On 29 June 2012, the European Union and the six partner countries in Central America – Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama – signed an Association Agreement (the EU-Central America Association Agreement) (the “Association Agreement“).  The purpose of this FTA was to develop trade and investment relations between parties.

On 13 May 2019, the European Commission published an Evaluation and Fitness Check Roadmap on the Association Agreement to assess the economic, social, human rights, and environmental impact of the trade agreement since it was first implemented.

The Evaluation is part of the European Commission’s Better Regulation agenda which requires that every Directorate-General of the European Commission consult citizens and stakeholders to identify areas of development of European Union legislation. The results are intended to help improve the implementation of the agreement and are expected to be of assistance for recently concluded FTAs.

Trade between the European Union and Central America

The European Union and Central America’s economic integration processes have evolved concurrently. A few years after the creation of the European Economic Community, Central America created the Central American Common Market (MCCA) tariff system. Despite the growth of interregional trade, it was not until the 1990s that the consolidation of a trade framework became a strategic priority. In 1991, the creation of the Central America Integration System (SICA) established the region’s institutional system, followed by the signature of the Guatemala Protocol in 1993, which materialized the region’s commitment to build a customs union.

In this context of fortification of the free trade zone and encouragement of intraregional foreign trade, Central America and the European Union signed the Framework Cooperation Agreement in 1993. The European Union has been a strategic partner in Central America’s economic integration process, by focusing its trade policy on bilateral trade and the creation of a customs union. In the past decades, both regions have taken active steps towards concluding an agreement that includes a free trade area.[1]

The EU-Central America Association Agreement

The Association Agreement aims at strengthening economic relations by increasing the stability and predictability of the trade and investment environment, and promoting sustainable development in both regions. It was designed as a means to diversify Central America’s exports, and to open the telecommunications, financial, environmental, and maritime services markets for EU firms interested in doing business in Central America. It is one of the first of a new generation of European Union FTAs, and it is also the first region-to-region agreement in Latin America.

Three complementary pillars provide the structure for the Association Agreement: political dialogue (Part II), cooperation (Part III), and trade (Part IV).  The objectives of Part IV consist of the reduction or elimination of tariffs and non-tariff barriers to trade, and the facilitation of trade through agreed provisions on customs and trade facilitation, standards, technical regulations, and conformity assessment procedures. The comprehensiveness of the agreement lies, among other things, on the inclusion of specific provisions regarding competition, the improved access to government procurement, and a chapter on the protection of intellectual, industrial, and commercial property rights.  Additionally, the Association Agreement includes a mediation mechanism and a state-to-state dispute settlement mechanism;[2] provisions supporting sustainable development; and consultation of civil society stakeholders in a bi-regional Dialogue Forum and Advisory Groups.

Further, the Association Agreement has advanced the creation of a foreign customs union in Central America and allowed the region to unify its criteria for the export and import of products.  According to the Association Committee, the trade flows between the European Union and Central America have grown continuously in the past years[3] due to the increased market access and a more predictable trade and investment relationship generated by the Association Agreement.

The European Commission’s empirical evaluation to improve implementation

The Evaluation Roadmap’s (the “Evaluation“) stated purpose is to produce a report based on evidence assessing the impact of the implementation of the trade provisions and identifying areas that need improvement. The Evaluation seeks input from citizens and stakeholders on: (i) the effectiveness of the Association Agreement to promote trade and investment and to contribute to sustainable development; (ii) the efficiency in relation to the resources used; (iii) the relevance of the Association Agreement with respect to the current trade and economic needs and challenges facing the European Union and Central America; and (iv) the coherence of the Association Agreement with the objectives of the European Union’s trade and other external policies.

The Evaluation will take into account previous studies conducted by the EU[4] and external third parties, and use the data available from EUROSTAT and COMTRADE, among other databases.  An external study will compile a quantitative and qualitative analysis of the information.

As part of the Evaluation, the EU is seeking online feedback until 30 August 2019.  In addition to the possibility of providing feedback online – which will be published contemporaneously on the site – the Evaluation includes a Civil Society Dialogue in Brussels, a 12-week online public consultation, and a targeted online survey for business users.  The results are expected to be adopted by the European Commission during the fourth quarter of 2020.

Significance and next steps

Central America has trade agreements with more than twelve states and groups of states, such as the United States and the Dominican Republic (DR-CAFTA), Chile, and Panama. While the negotiations of some of these agreements have been carried out jointly by the partner countries, the provisions apply distinctively to each of them. The Association Agreement is a novel agreement – it is the first to be negotiated by the Central American group with another group of states in a regional integration framework. The integration process in Central America is one of the first and most successful in Latin America, although compared to the European Union its level of integration has room to grow. The Association Agreement has reinforced the economic and political integration in the region, which is why its effective implementation is central to carry on this process.

This Evaluation represents the EU’s continuing efforts – which involve a number of reports, workshops and meetings – to ensure that the Association Agreement specifically, and other regional comprehensive trade agreements serve their purpose and can be implemented effectively.  The EU has carried out on-going economic cooperation with regional players in Latin America and the Caribbean since the 1990s. It has concluded trade agreements with Latin American groupings, a multiparty trade agreement with three members of the Andean Community, and bilateral agreements with Chile and Mexico. In addition, the European Union and Mercosur have recently agreed to a bi-regional trade agreement after negotiating for the past twenty years (see our recent post).The implications of the Evaluation are thus two-fold.  First, the report will indicate lessons for the future implementation.  Second, it will also yield data that can be usefully applied to other existing trade agreements, and inform the negotiations and design of future agreements.

From the European Union standpoint, the Evaluation comes at a time where it is asserting a new interventionism in the realm of investment agreements in a post-Achmea context.  While the European Commission has been advocating to move away from the traditional system of bilateral investment treaties and investor arbitration – on the grounds that intra-EU investment arbitration is incompatible with European Union law – a new wave of FTAs supports the European Union’s approach to switch to a multilateral investment court system in the future.  In this regard, see our recent discussion on the Comprehensive Economic and Trade Agreement between the EU and Canada (CETA) dispute resolution provision.

In the meantime, stakeholders, companies that conduct trade in the region, business associations, and citizens are invited to participate in the Evaluation.

1       The state-to-state dispute settlement applies to Part IV of the Association Agreement, and does not apply to disputes between the Republics of Central America.

2       Association Committee 14 June 2018 – Summary Report, 29 June 2018, http://ec.europa.eu/trade/policy/countries-and-regions/regions/central-america/index_en.htm

3       The Sustainability Impact Assessment (SIA) “EU-Central America Trade Sustainability Impact Assessment” of September 2009; the four annual reports of implementation of the Agreement issued so far (COM(2015)0131, COM(2016)0073, COM(2017)0160, COM(2018)728)), http://trade.ec.europa.eu/doclib/cfm/doclib_section.cfm?sec=543.

4       The European Union has an inter-regional framework agreement with Mercosur and bilateral framework agreements with its founding members (Argentina, Brazil, Paraguay, and Uruguay).

 

For further information, please contact Amal Bouchenaki, Partner, Silvia Marroquin, Associate, or your usual Herbert Smith Freehills contact.

Amal Bouchenaki
Amal Bouchenaki
Partner
+1 917 542 7830
Silvia Marroquin
Silvia Marroquin
Associate
+1 917 542 7622