New trade era with Central America

David Williamson

01 Aug 2013

Sitting at an Edinburgh office desk in July 2013, the excitement that swept the same city in July 1698, prompted by the prospects for trade with Central America, seems like a different world. 

Five ships set sail from the river Forth that month bound for modern day Panama.  They carried 1200 people and were funded by public subscriptions that accounted for a significant proportion of Scotland's available capital.   It is not an understatement to say they also carried the economic hopes of the country on-board.

The vision was to establish a Scottish colony on the Isthmus of Panama which would become pivotal to east-west trade and open up the Americas.  Anticipating its canal by two centuries, William Paterson, the scheme's main architect, would dramatically describe Panama as 'the door of the Seas and the Keys of the Universe'.  

In the end, Scotland was left bankrupt.  Exciting vision became tragic reality as the settlement at Darien succumbed to disease, misfortune, maladministration, as well as Spanish and English opposition.  

Compared to such challenges, today's exporter to Central America should feel a little relieved.   Discriminatory excise duties, tariffs, and poor intellectual property protection don't sound quite so bad in this context!  Yet they all hamper the ability of companies to enter and grow the market.   The operational environment is difficult and exports fluctuate as a result. 

In 2012, Scotch Whisky exports to Central America were valued at £66m.   However, nearly 80% of that total is accounted for by Panama, a major hub for re-exports to the wider Americas region and beyond.  There is room to grow local markets.  

To improve conditions, we have worked hard with the UK Government, our regional embassies, and the European Commission, to ensure recent negotiations on a new EU-Central America agreement include provisions that will make a significant difference to the trading environment for Scotch Whisky. 

The resulting 'Association Agreement' with Honduras, Nicaragua, and Panama enters into force from 1 August.   It will extend to Costa Rica, El Salvador, and Guatemala later this year.   The deal will support regional economic growth, remove trade barriers, and create a more level playing field for exporters. 

A 15% tariff on whisky entering Panama will be immediately eliminated, with tariffs of between 5% (Nicaragua) and 30% (El Salvador) removed over the next six years.  Region-wide labelling rules will reduce costs, whilst recognition of the 'Scotch Whisky' geographical indication will protect the category from unfair competition.

The Agreement also includes rules that should help secure reform of discriminatory tax arrangements in El Salvador and Panama that favour local products.   Costa Rica has already committed to reviewing its alcohol excise system within four years.

Central America looms large in the history of Scottish trade.   Today, expectations of what might be possible are more realistic than they were in the days of Darien.   However, we can look forward to increased bilateral trade and renewed interest in exports to the region.  1 August 2013 marks the start of a new chapter in trade with Central America. 

David Williamson is Deputy Director of International Affairs with the Scotch Whisky Association.