Central American Common Market (CACM)

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Central American Common Market (CACM)

The Central American Common Market (CACM) is an economic agreement among the five Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua). This movement toward regional economic integration commenced in 1951 with adoption of a resolution by the United Nations Economic Commission for Latin America (ECLA). Years of study and negotiation followed.

In 1958, the five countries, under the tutelage of ECLA, concluded two agreements: the Multilateral Treaty on Central American Free Trade and Economic Integration and the Convention on the Regime of Central American Integration Industries. The former, entered into force on 2 June 1959, provided for limited intraregional free trade, with additional items to be made subject to free trade over a ten-year period. The latter agreement provided for protected regional "integration industries" (those requiring free access, without competition, to the entire Central American market in order to be economically viable). The industries were to be allocated among the five countries. Costa Rica signed, but did not ratify, the agreements. Its failure to do so rendered the convention inoperational.

In 1960, a three-country (El Salvador, Guatemala, and Honduras) agreement backed by the United States—the Treaty of Economic Association—was signed. It created an expanded and accelerated movement toward integration. Only fifty-five items were exempted from regional free trade. The treaty created a development assistance fund and a set of regional institutions—neither were provided for in the earlier protocols. The free-trade area would become a common market after five years, provided that the signatories had equalized external tariffs. The treaty did not incorporate integration industries.

The Treaty of Economic Association created crisis in the regionwide movement toward economic integration and prompted all five Central American countries to conclude yet another agreement, the General Treaty of Central American Economic Integration, this time under ECLA tutelage, in December 1960. This treaty provided for immediate regional free trade for all except a very small number of products. It stipulated that virtually all exempted products would be freely traded in five years. It also provided for a uniform external tariff and a common market in five years. Integration industries were incorporated. Additionally, the treaty established a set of institutions and provided for the establishment of the Central American Bank for Economic Integration. The treaty was signed and ratified by all but Costa Rica, which offered economic reasons for its refusal but in reality acted out of a sense of distinctiveness from the rest of Central America. In 1963 it reversed its position.

Under the free-trade provisions, intra-Central American trade grew dramatically—from $8.3 million in 1950 to $32.7 million in 1960 to $213.6 million in 1967. Central America experienced considerable economic growth in the 1960s and into the 1970s, averaging 5.8 percent per year. Most of the growth took place in the urban industrial sector under the stimulus of the common market. The common market, by creating a regional market free of most trade barriers, made feasible a greater degree of industrial development than would have been possible in five separate markets.

The common market's impact was not entirely positive. It did nothing to promote development of the agrarian sector. And because the common market adhered to free-market forces, the bulk of the industrial development that followed its creation was concentrated in El Salvador and Guatemala, already the most developed Central American countries. Much of the industrialization was capital-intensive rather than labor-intensive. The opportunities created by the common market were mainly exploited by foreign investors.

Operation of the common market was disrupted by the 1969 war between El Salvador and Honduras and its aftermath. It was even more seriously disrupted by the economic-political crises of the 1970s and 1980s. In 2004, the Central American countries, along with the Dominican Republic, negotiated a new economic agreement with the United States, called the Central American Free Trade Agreement (CAFTA). Despite the opposition of numerous civil society organizations in the United States and Central America, the treaty was ratified.

BIBLIOGRAPHY

Bulmer-Thomas, Victor. Integración regional en Centroamérica. San José, Costa Rica: FLACSO; New York: Social Science Research Council, 1998.

Cline, William R., and Enrique Delgado, eds., Economic Integration in Central America (1978).

Cochrane, James D. The Politics of Regional Integration: The Central American Case (1969).

Harding, Alan S., and Jan Hoffman. Trade between Caribbean Community (CARICOM) and Central American Common Market (CACM) Countries: The Role to Play for Ports and Shipping Services. Santiago, Chile: United Nations CEPAL Natural Resources and Infrastructure Division Transport Unit, 2003.

Nye, Joseph S., Jr. "Central American Regional Integration," in International Conciliation 562 (March 1967).

Orantes, Isaac Cohen. Regional Economic Integration in Central America (1972).

Rodlauer, Markus, and Alfred Schipke. Central America: Global Integration and Regional Cooperation. Washington, DC: International Monetary Fund, 2005.

Wardlaw, Andrew B. The Operations of the Central American Common Market (1966), and Achievement and Problems of the Central American Common Market (1969).

James D. Cochrane

Encyclopedia of Latin American History and Culture