Trade with Central America: an opportunity still waiting to happen Despite FTAs, World Bank reports logistics, Customs are impediments to trade by Peter Buxbaum, AJOT Why can’t Central America trade more? That’s the question grappled with in a report on the region released by the World Bank last month. The short answer provided by the World Bank, and confirmed those who have done business in the region, is that poor logistics infrastructures and antiquated customs procedures and practices place a heavy burden on the ability to conduct international trade. The countries of Central America—the seven countries of Belize, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and Panama—are sometimes derisively referred to as banana republics, owing to their history of growing and exporting that commodity. They also excel at producing and selling other agricultural products like pineapples, mangoes, melons, tomatoes, and coffee beans. But their ability to trade in textiles, electronics, and other value-added products is still in its infancy. Even in the case agricultural produce, the World Bank report demonstrates that prices are pushed up by inflated logistics costs, suggesting that the region could be doing better in that area as well. “Overall logistic costs can add to more than 50 percent of the final price of goods traded in Central America, affecting both imports and exports,” said the report. The signing of free trade agreements, such as DR-CAFTA with the United States, represents “the opening of new opportunities that requires complementary actions,” according to the World Bank. “Trade agreements create possibilities for greater commerce and investment but do not guarantee results.” Central America’s trade has expanded since the early 2000s: trade as a share of GDP increased by 8 percent between 2000 and 2011. But much of this growth represents increased trade among Central American countries rather than with non-regional partners. Twenty-six percent of exports of Central American countries go to other countries in the region, up from 23 percent in 2000. At the same time the region has seen a declining share of global trade, from 0.36 percent in 2000 to about 0.30 percent in 2011. “Trade in Central America is starting to grow slowly but steadily,” said Bob Imbriani, vice president for international operations at Team Worldwide, a logistics services provider headquartered in Wynnsboro, Texas. “Customs procedures relating to imports and exports are still in an early stage of development and still include a lot of manual processes. Trade to a great extent is new to them.” “Customs requirements in some of these countries are not clear or easy to execute,” said Mariano Robayo, a route development manager at A. N. Deringer, customs brokers based in St. Albans, Vt. “We experienced problems most of the time.” Deringer closed its Miami office two years ago and stopped doing business in Central America, or at all in Latin America other than in Brazil. “Between the Customs situation and other situations we decided it was too risky,” said Robayo. The agricultural market is separate from the world of freight forwarders, Robayo noted. “In that case, the growers deal directly with the carriers and freight forwarders don’t get involved,” he said. “Sometimes the growers move the products themselves on their own vessels.” But even in the case of agricultural commodities, logistics costs can add an undue burden to trade. In one case studied by the World Bank, tomato exports from Costa Rica to Nicaragua, logistics costs varied from 22 percent of the final price for large producers to up to 41 percent for small producers. Transportation costs ranged as high as 23 percent for small producers. Border crossing procedures and road quality have the largest impacts on competitiveness in Central America, particularly among small producers, according to the World Bank. Once the product reaches the border, lack of adequate risk management systems, border infrastructure, and the harmonization