Immigration Threatens U.S.-Central America Relations

Dear all,

We welcome you to our Greater Caribbean Monitor (GCaM) pilot. We would like to remind you that as a token of our appreciation, we will be extending you an early-bird offer at the pilot’s conclusion.

If you’ve been forwarded this newsletter, you may click here to subscribe.

In this issue, you will find:

•Coverage of the migrant crisis in Central America, which could affect U.S. relations with the region

•An explainer on the European Union Central American Association Agreement, which turns 10 today

As always, please feel free to share GCaM with your friends and colleagues.

Best,

The GCaM Team

•Immigration Threatens U.S.-Central America Relations
475 words | 2 minutes reading time

Much to the White House’s chagrin, illegal immigration will become even more prominent as the elections approach. Hostile actors, like Nicaragua, have taken advantage of the growing border crisis, portending possible risks for Guatemalan President-elect Bernardo Arévalo, who retains Washington’s wholehearted support.

Panorama. The border crisis will be at the center of the U.S. presidential campaign; provided another flashpoint does not arise, it may well determine the next U.S. president. Central America can either solve or aggravate Washington’s predicament, with Guatemala being the most important point in this framework.

• Guatemala stands at North America’s southern border, hence U.S. officials’ focus on the country and its neighbors, El Salvador and Honduras, which comprise the Northern Triangle.

• Migratory trends have shifted away from traditional patterns. Migrants at the border are no longer exclusively Mexican or Central American; they hail from South America and the Caribbean, with copious reports of Asian and African migrants.

• El Salvador and Nicaragua have become vital stops for migrants arriving by air. Salvadoran President Nayib Bukele, a U.S. ally, has attempted to remedy this by imposing a $1000 fee on African and Indian migrants. Nicaragua has little incentive to do the same.

Between the Lines. Daniel Ortega has made a lucrative business of immigration. The regime facilitates transportation for migrants—Haitians, Cubans, and Africans—who enter Nicaragua on charter flights to avoid the Darien Gap. Their passports are not stamped and no records are kept, but migrants are made to pay a $150 fee. 

• In 2023 alone, some 150,000 U.S.-bound migrants entered by land; another 300,000 landed at Managua airport. Estimates place the regime’s earnings at $67.5 million this year—a tidy sum for Nicaragua.

• During three days in October, 36 charter flights from Haiti landed in Managua. U.S. pressure and the threat of sanctions against airlines has since complicated this line of business, but social media campaigns continue to promote flights from Africa.

• The collaboration of the Cuban and Venezuelan governments is essential to the Nicaraguans. Cuba, in essence, supplies the customers, while Venezuelan flight operators sort out the logistical details.

Why Does It Matter? The Arévalo government, far from seeking to address the crisis, has an incentive to increase its migrant outflows. This is largely because of the enormous importance of remittances to Guatemala’s economy. Indeed, remittances account for 19% of Guatemala’s GDP.

• Similar patterns can be observed across Central America, where remittances are more important than exports as a source of foreign exchange. In 2022, remittances made up 28.8% and 26.7 of the Honduran and Salvadoran economies, respectively.

• The United States’ has two vital interests in Central America: checking Chinese influence and limiting immigration. Despite their friendly relations, Arévalo and Washington appear to be on a collision course, arguably on both counts. 

• U.S.-Guatemala relations will be determined by Arévalo’s actions, as well as the U.S. elections. Guatemala could somewhat remedy the situation by adopting a stricter stance with regard to migrants on its southern border.

•EU-Central America FTA Turns 10
672 words | 3 minutes reading time

December 1 marks the tenth anniversary of the European Union Central American Association Agreement. The pact, it must be recalled, was signed in 2012 ratified by Honduras, Nicaragua and Panama, which were subsequently joined by Costa Rica, El Salvador, and Guatemala.

How It Works. The FTA evidently makes EU-Central America exchanges easier and cheaper; it eliminated tariffs and improved access to the public procurement and investment markets. The agreement nonetheless remains provisional, as it has not been ratified by Belgium or the European Parliament at large.

• Since the FTA, Nicaragua’s EU-bound exports have grown 46%, followed by Honduras with 40%, Guatemala with 37%; Costa Rica with 32%, El Salvador with 24%, and Panama with 16%.

• Brussels removed 99% of tariff on industrial and fisheries-related goods. Central America followed Brussels in pursuing this policy, albeit only temporarily, with the duty-free exemption expiring in 2025.

• The EU is effectively subsidizing Central American exports, since foodstuffs make up most of its imports and it primarily exports chemicals and machinery. In all, Brussels maintains a €1.1 billion trade deficit with Central America.

Data. The EU exports pharmaceutical products, machinery and appliances, and transport equipment. As stated above, it mostly imports foodstuffs: tropical fruits (chiefly bananas and pineapples), sugar, palm oil, coffee. In the case of Costa Rica, medical devices are also significant.

• The EU eliminated 73% of tariffs on agricultural products, which make up 64% of its imports from the region. Thus, coffee, shrimp, and tropical fruits enter the EU duty-free, as do key export products like sugar and rum.

• Central America eliminated 67% of tariffs on European agricultural products. This has essentially benefited European alcoholic beverages; Irish whiskey enters Central America duty-free.

• EU-Central America trade links were valued at €17.9 billion in 2022, roughly one-third of what Europe trades with Mexico. The Association Agreement has, however, benefited Central America, which exports €8.4 billion to the EU.

Voices. According to Boris Cabrera, an expert on trade facilitation and Central American integration, “the most important thing about the Agreement is the opening of markets, commercially facilitating the access of Guatemalan products to the bloc of 27.”

• He highlights the “fantastic programs to support and promote entrepreneurship and MSMEs.” He also notes that out of the almost 200,000 graduates Guatemala produces each year, only 10% find formal employment. The EU’s employment programs provide assistance in this regard.

• Ana Morales, executive director of the Economic Integration Consultative Committee, highlights the coordination achieved between the countries. “We must address the new regulations that the EU is implementing, which pose real challenges for Central American business.”

• For Jacobo Peters, head of business intelligence at the Guatemalan Exporters’ Association, the FTA’s importance lies in its encouragement of international integration.

Yes, But. Exports have grown in both directions. However, the Association Agreement has not met the EU’s expectations regarding sustainability. As Brussels’ “green shift” grows in importance, this is likely to cause headaches among Central American exporters.

• The palm oil industry is particularly threatened. Onerous regulations are meant to improve conditions in Indonesia and Malaysia, the world’s largest producers, but Honduras and Guatemala risk being caught in the crossfire.

• The sugar industry, of crucial importance to the region, is also at risk. In response, Central American sugar producers have emphasized their low carbon footprint in comparison to, for example, the United States.

• A commonly overlooked fact is that Europe has a significant sugar beet industry, which is particularly prominent for Ukraine and may grow in importance as Brussels encourages trade with Kyiv.

Regional Echoes. The EU’s Global Gateway initiative’s purpose is to invest in infrastructure abroad. As with all things European, and in contrast to the Chinese Belt and Road Initiative, Global Gateway emphasizes energy transition climate change-related topics.

• Costa Rica, unsurprisingly, has been the initiative’s most eager customer. Sustainable development  projects in the country have enjoyed broad EU support.

• The EU is also interested in forging green energy links with Panama. Amid their effective mining ban, which will lead to an enormous drop in revenues, the Panamanians are likely to embrace such efforts.

• Guatemala gives a lot of importance to renewable energies. Projects in Petén, located in the country’s north, stand out.