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Patterns of Economic Development

Foreign Trade

About half of Central America’s intercontinental trade is with the United States and Canada. Almost all the rest is with Western Europe, Mexico, and countries of South America. Central America’s principal imports are manufactured goods, such as motor vehicles, farm machines, textiles, electrical equipment, processed food, chemicals, and pharmaceuticals. The main Central American exports are basic commodities, which include bananas, coffee, cacao, meat, chicle, cotton, mahogany, balsa, hides and skins, and rubber.

The Central American Common Market (CACM), established in 1960, included all the Central American countries except Panama and Belize. However, several circumstances kept it from achieving its goals of trade liberalization and the establishment of a free-trade area. Among these was the infamous “Soccer War” of 1969 between El Salvador and Honduras, caused in part by CACM rules that favored El Salvador as well as Honduran policies against migrant Salvadoran workers. As a result, CACM trade was affected for more than a decade. Other countries’ internal conflicts also played a role in the disturbance of trade and by 1970, intra-CACM trade was insignificant. Today, Central American countries are facing new tariff barriers as the result of the Caribbean Basin Initiative (1984) and the North American Free Trade Agreement (NAFTA) (1994) and these barriers are preventing them from benefiting from increased global trading patterns.

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