further reduction of NTMs was considered in the model under scenario two, as compared to scenario one. It must be noted that it is not possible to define how much of this can be attributed to this NTM reduction specifically, and how much is due to further tariff reductions on goods and services implemented in scenario two as compared to scenario one;

• The model provides results on the liberalisation of services which is primarily achieved through a reduction in investment restrictions and the improvement of


investment conditions. The export and import results for these sectors thus provide valuable information as these are the sectors most affected by FDI.

In Annex III Modelling results, we provide results on the changes in exports and imports in various scenarios. EU financial and business services show no changes in output as a result of the AA. The only impact for the EU services sector is in the very comprehensive situation in the long run, and even this effect is only marginal. There are minimal effects in the EU as regards labour, prices, imports and exports. Imports and exports do increase in all scenarios, but only marginally (0.1 percent in most situations for imports and between 0.1 and 0.3 percent for exports). However, there could be potential small benefits as EU investors profit from more investment opportunities in Central America, which are not directly obvious from the modelling results, as explained above.

There are more significant impacts in Central America. Employment in financial, insurance and business services is expected to reduce slightly in all countries and all scenarios with very small differences between the long- and short-run and the comprehensive and very comprehensive scenarios, while prices too are set to reduce in all countries and scenarios, particularly in the very comprehensive scenarios. Imports and exports on the other hand are expected to increase substantially in all three sectors, implying they will become more international. While import changes are slightly higher in the long-run, the very comprehensive scenario predicts substantially higher increases. In most cases, exports are also set to increase in the very comprehensive scenario, albeit not as significantly as imports. Little difference can be seen between the short and long-run in this instance. Exceptions to the above include the Costa Rican financial services sector which sees employment and prices grow, and output increase by between 0.6 and 5.5 percent in all scenarios. Insurance and business services see reductions in all countries and in almost all scenarios, especially for Honduras and El Salvador in these two sectors (between -5.4 and -9.8 percent). The results for Panama show no effects if they are excluded from the AA and reductions in output (between 0.4 and 3.6 percent), employment and prices if they do participate. It should be highlighted once more that these modelling predictions on the services sector do not directly include FDI or investment condition amelioration (as explained above), which means these impacts should be interpreted with caution. Further potential impacts will be elaborated upon below for the EU and Central America separately.

6.3.2. Gravity analysis

In addition to the CGE economic modelling results, a further indirect effect on growth as a result of induced changes in investment (FDI) can be expected. The estimates of our FDI analysis provide an estimate at sector level of increased output because of FDI resulting from an FTA with the EU. The results for Costa Rica, Guatemala, Nicaragua and Panama are summarised in the Annexes to this report. For each ISIC sector, the tables report the measured growth rate for the last available year, and the simulated growth rate at sector level obtained by adding the growth differential obtained by multiplying the GDP growth differential (with FTA vs. without) by the relevant parameter estimate.


For the Central American states, estimated effects vary by country. In Panama, Nicaragua, and Guatemala, we have identified a number of sectors where effects are either at or above 1 percent of value added. For Panama, these are iron and steel, petroleum and coal products, and glassware, and non-metallic mineral products. For Nicaragua, non-electrical machinery and iron and steel are the most impacted sectors. For Guatemala, the plastics and pottery sectors, (and also metals at close to 1 percent), are most affected (around 1 percent). In contrast, in Costa Rica, all effects are less than 1 percent, with the greatest in furniture and petroleum.

Our results must be interpreted with caution for a number of obvious reasons: (i) our approach is based on reduced-form estimation; (ii) it yields average elasticities estimated on a heterogeneous sample; (iii) it is relatively aggregate and so will understate the sectoral drivers of FDI. This said, we find that FTAs between the EU and non-members tend to trigger, on average, substantial inflows of FDI. Those seem to translate into (imprecisely estimated) growth effects, with the increase in value added ranging around roughly 0.5 percent.

6.3.3. European Union Impacts

The overall impacts of the AA on investment conditions in the EU are expected to be negligible. In general, it is mainly services sectors which benefit from increased FDI given its pre-dominance in these sectors, however, given the EU’s status as a large player in the global economy and the limited existing base flows between the two regions, there are no impacts expected on the investment climate and services sectors as a result of the AA. Below, some very small secondary economic, social and environmental impacts are outlined.

Economic impacts The main economic impacts of more integrated and facilitative investment conditions relate to real income, investment levels and trade (imports and exports).

Real income & Trade • Improved investment conditions in Central America will mean EU funds can be

allocated to projects with higher returns at lower risk levels which may have the secondary effect of slightly increasing per capita income in the EU. Some examples of sectors which EU investors may target include environmental, financial, maritime, distribution and telecommunications services;

• Trade flows could be enhanced as a consequence of improved investment conditions, which potentially allows for cheaper imports of low-priced products. This in turn may increase the choice of products and services for EU consumers, thereby slightly increasing real income.

Social impacts Employment & Labour Standards The AA has a small expected positive impact on employment in the EU, especially for firms in sectors that export to Central America. In 2007, exports to Central America accounted for 43 percent of total EU exports. The manufacturing and transport equipment industry account for 48 percent of EU total exports to Central America. However,


chemicals and related products and manufacturing goods (14.3 percent and 7.2 percent of total exports to Central America respectively) are also important export sectors to Central America107. Employment in these sectors might thus show some increases.

Other social indicators The impact on other social issues, such as poverty, health, education and equality, will be closely linked to the positive employment impacts expected as a result of increased FDI. Since employment effects are expected to be very small, the impacts on poverty, health and education are expected to be negligible.

Environmental impacts European Union Given that the economic impacts in the EU are expected to be low, and that more expansion is expected in the services sectors rather than in manufacturing, the environmental effects are also expected to be small. More investment in the EU may mean slightly increased energy consumption, more intensive use of natural resource stocks and thereby higher (electronic) waste generation.

The anticipated overall environmental impact from improved investment conditions would correlate directly to the ratio of projected income gains to the current EU27 GDP. This ratio would average to 1.2 percent for the EU27. However, the sector impacts related to output changes would increase on average by only 0.1 percent.

Atmosphere The services sector is a large consumer of energy which generates high CO2 emissions. If the services sector thus expands as a result of improved investment conditions, these emissions may also slightly increase.

Other environmental indicators Very small or negligible impacts are expected for other indicators such as land, biodiversity, urbanisation, water and the quality of the environment. Increased investment thanks to improved investment conditions may lead to slight negative impacts for natural resource stocks and slightly increased use of transport fuel consumption and generation of waste water.

6.3.4. Central American Impacts

Economic Although the US is Central America’s most important trade partner (40 percent of total trade), the EU constitutes 15 percent of trade with the region meaning the effects of increased investment from the EU could potentially be significant in Central America, in contrast to the EU where little is expected change. In the short run, the impacts on real income, trade and investment are expected in sectors such as tourism and agricultural products. In the long term, increased investments are expected to benefit other sectors too (e.g. through technological improvements) including communications, textiles and clothing, electronics, etc. 107 EC (2008), EU Bilateral Trade and Trade with the World : Central America.


One proviso of the potential positive impacts occurring, however, is that NTMs are reduced intra-regionally, in order to attract EU investors to an efficient and integrated market which allows economies of scale, and to allow all Central American countries to share the benefits of increased EU investment.

Real Income & Trade • Trade flows could be enhanced as a consequence of improved investment conditions.

This potentially allows for cheaper imports of low-priced products which may in turn increase the choice of products and services for Central American consumers, thereby slightly increasing real income;

• Firms in some Central American sectors have a comparative advantage over their EU counterparts due to low production costs, meaning potential benefits for these sectors. However, this kind of investment is unsustainable and firms attracted by these low costs often exit swiftly.

Investment • Investment is expected to increase as Central America is geographically well-located

for EU companies wishing to access North American and other Latin American markets, but with low labour and transport costs. Increased FDI from the EU in Central America could potentially encourage GDP growth in Central America as new investments stimulate economic growth, efficiency and the overall attractiveness of the regional business environments for third countries;

• Investors from third countries are expected to be attracted to the region given the favourable access to the EU and thus investment from these parties may also be stimulated;

• Although the financial and business services sectors will see a reduction in output, increased investments from the EU are expected in sectors involved in environmental, financial, maritime, distribution, forestry-related, telecommunications and trading services, agriculture and food production;

• A reduction of NTMs and regulatory divergence between the two regions and within Central America will mean benefits for Central American sectors where investments have not reached their full potential within the region, due to these obstacles. This will also be of benefit to regional integration in Central America;

• In the long run, non-traditional services, such as CO2 emissions trade and tourism could also emerge as interesting sectors for investors;

• Trade liberalisation increases trade flows between regions. As this occurs, producers may consider investing in the country where their products are destined. But in order to make this step possible, investment conditions in the destination country must be conducive to FDI. On the basis of the gravity analysis results, an increase in investment in natural resources is expected. Investment in these sectors encourages sustainable investment and may lead to work in sectors such as renewable energy sources.

Social Employment & Labour Standards • Increases in investment are expected to have a positive impact on the quantity and

quality of employment, especially in rural and marginal urban areas;


• Rural areas will benefit from increased tourism, agricultural and forestry investments, while urban areas are expected to receive more investment in the textile, technology, and services sectors. This means that unskilled labour will remain in rural areas, while skilled labour will migrate towards higher employment in urban areas;

• Figini and Görg (2006)108 find that FDI to developing countries initially increases wage inequality as stocks increase. Therefore salaries paid by multinational companies or local companies with foreign capital may increase in the first instance for high-skilled employment. The effects of this are expected to diminish over time as FDI increases further, and therefore later income increases could potentially apply to low-skilled sectors;

• Competition for scarce FDI sources, particularly among SMEs, could lead to labour standards being lowered in a ‘race to the bottom’.

Health • Health facilities can potentially be improved as foreign investors and their employees

demand higher quality healthcare; • Employers often provide healthcare benefits to their staff; • Improved investment conditions may encourage FDI in environmental goods and

services such as waste water treatment plants, water treatment plants, sanitation and hospitals.

Poverty • In the medium and long term, stable employment, better wages and infrastructure

improvement will help to decrease poverty levels in the region. However, in the short run, a lack of access to new technologies or better practices, may mean SMEs (which account for over 90 percent of productive units in the region and are a major source of employment) or families working in rural tourism will be negatively affected as they are unable to remain competitive;

• Increased FDI established in urban areas will increase migration from rural to urban areas, thereby reducing poverty.

Education • The impact on education is expected to be positive, as foreign companies potentially

demand skilled labour, especially in telecommunications, technology, textile and agricultural sectors. On-the-job training provided by investors is therefore expected to develop the skills base in the region. In the long term, institutions may start to offer education more applicable to the needs of foreign investors, but this is highly dependent on policy decisions;

• Language skills will be a limiting factor in the short run, especially for the tourism and telecommunications sectors, but it may be mitigated in the medium term with training programmes.

Equality • Investment in agriculture, forestry and textile sectors is expected to have a positive

impact on women; particularly those from indigenous populations, whose

108 Figini and Görg (2006), Does FDI Affect Wage Inequality? An Empirical Investigation.


opportunities to find decent employment and to receive vocational training or regular education could increase.

Box V.6.1 Cuatro Pinos Cooperative – investment in agriculture and social development

Increased investment can have several social benefits. Cooperativa Cuatro Pinos is an important example of

how development assistance can encourage foreign investment.

The organisation was established in 1979 close to Guatemala City by 21 small farm owners (minifundios)

mostly of Mayan descent. The area was in the midst of a civil war and trying to recover from the earthquake of

1976. Almost every village was destroyed, hence without access to basic services or possibilities of trading. A

Swiss based NGO has invested in the development of vegetable production for exports to the US and United

Kingdom and now several products are exported in this way.

This kind of social investment strengthens the capacity of small farmers to support themselves by providing

support in legal and tax advice, technical assistance, access to credit, support in commerce and trade

information. Investment also improves access to basic services such as electric energy, telephone, health

centres, sanitation, dinking water, schools and road infrastructure. In addition, social investment provides

examples of areas where there are investment opportunities and may serve to arouse commercial interest.

Environment Atmosphere • The AA is expected to cause changes in CO2 emissions in all Central American

countries. Changes in CO2 emissions as a result of increased production could potentially fall by 0.03 million tons or increase by 0.3 million tons; this varies for each country and scenario. As in the case of the EU, increased services through an improvement in investment conditions will contribute to these increases. In addition, the income gains in Central America could increase the global GHG emissions by between 0.5 and 0.7 million tons of CO2;

• Small and medium enterprises cannot afford to implement environmentally friendly technologies or clean energy and will therefore need access to financing and technical support in order to mitigate the environmental effects of increased investment;

• Improved investment conditions in Central America could increase opportunities for investments in environmental goods and services which could also potentially have a positive environmental impact.

Water and waste • The attraction of FDI in certain heavy industries (i.e. chemicals, construction and

petroleum refineries) could mean increased water contamination and an increased amount of waste water. Suitable methods of dealing with these would need to be formulated by national governments and investment promotion agencies.

Other environmental indicators • Investment in the forestry and agriculture sectors might stimulate illegal logging for

timber production or agricultural frontier expansion if policies are not established to control these;

• Labour migration may cause a heightened demand on natural resources in certain areas and thereby affect biodiversity and land use in these areas;


• As previously mentioned, a ‘race to the bottom’ caused by attempts to attract scarce FDI resources may lead to a lowering of or non-enforcement of environmental standards.

6.4. Conclusions

From the analysis above, it appears that the impact of improved investment conditions will be minimal for the EU, but could potentially have a large impact on Central America as investments increase there. Below are some brief conclusions on these impacts.


• Economic: The economic gains for the EU are expected to be negligible. Improved investment conditions will improve transparency and a more accessible business climate for EU firms from certain services sectors wishing to establish in Central America. This could lead to a minimal increase in GDP per capital;

• Social: Since trade and investment conditions are closely linked, improved

investment conditions may have a slightly positive impact on employment in the EU, especially for firms active in sectors that export to Central America but since these effects are expected to be limited, so are impacts on poverty, health, education and equality;

• Environmental: The estimated environmental impacts on atmosphere, land,

biodiversity, environmental quality and on fresh and waste water related to improved investment conditions of the EU-Central American AA are considered to be very small or negligible for the EU27.


In conclusion, the trade part of the EU-Central America AA could be beneficial for Central America as European investment in the region grows in sectors such as iron and steel, petroleum and coal, machinery and plastics and pottery, but these positive effects are dependent on the reduction of intra-regional NTMs and trade facilitation. • Economic: Reduced intraregional NTMs are key to allowing Central America to reap

the benefits of improved investment conditions under the AA. Freedom from these restrictions could make the region more efficient and help to promote it as a target market for investors from the EU and other countries. It could also mean large benefits for SMEs in the region, as they would stand to gain most from increased intra-regional trade flows. As FDI flows increase, trade flows are also likely to increase, stimulating further GDP growth, income increases and products available to consumers at lower prices. Certain firms may have a comparative advantage when investing in the EU through low production costs. These benefits will, however, not be immediately apparent and Central American companies will require time to adapt


to the AA and to learn new methods of diversification, particularly in those sectors where outputs are expected to reduce, including financial and business services;

• Social: As EU firms invest in Central America, they may require more transparency

and respect for human rights in the region, and this could mean an improvement in social conditions for Central Americans, as well as more employment and improved infrastructure. Education and skills could improve as these are geared more to investor needs, but labour migration could put more pressure on urban areas, particularly in terms of health;

• Environmental: Increased economic activity and income levels mean extra pressure

on the environment, particularly due to higher CO2 emissions and increased demands on natural resources. Higher investments from the EU in environmental goods and services could, however, have a potentially positive environmental effect.


While improved investment conditions will have minimal effects for the EU, several changes are expected in Central America. This section provides suggestions for policy recommendations and flanking measures to enhance the positive and mitigate the negative effects.


Ongoing investment climate amelioration • Amelioration of the investment climate for the services sectors in the EU can lead to

large benefits for both regions. This should be done by: reducing foreign ownership restrictions, competition policy and strengthening of market forces (e.g. phasing-out state aid) and strategic deregulation.

Sector-specific recommendations • Promotion could be made among EU businesses of investment opportunities in

Central America in the sectors in which the EU has a comparative advantages, e.g. environmental goods and services, tourism and financial services;

• Research should be done into the opportunities for EU firms to invest in natural resources and raw materials in Central America.


Ongoing investment climate amelioration • Central America is committed to further regional integration which will facilitate FDI

and will also be of benefit to SMEs who will reap the gains of increased intra-regional trade. However, this process has stagnated due to differences within the region and financial and technical support with implementation will be needed in order to address these challenges. The region must remain committed to reducing NTMs such as SPS measures, customs procedures and the lack of a conflict mechanism on investment issues;


• To emphasise the positive effects of the improvements in investment conditions, technical assistance and capacity-building for local and national governments and SMEs will be needed. Education and skills will also need to be more geared to investor demands, should FDI increase. The specific issues to be addressed include intellectual property rights, financial services, trade facilitation, labelling requirements, corruption, and enforcement issues.

• An important part of improving the investment climate and promoting the incentives available to investors is the establishment of free zones or special economic zones, which should also be considered.

Sector-specific recommendations • If Central American services sectors are affected negatively by increased investment

from the EU, capacity building should be provided to support them with either increased competitiveness and/or diversification;

• In tourism, municipalities and regional governments must be supported in the development of policies that will encourage the creation of local skills in the sector. This is most relevant for mitigating the negative environmental impacts issues of increased tourism. Often those living in rural areas are not aware of the link between their everyday activities and environmental deterioration (e.g. rivers and lakes are often used as waste management facilities);

• The expectations of business sectors in Central America are that the EU will impose high standards on Central American products to allow these to be exported to and constitute investments in the Euro Zone. Although this will be true to some extent, there may be some misconceptions which could be clarified by way of an informative campaign targeting those same businesses and chambers of commerce throughout the region;

• As indicated by our case study, opportunities in new/niche sectors such as environmental goods and services, eco-tourism and fair trade initiatives should be promoted as commercially interesting to private EU investors.

Other Thorough environmental impact assessments must be conducted by national governments or investment promotion agencies in order to predict and make plans to mitigate the potentially harmful effects of increased industry through investment. The Central American governments would need to make finances available to deal with these new environmental issues.


7. In focus: Labour Issues

7.1 Introduction

In this section we will take an in-depth look at employment and labour issues in the context of the EU-Central American AA, considering specifically indicators as defined by the International Labour Organisation as part of its Decent Work Agenda (DWA) and how they may be affected by the AA. The ILO’s Decent Work Agenda (DWA) includes four strategic objectives: fundamental principles and rights at work and international labour standards; employment and income opportunities; social protection and social security; and social dialogue and tripartism. Gender equality and non-discrimination are issues pertaining to all four of these objectives. Trade liberalisation, employment and labour standards are often linked in discussions on the consequences of globalisation. Many developing countries entered into global production networks based on low labour cost advantages as a means to jump start their industrial development. A clear example of this is formed by the maquilas in Central America, which offer availability of low cost labour, coupled with certain tax advantages. Besides creating much needed employment these factories have also been criticised for their poor labour conditions. It has been argued that to keep labour costs low, labour rights upheld in the developed countries are being discarded in developing countries. Increasing public awareness and policy responses have put these issues high on the international trade and development agenda, as reflected in the number of international agreements and conventions, corporate social responsibility initiatives and projects by organisations such as the ILO in cooperation with manufacturers and governments in developing countries.109 Central America has received a great deal of attention with regards to labour standards, especially in relation to the maquila system. In the context of this study, therefore an additional workshop was held in Managua focusing on social issues in particular. As a result of DR-CAFTA negotiations, a White Paper was published in 2005 by the Ministers responsible for trade and labour in DR-CAFTA countries in which they identified key areas for improving workers rights, enhancing capacity and promoting compliance with labour standards.110

Similar commitments (such as employer sanctions, 109 Between 1919 and 2007, the ILO had accepted 188 conventions in the areas of labour and social security. Of these, the

ILO Governing Body sees eight as fundamental and these form part of the Declaration on Fundamental Principles and Rights at Work (1998). These ‘ILO Core conventions’ are: freedom of association; rights to collective bargaining and rights to strike; forced labour; discrimination and child labour.

110 The Labor Dimension in Central America and the Dominican Republic available at http://www.centristpolicynetwork.org/pages_2005/06/white_paper_summary.pdf.


the provision of direct support to labour unions, and urging governments to create laws to regulate employment subcontracting) will be part of the EU- Central America AA Sustainable Development Chapter. It is therefore important to identify the remaining labour-related issues in both regions and in what way the agreement could serve to alleviate these.

7.2 Main Labour Issues – European Union

In the EU, employment and social issues are at the heart of the Lisbon Agenda and the ILO DWA is closely adhered to.

• Despite the fact that the EU has several gender policies111, there is still gender

inequality between men and women on the labour market in the EU. Inequality in employment rates has decreased in the last decade, mainly because of an increase in the number of women entering the labour market. However, there remain imbalances in unemployment rates, equal opportunities in the labour market,112 and salary levels.113

• Forced labour is also an issue to a certain extent in Europe and is mainly the outcome of irregular migration processes.114Several countries (mainly Central and Eastern European countries) recorded an increasing number of trafficking victims with a high proportion being women trafficked for sexual exploitation.

Box V.7.1 Decent work for the Panama Canal

The Panama Canal was opened in 1914, but by the time the Canal was completed, 27,000 workers had died,

mainly because of tropical diseases and accidents. In September 2008, the extension work on the Canal

started and the Decent Work principles are being respected, with the aim of providing equal access to

productive employment, safety in the workplace, social protection for families and encouraging respect for

labour rights. This is very important for this project, because those workers that are employed (approximately

7000 direct jobs to be created) still have “a dangerous job facing great risk”. The Minister of Labour of Panama

and President of the 97th International Labour Conference in Geneva, Edwin Salamín Jaén115.

7.3 Main Labour Issues – Central America

The Central American republics have laws in line with the ILO core labour standards. Box V.7.1 gives an example of Decent Work in practice in Central America. However, there are some concerns about the actual implementation of these laws. • Freedom of association is an issue in Central America. Despite the recognition of

trade unions, membership is low (e.g. 10 percent in Guatemala). This could be connected to the perception that when an employee becomes a member of a trade

111 Gender policies such as: EC, Employment Equality Directive (2000/78/EC), the Social Agenda (COM (2005) 33 final) and

the renewed Lisbon Strategy (COM (2005), 24 final). 112 COM(2006) 71 final, Report on equality between women and men - 2006 113 Women earned on average 15 percent less than men for every hour worked in 2006. 114 ILO, (2009), “The cost of coercion”, International Labour Conference, 98th session. 115 http://www.ilo.org/global/About_the_ILO/Media_and_public_information/Feature_stories/lang--en/WCMS_093879/index.htm


union, he/she can face high levels of violence, sexual and moral harassment and runs a higher risk of being sacked. Box V.7.2 provides two examples of freedom of association issues;

• Social dialogue between employers, employees and labour ministries is not fully developed or practised. Especially employee organisations (trade unions) generally tend to be less organised.

Box V.7.2 Freedom of Association issues

The ILO Committee on Freedom of Association drew special attention to deplore the murder on 23

September 2007 of trade union leader Marco Tulio Ramírez Portela, Secretary General of the Finca Yuma

sub-branch of the SITRABI trade union in Guatemala, and expected that the investigation under way will allow

justice to be done to the perpetrators of this homicide. The committee also requested that the Government

provide the brother of the murdered union leader (also Secretary General of SITRABI) with the necessary

protection, and to investigate the allegations that on 20 July 2007 armed soldiers entered the headquarters of

the union concerned, and interrogated the workers regarding the union leaders names and activities116.

• Forced labour is prevalent in Central America and is closely linked to patterns of

inequality and discrimination, particularly against indigenous peoples. A related issue is that of forcing (unpaid) overtime on employees by threatening negative consequences;117

• Gender equality in Central American countries remains an issue. Women tend to have less access to the labour market than men, higher rates of employment, more confinement to the informal sector and face regular discrimination.

Box V.7.3 Case study: the Maquila

Working conditions not in line with ILO Core Conventions118

Maquilas are usually industrial plants or factories in free-trade zones, active in the textiles (most Central

American countries) or electronics industry (Costa Rica), and tend to employ a large number of workers. They

are established by foreign investors and those in Central America are mostly owned by investors from Korea

and other Asian countries or US multinationals.

The maquilas provide investors with the opportunity to manufacture products at lower costs than would be

incurred in their home country. Reasons for these advantageous conditions include the high unemployment in

the region which allows competitive labour costs; no tax payments to the destination country (for the first ten

years) and no environmental inspections. Central American governments and the multinationals that own the

maquilas are in favour of producing in this way, as they see it as a source of economic growth and wealth to a

country. The main ways in which this stimulates this is by promoting technological advances; contributing to

employee skills; providing appropriate working conditions and creating employment and thereby providing local

families with an income; and offering more female employment and thereby changing women’s social status.

The reality, however, is less than ideal. Although there have been minimal technological advances as a result

116 ILO, Newsletter 6/2008 117 In Guatemala, for example, the workers’ organization UNSITRAGUA has brought several cases of this type of forced labour

to the attention of the ILO Committee of Experts. This organization claims mainly cases where the employees have to work long shifts and where refusal to work may give rise to firingCEARC, ILC, 2008, op. cit.

118 Main source of this box: Estrella Pineda, (2008), “Maquilas. Labor slavery of XXIst Century”, www.ccoo.cat/maquila accessed 14 April, 2009;


of maquilas, they do not contribute significantly to national economic growth, as raw materials are imported

from the owner’s home country, thereby decreasing the value added. Maquilas have expanded job

opportunities (especially for women) but they make their own rules for labour standards and these are not

always in line with the ILO or the DWA:

• In some cases, there is in practice limited freedom of association;

• All maquilas are short-term enterprises, so workers can lose their jobs when the factory relocates or

closes down;

• Maquila employees generally earn less than the minimum wage with women receiving an even lower

income than men. Because of the low education level of the workers and the fact that the family is

dependent on this income, many workers have no choice but to work in the maquilas;

• The employees suffer health problems due to the use of chemical products and long working days;

• Maquilas often employ women (aged between 18 and 32) who are vulnerable for social problems, and

sometimes face violence, sexual and moral harassment in the workplace.

• The factories can also have negative environmental consequences for the country.

In the 1990s, maquilas played an important role in the Central American export sector, but it is now facing

competition from Asian countries and exports and growth have been falling since 2004.

• All six Central American countries have indigenous populations who mostly live in

rural areas on the margins of modern society. Indigenous people are mainly employed in the informal sector and maquilas and are often victims of forced labour. As well as this, those working in rural areas or rainforests (including a large proportion of indigenous people) are often not covered by social security (i.e. just 16.1 percent of the Honduran population119) and have their habitat threatened by investors and multinationals.

• Child labour continues to be an issue in Central America, despite attempts by various social and industry associations to combat this. For example, 37 percent of the population in Guatemala aged between 7 and 14 is at work120 and while the figures in other countries are not so high, a significant proportion of the 5-17 year old population is employed in the agricultural sector or dangerous tasks or tasks prohibited by the government or international conventions.121 These children and young people are, however, not only active in paid employment but also unpaid household tasks which prevent them from attending school.122

7.4 Labour and the AA

There are clearly severe labour-related issues in Central America and it must be emphasised that many of these are linked. For example, given that wages are kept low in a desire to exploit the country’s comparative advantage in cheap labour, families are forced to supplement their income by having as many family members as possible at work, including children.

119 ILO (2008), Decent Work Country Programme: Honduras. 120 EC, (2007), “Guatemala, Country Strategy Paper – 2007-2013”, E/2007/480. 121 ILO (2008), Decent Work Country Programme: Honduras. 122 ILO (2004), Analysis of Child Labour in Central America and Dominican Republic.


Agreements with developed regions such as the AA with the EU provide opportunities to improve upon these challenges, as has been indicated during the consultations held in Central America, in particular, through the inclusion of various international agreements on labour standards (e.g. ‘The 2008 Declaration on Social Justice for a Fair Globalisation’ which specifically prohibits the violation of worker rights for the benefit of comparative advantage). In addition, the inclusion of a sustainable development chapter can serve to identify these issues and the means to tackle them. If the EU insists upon standards being met in the production of goods to be exported there, then this could benefit Central American workers, in particular the most vulnerable groups. However, the means to do this must also be provided by the EU, such as the EU funds offered for stimulating tripartism and social dialogue. In addition, a monitoring and evaluation system, such as that included in the EU-Chile agreement must also be put into place following implementation of the agreement. The Sustainable Development Chapter could also implement the enforcement mechanisms implemented as a result of the DR-CAFTA White Paper including employer sanctions, the provision of direct support to labour unions, and urging governments to create laws to regulate employment subcontracting.

7.4 Conclusions

7.4.1 European Union

• The EU performs well in the ILO DWA indicators which include employment opportunities, remuneration and working conditions. Social dialogue is also well-developed, particularly in the west and north of the region;

• Despite this good performance, some issues remain. These include gender inequality in employment and unemployment rates and the generally higher representation of women in traditionally ‘female’ sectors such as education, health and social work which serves to emphasise the division further. Forced labour is an issue in certain European countries, with trafficking of women for sexual exploitation as an issue of particular concern.

7.4.2 Central America

• A large proportion of workers (60 percent) are active in the informal sector. The effects on these groups are difficult to assess given the lack of data on the informal sector;

• Despite the application of labour laws in theory, issues of concern remain as regards freedom of association, social dialogue, forced labour and unpaid overtime are also areas of concern in Central America;

• Vulnerable groups such as women, children and indigenous populations suffer from discrimination. Females have higher rates of unemployment and lower salaries. Indigenous populations are affected by poor labour conditions in the informal sector and child labour is prevalent in all six countries. Some sectors which employ these groups especially (i.e. women in the textiles sector) will see growth in output and employment in certain countries (such as Guatemala) through the introduction of the AA which will in turn impact these vulnerable groups positively;


• In addition, in those countries where those same sectors suffer employment decreases (to use the textiles example once more – Costa Rica and Panama), other sectors (e.g. electronics) will increase in output and thereby wages will be higher. This will serve as a pull factor for those working in sectors whose outputs will decrease.

7.5 Policy Recommendations

7.5.1 AA-related

• The AA should include a labour chapter as was included in CAFTA in order to set minimum labour standards for Central American firms before they export to the EU and to ensure their enforcement. By the same token, EU firms importing from the region should ensure the imported products are produced in accordance with ILO DWA standards. SMEs may not have the capacity and facilities to adhere to these and therefore technical assistance will be required from the EU or Central American governments;

• Low wages and lax labour regulations can serve as a comparative advantage for Central American countries, these groups could suffer from these factors as local firms seek to maintain their competitive position in a ‘race to the bottom’. Strict monitoring systems such as compliance with certain OECD and ILO guidelines should be implemented by the governments to avoid this as low cost labour has been proven not to be a sustainable way to encourage development;123

• On the flipside, as investment increases from the EU, this could encourage the improvement of labour standards. Vulnerable groups such as women, children and indigenous populations may benefit from better labour conditions provided by foreign firms which will improve their working situation. EU firms investing in the region should ensure they adhere to the ILO DWA and encourage national governments in Central America should stimulate the incorporation of these standards into local practices;

• Social dialogue between trade unions, employers and labour ministeries could be improved and formalised with EU funds and technical assistance, e.g. by way of the introduction of Trade and Sustainable Development Forum providing consultation opportutnities and decent work cooperation activities. The suggestion by Central American society to provide two mechanisms for social dialogue; one for social organisations and one for environmental organisations, is a useful tool in stimulating this dialogue and should therefore be implemented;

• The environmental effects of increased investment from the EU may impact upon rural areas and thereby the living and working environments of indigenous populations. Technical assistance from the EU could serve to combat these effects;

• Increased competition from Asian countries and a reduction in recent years in the added value growth of the maquilas could have consequences for employees in this sector. The AA should include a mechanism to mitigate the negative effects of trade liberalisation on vulnerable groups. This should include working closely with the ILO on Decent Work Country Programmes (DWCPs) which recognise the importance of

123 Gereffit et al (2001), Smakman (2004)


tripartism, social dialogue and decent work standards as central to assistance to developing countries. In addition, all companies on the territory should be made to comply with these standards thus avoiding the expansion of export processing zones (EPZs) as a means to avoid the enforcement of decent labour conditions.

• The enforcement of labour standards should be ensured through requiring agreement parties to be signatories to OECD and ILO declarations. Technical assistance could be provided by the EU to ensure this effective enforcement. In addition, sustainability impact assessments should be carried out following implementation of the agreement by external experts. The level of technical assistance required should be based on the findings of these SIAs.

7.5.2 Flanking measures

• The complete abolition of child labour, equal work opportunities for women and combating discrimination against indigenous populations and other vulnerable groups in the workplace should be a priority for national governments, as identified in ILO DWCPs. Measures implemented by the ILO to combat these often include creating work for parents (as a means to reduce the need for children to go to work) and vocational training for women.


8. In Focus: Environmental Issues

8.1. Multilateral Environmental Agreements (MEAs)

8.1.1 European Union124

International cooperation is the most effective way to solve environmental problems as these often constitute a global problem. The EU’s main objective in this area is to promote measures at an international level, in order to stimulate dealing with all kinds of environmental problems, at a national, regional or even worldwide level. The EU has ratified many agreements at a global level (international environmental agreements (IEAs) and multilateral environmental agreements (MEAs125) negotiated under the auspices of the UN), as well as the regional level and sub-regional level. The EU's 6th Environmental Action Programme aims to promote sustainable development and to favourably influence its implementation in Europe. The four priority areas listed in this action programme are: climate change, nature and biodiversity, environment and health and quality of life and natural resources and wastes. These objectives can only be achieved with international cooperation, reflected in IEAs that are supported and implemented worldwide.

8.1.2 Central America126

All Central American countries have ratified a number of regional environmental agreements which agreements are designed to address regional environmental priorities and to ease the implementation of MEAs.127 These regional environmental agreements include: - Conservation of Biodiversity and Protection of Priority Wild Areas in Central

America; - Regional Convention on Climate Change; - Regional Agreement on the Transboundary Movement of Hazardous Wastes; and - Convention on the Management and Conservation of Natural Ecosystems, Forests,

and the Development of Tree Farms. 124 Http://ec.europa.eu/environment/international_issues/agreements_en.htm 125 such as the Kyoto Protocol on climate change, the Montreal Protocol on ozone depleting substances, the Biodiversity

Convention, the Convention on International Trade in Endangered Species, and the Convention on Persistent Organic Pollutants.

126 http://www.unep.org/dec/onlinemanual/Compliance/InternationalCooperation/RegionalActionPlans/Resource/tabid/718/Default.aspx

127 Enforcement of these MEAs also helps to protect public services such as drinking water.


The Central American Commission on Environment and Development (CCAD) ensures ongoing compliance with the agreements. The CADD has formulated regional strategies and models for environmental legislation, including legislation that implements MEAs. With growing fears that competitive disadvantage against countries with less stringent environmental regulations will hamper the growth and survival of industries, MEAs – which have a prime objective of tackling global environmental problems – may also serve as options to secure equal opportunities for different market players. It is likely that the AA will include a sustainable development chapter. This chapter should include: the commitment of both the EU and Central America to MEAs and IEAs and their effective implementation. In order to solve global environmental problems, and to secure equal opportunities to a certain extent.

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