CAFTA Q&A: Answers from ITA Part 2
Key to success in exporting to CA: market research, careful planning and preparation.
Datamyne blog anchor Bill Armbruster’s e-mail interview with the Commerce Department’s International Trade Administration (ITA ) continues in this second installment covering Central American market risks and strategies for US exporters.
Bill Armbruster: Are there any particular problems that have prevented US exporters from achieving greater success in these markets? If so, what are they?
ITA: The trade regimes in these markets are basically open, in part due to the CAFTA-DR trade agreement. However, US companies sometimes face challenges in areas such as customs inefficiencies, protection of intellectual property rights, government procurement standards, regulatory delays, judicial inconsistencies and enforcement of contracts, and general issues with citizen safety and security.
Armbruster: Why do you think goods exports to the five Central American countries in CAFTA – Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua – were all down substantially during the first quarter of this year compared with the first quarter of 2012?
ITA: Much of this can be attributed to decreases in US exports of the following categories:
- Electronic integrated circuits (probably due to changes in shipping patterns with Intel’s facility in Costa Rica);
- Cotton yarn and fabric (supplying Central America’s textile and apparel industry which faces continued competition from Asia and sluggishness in world demand for apparel products); and
- A sharp decline in US exports of corn to the region.
But we would urge caution into reading too closely into three months’ worth of data. As noted above, US exports to CAFTA countries have grown 79% since 2005, the year before the agreement. Moreover, since 2009, US exports to Latin America as a whole have increased by 56%, so other markets are helping to buoy what might be a short-term dip from the CAFTA-DR region.
Armbruster: To what extent have US exports to Panama been related to the expansion of the Canal, and do you expect exports to Panama to decline after the expansion is completed in 2015?
ITA: While the expansion of the Panama Canal will create new opportunities for US exporters, there are opportunities in a wide variety of sectors. Panamanians have a strong cultural affinity for US products and services.
Leading industry growth sectors include aviation which continues to grow rapidly here, both in commercial and air freight. There is also a mining project that requires about $7 billion in investment and will be one of the world’s largest copper mines upon completion. There is an additional $13 billion worth of projects that have been announced by the Government of Panama and will take years to complete. There is no reason that US exports should decline after the Canal’s completion.
Armbruster: Do you have any advice for US exporters regarding Central America?
ITA: Before any company chooses to export to any market, we encourage the company to do its research and to have a plan. US businesses can contact ITA’s US Commercial Service via www.export.gov and review the list of CS services and recommendations of local attorneys and other services providers in each country.
Second, when evaluating market potential, US exporters should consider that each individual country in Central America is small and the buying power of importers is less than the US. With this in mind, exporters should take a regional approach, when possible, and find a regional distributor or wholesaler who may be able to reduce costs and more efficiently sell to the market.
Third, when considering bidding or serving as a sub-contractor on projects, US firms should consult local commercial representatives, attorneys, engineers and industry consultants. It is better to have a thorough knowledge of the technical specifications, laws and regulations related to an industry or specific project, before making the decision to participate in a procurement process.
Finally, commercial transactions often take more time than in the United States. US exporters or bidders should consider how an extended time period to complete a transaction can impact the cost of doing business – planned and unplanned, such as opening a local office, possible travel to Central America, obtaining permits, hiring attorneys and consultants.
In summary, although there are challenges to entering the market in Central America, with careful planning and preparation to enter the markets, exporting to the region can lead to commercial success and long-term business relationships.
Bill Armbruster, the anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. Read his column CAFTA Cements US Trade Relationship.
The opinions expressed in this article are those of its author and do not purport to reflect the opinions or views or Descartes Datamyne. In addition, this article is for general information purposes only and it’s not intended to provide legal advice or opinions of any kind and my not be used for professional or commercial purposes. No one should act, or refrain from acting, based solely on this article without first seeking appropriate legal or other professional advice.
Date posted: May 31, 2013