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The Northern Triangle is Ready for a Digital Trade Agreement With the United States

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The Northern Triangle is Ready for a Digital Trade Agreement With the United States

The COVID-19 crisis highlights the need for a digital trade agreement between the United States and the Central American nations of El Salvador, Guatemala, and Honduras – and the Northern Triangle is ready.

The power of digital technologies to curtail corruption, strengthen governance, reduce labor informality, improve the investment environment, and promote job creation was recognized by the region’s governments and businesses even before COVID-19, but the pandemic has made the benefits of digitization even clearer and more urgent.

This opens an opportunity that the Biden administration should move fast to seize. A digital trade agreement consistent with U.S. practices would accelerate the Northern Triangle’s digital transformation while locking in much-needed reforms.

In an innovative approach, the Bush Institute-SMU Economic Growth Initiative simulated a digital trade negotiation to assess the readiness of El Salvador, Guatemala, and Honduras – individually and as a regional group – to commit to the most rigorous digital trade provisions in effect today. Participants in our simulation included former government trade negotiators, business leaders and tech entrepreneurs, as well as prominent think tanks in Central America. We published the results in a recent report, in which we determine that the countries of the Northern Triangle are ready for a high-standard digital agreement.

Each country has been developing regulations to govern digital transactions and online platforms that are broadly in line with provisions in the most recently concluded digital trade agreements. They include the digital trade chapter of the United States-Mexico-Canada Agreement, the U.S.-Japan Digital Trade Agreement, and the groundbreaking Digital Economy Partnership Agreement signed by Singapore, Chile and New Zealand.

The United States already has a free trade agreement with Central America, but it was enacted long before digital chapters became routine in U.S. trade agreements. Concluding a freestanding agreement on digital trade is an expedient and efficient way to add significant value to the free trade agreement already in force.

It would also complement the technical assistance provided by organizations including the Inter-American Development Bank, the U.S. Agency for International Development, and the U.S. International Development Finance Corporation that is focused on building the infrastructure needed to digitize Northern Triangle economies.

A U.S.-Northern Triangle digital trade agreement could also incorporate regulatory cooperation and trade capacity building designed to encourage interoperability of regulations and hard infrastructure in the region, which would reinforce resiliency and attract higher investment.

Trade capacity building and regulatory cooperation between the United States and the Northern Triangle countries could help expand the electronic delivery of critical government services, assist governments to efficiently expand broadband and allocate spectrum throughout the region, and support investments in a digital-ready workforce.

The pandemic forced economic life to move online all over the world. Online shopping and payments turbocharged online retail operations. Cloud computing and software services are transforming business-to-business transactions. Digital platforms have become a lifeline for small- and medium-sized businesses while expanding their ability to reach customers worldwide. Digitization of government services is helping curtail corruption and promote efficiency in government services.

The embrace of digital technologies in response to COVID-19 showcases one of the most critical paths for the Northern Triangle toward inclusive economic growth. Conversely, if El Salvador, Guatemala, and Honduras fail to digitize, they risk exclusion from modern global value chains, diminished investment opportunities, a widening social welfare gap, and sustained levels of migration away from the region.

Most importantly, the time is now. What the Northern Triangle needs is momentum toward a strong, post-COVID regional economy. A digital trade agreement with the United States would offer a major boost with long-lasting positive effects for the Northern Triangle and our own economic relationship with the region.


This article was written by Matthew Rooney, George W. Bush Institute-SMU Economic Growth Initiative Director, and Andrea Durkin, Bush Institute-SMU Economic Growth Initiative Advisor