Initial market access offers by both sides were made at the 4th round of negotiations in April. The US offer was for 75 percent of its imports from Central America to be granted duty-free access in the first instance. Another 2.5 percent would be freed after five years and nine percent after 10 years.

Some 11 percent of US imports from the area would be excluded from free trade altogether. These are mainly agricultural products receiving domestic US subsidies: they include milk and dairy products, cattle and pork meat, tuna, sardines, and footwear. The products to be excluded from free trade include several in which Central America hoped to expand its exports to the US market.

Moreover, the 75 percent listed for immediate access would benefit some Central American countries significantly more than others. Costa Rica would enjoy duty-free access to the US market for over 80 percent of its exports, a consequence of the inclusion of microprocessors. But countries with a higher share of agriculture in their exports would benefit less. Estimates are that the offer covers only 69 percent of the exports of El Salvador, 59 percent for Honduras and less than 50 percent for Nicaragua, the poorest country in the sub-region.

Some analysts suggest that this gives a new and ironic twist to the meaning of differentiated treatment in a free trade agreement.

One result is that the countries standing to benefit least are under pressure to increase their own market access offers to the US. The joint Central American position on duty-free market access covers 75 percent of imports; with 13 percent freed over a 5-10 year period and 12-15 percent excluded altogether.

But on the eve of the 5th round, Guatemala increased its own individual offer to cover 80 percent of its US imports. Other countries are said to be preparing individual offers, calling into question the viability of a joint Central American position.

Another issue is that the US offer does not take account of the existing provisions for duty-free access for Central American exports under the Caribbean Basin Initiative (CBI) and the Generalised System of Preferences (GSP). As these schemes already cover as much as 90 percent of the sub-region’s exports, the US offer under CAFTA may fall short of what already exists. 

For the 5th round, the US announced readiness to free 65 and 92 percent of its agricultural market and industrial markets respectively. But Central America maintains that the increase from the previous offer is only marginal, and that the excluded products are the most significant. Textiles and clothing are the subject of a separate negotiation.

The latest developments have produced strains both among the countries and between governments and the private sector. The Central American business community has become noticeably less enthused about CAFTA since the US offer was unveiled.

The course of the negotiations demonstrates the difficulties of maintaining a united front in regional negotiations when (i) there are wide differences among the countries in economic structure and levels of development, (ii) a regional economic bloc has not been consolidated, and (iii) there is a pronounced asymmetry in bargaining power vis-a-vis the other party.

The challenge facing Central America is to maintain the unity and cohesiveness in its negotiating position in the face of these developments.

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