Could Central America benefit from a unified front against covid-19?
Governments in Central America – a region historically plagued by crime and social unrest – have produced varying responses to the covid-19 pandemic. But the region has banded together before to tackle natural disasters, immigration issues and violence – could it do the same against covid-19?
Central America has not always had it easy. Crime, violence and vulnerability to natural disasters have historically been a huge social burden for the region and have often undermined government efforts to reduce poverty and provide better opportunities for the population.
The region is no stranger to cooperation and collaboration. The Central America Integration System (SICA) has brought together business representatives, lawyers, and government officials to brainstorm unified approaches to issues such as crime, natural disasters, and regional crisis management since 1993. SICA includes Belize, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua and Panama. Economically, the Central American Common Market (CACM) has gathered the economic ministers from the six largest nations in Central America (which excludes Belize and the Dominican Republic and their more unique economic situations and histories) to cooperate across borders with each other to bring capital to the region for the past 60 years.
It’s natural for the six main Central American nations of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama to collaborate, given their geographical proximity and historic and cultural links. The countries are small markets, economically speaking, meaning companies born in the region tend to do business across neighbouring nations in Central America. Companies such as multilatina Corporación Multi Inversiones (CMI) and beverage company Central America Bottling Corporation (cbc) all have regional operations, while international companies like healthcare multinational Roche and telecoms giant Millicom (also branded as Tigo) have opened regional subsidiaries over the last decade. In response to the needs of these regional clients, law firms like Consortium, Arias, Aguilar Castillo Love and BLP dominate the Central American market with offices in almost all the jurisdictions.
But when it comes to combating the covid-19 pandemic, collaboration between countries has been scarce, with each taking a different approach to handling the crisis. There has been virtually no action taken in Nicaragua by President Daniel Ortega, while countries such as El Salvador and Honduras ordered strict quarantine measures to flatten the curve of infection and shield their fragile healthcare systems, though they now are experiencing social unrest on their streets. Panama is beginning to reopen its businesses after a widespread lockdown since mid-March.
Where countries aren’t cooperating, it’s down to in-house teams working at companies with regional operations to pool their internal resources and best practices across the region to form a unified approach to the pandemic. Companies have an opportunity to help themselves and their sectors. “Companies could be at the forefront of regional cooperation – a unified front would mean that Central American trade and economies could recover and get going again much quicker,” says one in-house M&A counsel in Guatemala.
Together on trade
Amid the covid-19 pandemic, Central American companies with regional operations have had their production processes, operations and supply chains affected by lockdowns – most of the countries’ borders have closed – and remote working measures, leading to significant disruption and economic losses. While mitigating such disruptions, in-house counsel must consider the legislative changes happening in each country where their business is present. This can mean frequently applying new rules to the company as they emerge in each jurisdiction – a heavy additional workload for legal teams during a crisis. They also must deal with the additional challenges linked to social distancing measures and lack of personal protective equipment (PPE), which threaten employee and local community safety.
Due to the fast-changing nature of the pandemic in each country, governmental actions have been, so far, locally focused. Central American lawyers say a more uniform, regional approach could help ease the burden on legal departments as they tackle multiple issues, including layoffs, insurance claims and financial responsibilities, all at once. “At an official level, due to the nature of the situation and the emergency, the focus, for now, has been more local,” says John Aguilar Quesada, partner at Aguilar Castillo Love in Costa Rica. “If governments could band together and harmonise the rules related to the conduct of business and the promotion of regional trade, that would be immensely helpful and important.”
One way in which this could be done is by loosening border restrictions between Central American countries to facilitate trade and the transportation of goods. The slowdown of trade caused by containment measures has affected companies’ cross-border commerce. The World Trade Organisation (WTO) has predicted that merchandise trade in Central and South America could decline by between 12% and 31% in 2020 compared to last year due to covid-19. Globally, foreign direct investment (FDI) is expected to fall by between 30% and 40% – a figure which is expected to disproportionately affect countries already struggling on the trade front.
Given that decreased globalisation is a likely consequence of the covid-19 pandemic, lawyers say if restrictions on Central American borders were loosened for the trading of goods, companies could continue to operate somewhat normally within Central America even if outside of the region, commerce is much slower. “One of the consequences of this covid-19 pandemic is that it will definitely restrain globalisation as we know it,” says Jose Barria, legal counsel for Central America and the Caribbean at water company Suez. “Central America should adopt commonly agreed-on measures to facilitate and ensure a more fluid trade in a safe manner, which might include agreements on transit, migration, financing, trade, customs and tariffs.”
Central America is home to its own free trade agreement (FTA) with the US, the Dominican Republic-Central America FTA (CAFTA-DR). The agreement comprises the Dominican Republic, Guatemala, El Salvador, Honduras, Costa Rica and Nicaragua. It promotes stronger trade and investment ties between members, and as of 2018 represented approximately US$57.4 billion in total two-way goods trade. But given the nature of covid-19, this figure is likely to change. Trade has been restricted in such a way that the manufacture of certain goods, such as food, drink and medical supplies, have been prioritised, while non-essential items have fallen by the wayside.
William Mendez, GC for building company Multinational Investments & Projects, suggests the region could benefit from more strategic bilateral alliances between its countries in which raw materials could be traded freely across borders in exchange for medical supplies and health equipment, or an economic reward of some kind. Bilateral agreements already exist in their masses outside of Central America – the Comprehensive Economic and Trade Agreement (CETA) between the European Union (EU) and Canada is one, which removes tariffs and restrictions on things such as agricultural products and fishing between the two parties. “By removing these barriers, the regional economy could be improved hugely,” he says.
Sharing is caring
For GCs, a quick, efficient and reactive approach to managing the crisis has been key. They have had to implement crisis-management measures to enable their legal teams and companies to face these unprecedented times head-on, protect their business and cut costs. Indeed, forming a streamlined approach across the region can represent a huge cost-saving opportunity for GCs managing tight budgets. “Tailoring our regional and global protocols to each jurisdiction adds up when it comes to cost – a unified response would make savings for legal departments,” says one legal counsel for an energy company in Guatemala.
For those GCs working at companies with operations and different in-house legal teams across Central America, a collaborative approach to the crisis has not only cut costs but also boosted the morale and productivity of its workers. Clear communication about the different measures being taken in different countries means legal teams can find some common ground. “In-house teams have been involved since the beginning of the pandemic by forming crisis teams and tackling different legal issues,” says Panama-based Martha Aceituno, international legal counsel for beauty company Estée Lauder. “They have been involved across the board, especially by connecting with other regional teams to share experiences and best practices.”
In-house teams can also take up the mantle to protect the wider business and employees in countries where little action has been taken by governments. For example, at companies with local operations in Nicaragua where the government has taken next to no action against covid-19, regional GCs can make sure workforces follow the government guidance in other nations taking a more proactive approach – like Panama. Such an approach means companies and employees across the region can benefit from protective measures – even if they are based in countries like Nicaragua.
“A unified response can be achieved by self-regulation - implementing a best-practice approach across the company’s operations, regardless of government regulation - particularly with regards to social distancing, or corporate responsibility actions to help those who lost their jobs or have had their income reduced,” says Mario Pacheco Loaiza, legal counsel at telecoms giant Telefónica in Costa Rica.
Cross-border groups like the Asociación de Abogados de Empresa para Centroamérica (AAEC) – a network for in-house lawyers in Central America – have been a great help for GCs looking to form a regional approach. The network, with the help of law firms, has used their expertise of local laws and regulations to form a hub of regional legislation for GCs and legal teams to use. Such approaches are increasingly common – LACCA and Latin Lawyer recently launched their own covid-19 information hub too – but they represent the first step towards regional cooperation between lawyers. “The accumulated experience of different people across the region gives a well-rounded picture for companies to establish collaborative measures or plans to deal with similar situations in the future,” says Aguilar Castillo Love’s Quesada.
Given the fact that Latin America was hit later by the crisis than other places in the world, in-house counsel suggest governments could work together to observe international precedents set in reaction to the crisis, to improve their own approach. Considering how closely Central American countries already work through bodies like SICA and CACM to tackle social and economic problems, uniting on this governmental front to face the issue of covid-19 could be a natural next step. “Governments in Central America are best placed to understand their own country’s weaknesses – so let’s not lose time reinventing the wheel in our approach,” says Estée Lauder’s Aceituno. “Let’s learn from those who have tackled the crisis before us.”
A long way to go
However, there is a limit to the extent companies can benefit from regional cooperation. The political differences between Central American countries remains the biggest barrier to a unified response at a governmental level. “Each country has a different political approach – there’s been big mistakes in El Salvador, next to nothing happening in Nicaragua and civil unrest in Honduras – which means that coordination is next to impossible,” says Andres Castillo, head of legal at Guatemalan brewery Cervecería Centro Americana.
The economic toll the pandemic has taken on the region has also caused significant social disruption. Throughout Central America, citizens living in poverty have taken to the streets to protest government measures. Hungry street vendors are protesting in Guatemala and Panama has witnessed several arrests for looting. Many companies fear for their supply chains and their exposure to gang violence, and although opening borders could bring back more fluid trade between countries, in-house lawyers point out that doing so could increase the rate of infection between countries, as well as enable more illegal immigration.
Social factors related to gang violence can also block a unified approach in Central America. Given the fact that countries in the region experience organised crime at different rates, forming a coordinated response to covid-19 can be difficult when such violence might affect operations in one country differently to another. Gang violence can affect things such as the security of supply chains. “Violence, gangs and crime is an unfortunate reality for Central America – it has always affected the competitiveness of regional commerce,” says founding partner David Gutiérrez at BLP Legal in Costa Rica. “A unified response works for the war on drugs, but it’s different for gang-related violence, which is more troublesome in the countries like El Salvador, Guatemala, and Honduras.”
There’s still a long way to go before Central America can form a truly unified front against covid-19 – political instability, social unrest and supply chains vulnerable to crime stand in the way, putting a limit on how much cooperation is possible. Nonetheless, in-house counsel are essential for company operations across the region to form a unified internal approach to handle the pandemic. “In an ideal world, governments should work together,” concludes Cervecería Centro Americana’s Castillo. “But in the meantime, legal teams need to know how restrictions across the region are affecting their business in every jurisdiction, consolidate that information and communicate it in an understandable way to business. It’s a heavy burden to bear, but it’s essential to keep businesses going.”