On 19 December 2022, the House of Lords is due to consider a debate moved by Baroness Hooper (Conservative) on plans to improve trade and investment relations with countries in Central America.

1. UK trade with Central America

Central America is the southernmost region of North America and is made up of seven countries:

  • Belize
  • Costa Rica
  • El Salvador
  • Guatemala
  • Honduras
  • Nicaragua
  • Panama

According to the latest Office for National Statistics data on UK total trade, UK exports and imports to Central America were worth £445mn and £941mn respectively in 2021. The UK’s top export market was Panama (£223mn) and top import market was Costa Rica (£462mn). Table 1 provides the total exports and imports between the UK and Central America for 2021.

Table 1: Total trade between UK and Central America, 2021 (£mn)

Country Exports Imports
Belize 14 52
Costa Rica 97 462
El Salvador 35 15
Guatemala 44 115
Honduras 23 127
Nicaragua 9 54
Panama 223 116
Total trade 445 941

2. UK trade agreements with Central America

The UK’s trading relationship with most of Central America (excluding Belize) is governed by the UK-Central America Association Agreement.

When the UK was an EU member, it did not have an independent trade policy and could not negotiate its own trade agreements. Instead, the EU organised trade agreements with non-EU member states and the UK participated in these agreements because of its EU membership.

As part of the UK’s preparations to leave the EU, the UK government sought to ensure that these existing trade relationships continued. To do this, it produced agreements referred to as ‘continuity agreements’ or ‘rollover agreements’ that replicated existing trade agreements between the UK and trading partners as far as possible.

Prior to the UK’s departure from the EU, the EU-Central America Association Agreement governed the trading relationship between the UK and Central America. The trade pillar of the EU-Central America agreement has provisionally applied to Honduras, Nicaragua, Panama, Costa Rica, El Salvador and Guatemala since 2013. To ensure the trading relationship between the UK and Central America could continue once the UK left the EU, the UK-Central America agreement was created.

2.1 Overview of the UK-Central America Association Agreement

In July 2019, the UK and six Central American countries (excluding Belize) signed the UK-Central America Association Agreement (also known as the UK-Central America agreement). This came into force on 1 January 2021. The agreement established a political and economic association between the UK and the six Central American countries. It included provisions on:

  • trade in goods, including provisions on preferential tariffs, tariff rate quotas, rules of origin and sanitary and phytosanitary measures
  • trade in services
  • intellectual property, including geographical indications
  • government procurement

This new agreement is very close in substance to the EU-Central America agreement. This was deliberately implemented by incorporating the previous agreement ‘mutatis mutandis’: a Latin phrase used to indicate that, whilst it was necessary to make some changes to take account of different situations, the main point of the agreement remained the same.

The government set out details of the UK-Central America agreement in a report to Parliament in August 2019. This included an overview of the agreement intended to apply from January 2021, as well as an explanation of any significant differences between it and the EU-Central America agreement. Those differences included the following:

  • Removal and replacement of references to the EU: The new agreement removed references to the EU or European Community and replaced them with references to the UK.
  • Territorial application: This removed references to the EU territorial application and replaced it to expressly include the UK, the Crown Dependencies (Isle of Man, Jersey and Guernsey) and Gibraltar.
  • Amendment clauses: These set out the process to be followed if the UK and Central America agreed to amend any provision after the agreements came into effect.
  • Entry in force: This set out when the agreement would come into force.

The report also set out the provisions on technical barriers to trade, competition and services.

The House of Lords European Union Committee scrutinised the agreement and reported it to the House for information in October 2019. The committee drew particular attention to the process for making amendments to the agreement. It noted amendments made under article 358 would be subject to parliamentary scrutiny. The committee recommended that Parliament should also be notified of modifications made to the agreement under other provisions that did not already guarantee parliamentary scrutiny. This included provisions that allowed modifications by the Association Council to be subject to internal procedures only.

Trade between the UK and Belize is governed by the separate Cariforum-UK Economic Partnership Agreement, which the UK signed on 22 March 2019. In addition to Belize, there are 13 other states covered by this agreement, including Barbados, Grenada and Jamaica. As part of this agreement, the UK committed to provide immediate duty-free, quota-free access to goods exported from the Cariforum states. The agreement includes provisions on trade in goods and services, intellectual property and government procurement.

2.2 UK Export Finance and the Central American Bank for Economic Integration partnership

To build upon the UK-Central America agreement, UK Export Finance (UKEF) signed a memorandum of understanding (MoU) with the Central American Bank for Economic Integration (CABEI) in August 2021. UKEF is the UK’s export credit agency and CABEI is the leading development bank in Central America.

The purpose of this MoU was to encourage the joint financing of major clean energy, infrastructure and construction projects in the Central America region. UKEF said it would enable closer economic collaboration between the UK and Central America and would “help finance major projects […] that involve UK exports, supporting businesses and jobs in the UK”.

In 2020, UKEF increased its funding limits in several Central American countries for UK businesses looking to export. UKEF said this meant that at least £2.5bn was available for new businesses wanting to export to Guatemala, Honduras and Panama, and £1.5bn for Costa Rica, El Salvador and Nicaragua.

UKEF Chief Executive Louis Taylor said the MoU meant that both organisations had a “robust channel of cooperation” to find and finance projects in Central America involving UK exports. CABEI Executive President Dante Mossi said “working together [with UKEF] we can bring more UK expertise to Central America”.

3. UK trade agreements with other countries

The UK has over 70 trade agreements in place with countries around the world. Negotiations are continuing to take place on several trade deals, including some in Latin America. ‘Latin America’ is used to collectively refer to Central America, South America, Mexico and the Caribbean. Recent UK discussions have included talks with Mexico to upgrade the UK-Mexico Trade Continuity Agreement, as well as negotiations to join the Comprehensive and Progressive Agreement for Trans-Pacific Partnership.

3.1 UK-Mexico trade agreement negotiations

The UK-Mexico Trade Continuity Agreement (UK-Mexico agreement) came into force in June 2021. This replicated the EU-Mexico Economic Partnership, Political Coordination and Cooperation Agreement (EU-Mexico agreement) that came into force in 2000. (However, in 2018, the EU and Mexico reached an agreement in principle on the main trade parts of a new EU-Mexico Association Agreement. This new deal would replace the existing EU-Mexico agreement.)

As the UK-Mexico agreement was based on the original EU-Mexico agreement, the UK and Mexico agreed to enter negotiations during 2021 to upgrade its trade arrangements. The UK government ran a consultation from May to July 2021 and sought views on which aspects of the current trading arrangements could be improved or amended. In its report on the consultation outcome, the UK government said an “upgraded” trade agreement would support the UK government’s strategy to “secure modern and comprehensive trading relationships with dynamic economies in the Americas and cement close ties with the Indo-Pacific”. It said this would deliver economic growth to all the nations and regions of the UK.

Negotiations on an upgraded trade deal between the UK and Mexico officially began in May 2022.

3.2 Comprehensive and Progressive Agreement for Trans-Pacific Partnerships

In February 2021, the UK applied to join the Comprehensive and Progressive Trans-Pacific Partnership (CPTPP). The CPTPP is a free trade agreement between 11 countries: Canada, Mexico, Peru, Chile, New Zealand, Australia, Brunei, Singapore, Malaysia, Vietnam, and Japan. Before the UK can officially join, all existing CPTPP members must agree.

Announcing the UK’s impending CPTPP application in January 2021, then International Trade Secretary Liz Truss said that CPTPP membership was a key part of the government’s plan to position the UK at the centre of a network of modern free trade deals. She said this would support jobs and drive economic growth in the UK.

In June 2021, CPTPP nations agreed that the UK could begin the accession process to the CPTPP. Following this, the UK government published its strategic approach for negotiations to join the CPTPP in October 2021. This set out what its strategic case for joining the trade agreement was and outlined its approach to negotiations.

3.3 Progress of Mexico and CPTPP trade agreement negotiations

The government recently provided Parliament with a progress update on both the CPTPP and Mexico trade negotiations.

Delivering the written statement in the House of Commons on 28 November 2022, Secretary of State for International Trade Kemi Badenoch said that round two of the UK-Mexico trade negotiations had taken place from 31 October to 11 November 2022. She said discussions had remained positive and reflected the UK and Mexico’s shared ambition to negotiate an agreement which was “better suited for the 21st century” and which “strengthened” the trading relationship.

On the CPTPP negotiations, the minister confirmed the UK had taken part in further CPTPP discussions. She said the latest round of talks had taken place in Sydney from 10 to 13 October 2022 and covered issues such as market access on trade in goods and services, government procurement and legal issues.

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Cover image by Jen Theodore on Unsplash.