Central American Common Market – Definition

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The Central American Common Market (CACM) Definition

The Central American Common Market (CACM) or the Spanish Mercado Comun Centroamericano (MCCA) is an association of five Central American countries which was initially formed to aid regional economic growth via free trade and economic integration. Initially established by in 1960, this association once contained just Nicaragua, El Salvador, Honduras, and Guatemala. However, in 1962, its membership later got to Costa Rica. The Central American Common Market is headquartered in Guatemala City.

A Little More on What is the Central American Common Market

Meeting quarterly per year, the Central American Economic Council, which acts like a chief organ policy-making organ tries to manipulate regional economic integrations and free trades. Being mostly composed of economic ministers from the five zones, the council is led by a secretary-general who is mostly elected for a period of three years.

The Central American Common Market was established by the General Treaty on Central America Economic Integration due to the need of the five member countries to work hand in hand with each other and diversify their economies. The CACM seemed to be successful in its early days since many trade barriers where eliminated or mitigated by the later part of the 1960s. Each of the regions involved in this treaty saw an improvement in commerce and an increase in national manufacturing and production. Between 1961 and 1968, almost every single trade barrier between member states where abolished, thus resulting to a seven-times more increase in trade activities than what was seen before. Problems started coming in when Honduras and El Salvador broke off their diplomatic and commercial relationships in the name of a ridiculous “Soccer War.” Honduras withdrew from the CACM and started imposing tariffs on the other members of the association after it managed to cut El Salvador’s access to the Pan-American Highway. This led to different speculations on the part of the other members, but they decided to continue with their own business until the headquarter (that is Guatemala City) imposed many restrictions on regional trades in 1983. However, the problem of discontent and political instability in some of the member states increased substantially, thus forcing the Central American Common Market (CACM) to cease its activities in the middle of the 1980s.

Later in the 1990s, the Central American Common Market renewed its activities by adopting a Central American Integration system that was meant to take into account political and economic policies in each of its member states. That same year, Honduras came back into the association, and each members decided to sign a treaty for a new Central American Free Trade Zone, which required them to reduce the tariffs imposed on intraregional products and imports gradually over the years. This treaty was first signed by Honduras, Guatemala, Nicaragua and El Salvador in 1993. Costa Rica later signed the treaty after a while, but the date was not stated. This plan however was not immediately implemented, as each nation had different issues they needed to curb before fully focusing on commerce. The Central American Common Market later adopted the System of Electric Interconnection in 1996, to connect regional power sources. In 1997, the CACM revived integration moves by making a bid to Panama to create access to a free-trade zone. In this same year, the CACM gave its secretary-general control over its 32 integration offices.

References  for Central American Common Market (CACM)




Academic Research for Central American Common Market (CACM)

Product bias in the Central American common market, Schooler, R. D. (1965). Journal of marketing research, 394-397. This paper shows that, in the Central American Common Market (CACM), there is a state of product bias, jealousy, fears and animosity, which become invisible barriers in the promotion of trade with CACM. The attitude of a country’s people towards their country’s products is a factor in existing prejudice. The need is to eliminate this state of affairs.

The Central American Common Market: from closed to open regionalism, Bulmer-Thomas, V. (1998). World Development, 26(2), 313-322. The CACM (Central American Common Market) was formed in 1960. The traders frequently held it as a model market for developing nations to follow. In the 1980s, its collapse caused the regional integration role to be reconsidered in the development process. Consequently, it was relaunched in 1990 to promote non-traditional exports in the world. This paper suggests the CACM transition from an instrument to foster the closed regionalism to the open regionalism, today, supported by Latin America. The new CACM is very different from the previous one having the potential to play its role in the progress of the region.

Determinants of financial structure in the central American common market, Errunza, V. R. (1979). Financial Management, 72-77. This article goes through the financial framework of companies domiciled in the Central American Common Market (CACM). The results are in favour of the Hypothesis that the financial structure of various industries is empirically very different in this region. This supposition is true that the country norms have less importance as compared to the industry norms.

Trade creation, trade diversion and effective protection in the Central American Common Market, Willmore, L. N. (1976). The Journal of Development Studies, 12(4), 396-414. The aggregate analysis shows that the establishment of CACM (Central American Common Market) has led to little or zero trade diversion, but in case of proper disaggregation of the import data, results are different. A rise in the effective protection rates for consumer products has caused a high demand for intermediate goods extra-regional imports and lesser demand for that of final products. For nondurable consumer products, the Common Market is, on balance, a trade diverting CU (Customs Union). Trade-creating impacts are found in Costa Rica and Honduras, but trade-diverting impacts dominate in Nicaragua, Guatemala and El Salvador.

Bias phenomena attendant to the marketing of foreign goods in the US, Schooler, R. (1971). Journal of international business studies, 2(1), 71-80. Sellers come across tariffs & non-tariff impediments and quotas on entering a foreign market. Moreover, there may be an intangible impediment based on the product origin, i.e. consumer bias. Many papers have been published since 1965 to handle this bias phenomenon and the effectiveness of marketing policies devised to prevent, accommodate or negative predispositions of circumventing consumers. So, this study highlights the bias phenomena experienced in the marketing of foreign products in the United States.

The pattern of trade and specialisation in the Central American Common Market, Willmore, L. N. (1974). Journal of Economic Studies, 1(2), 113-134. This research analyses the structural patterns and changes of specialization which led to the establishment of CACM (Central American Common Market) in the 1960s. The author shows that because of free regional trade without any restrictions, the fear of domination of backwash effects prevailed. This study states that such fears were baseless. The market forces operation has caused a reciprocal exchange, without any planning, of manufacturing concerns for manufacturing concerns and non-manufacturing concerns for non-manufacturing concerns. Many of the structural changes in the manufacturing sector took the form of intra-industry specialization, means specialization in an industry’s differentiated goods without any need to leave high-cost industries.

Trade Creation in the Central American Common Market, Wilford, W. T. (1970). Economic Inquiry, 8(1), 61-69. This paper focuses on the trade creation and diversion, on balance, during the first 7 years of economic integration of CACM (Central American Common Market). The regional economic integration leaves detrimental and beneficial impacts on resource allocation with changes which enhance efficiency known as trade creating and changes which decrease it labelled as trade diverting. When the good effects on consumption and production by eliminating the duties of the customs union between countries cause a move in production from inefficient protected companies to individuals or firms performing most efficient operations, it is the state of trade creation.

Measuring trade creation and trade diversion in the Central American common market: A hicksian alternative, Nicholls, S. M. (1998). World Development, 26(2), 323-335. Most of the empirical studies on the economic integration or the formation of customs union use trade diversion and creation measures derived from a common Marshallian Import Demand Curve. This article states the Hicksian measures of trade diversion and creation with the help of well-known notions of equivalent and compensating variation. These notions are helpful in making the exact estimation of welfare effects as they have the condition of path independence. The traders apply these new measures to the integration attempt in the CACM (Central American Common Market). The findings are that economic integration is highly trade-diverting in Central America for the chosen commodity groups.

Free Trade in Manufactures among Developing Countries: The Central American Experience, Willmore, L. N. (1972). Economic Development and Cultural Change, 20(4), 659-670. Recent research shows that trade liberalization in the industrial nations enhances intra-industry specialization. This study uses statistical evidence to check this hypothesis applicability to the manufacturing concerns of developing countries. A multilateral elimination of trade barriers leads a country to move its resources from industries with imports competition to industries with exports benefits. Thus, the whole country will definitely improve its production efficiency, but it also has to afford the reallocation cost or capital investment loss because of the expected decrease in industries with imports competition. This is the concept of international specialization which is the main concern of this paper.

The central American common market, Wionczek, M. S. (1968). Intereconomics, 3(8), 237-240. The CACM (Central American Common Market) is one out of 10 markets, regional industrial cooperation schemes and free trade zones, currently in Asia, Africa and Latin America, covering 5 small republics (El Salvador, Nicaragua, Guatemala, Costa Rica and Honduras). It is the most inspiring market of economic cooperation among the low-income states. The rapid increase in economic growth in 90 underdeveloped independent countries is of great significance. Most of these states are hardly considered as viable separate economic units. The 1st years of CACM life consist of several useful lessons for low as well as high-income countries.

Comparing common markets: a revised neo-functionalist model, Nye, J. S. (1970). International Organization, 24(4), 796-835. There are many models related to regional integration in the academic analysis and actor’s strategies. One of the prominent efforts of political science at introducing a casual approach of regional integration was made under the Western Europe events in the 1950s. It, of course, reflects these origins. The author calls as Academic Neo-Functionalism (ANF). He makes a comparison of common markets and elaborates the revised model of Neo-Functionalism.

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