Leave your hammocks at home: How a customs union between Guatemala and Honduras cut trade times from 10 hours to 15 minutes

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As recently as 2017, cargo truck drivers bringing shipments of goods across the border of Guatemala and Honduras often brought along one unexpected item: a hammock.
 
This is because clearing customs and traveling one kilometer between the two countries could take up to 10 hours. While waiting in line, drivers would need to take a break.
 
360 Video: Trading Across Borders in Guatemala and Honduras


Central America has made concrete progress toward integrating its national economies and expanding its global markets. But regulatory and procedural constraints, the quality of roads, and transport and logistics barriers have hindered trade.
 
The private sector has experienced a number of bottlenecks. For many years, Guatemala and Honduras required identical paperwork and duplicate processes on both sides of the border. This was expensive and time-consuming for business.
 
But now, truck drivers can leave their hammocks at home. The World Bank Group supported this initiative. Both countries have recently cut trade times from 10 hours to just 15 minutes, which -according to SIECA- has led to an increase of trade of 7 percent between both countries.
 
The countries achieved these impressive results by following four steps: 

1. Establish a joint customs union
The governments from Guatemala and Honduras, the Secretariat of Economic Integration in Central America (SIECA), together with the private sector discussed a comprehensive solution to address trade bottlenecks at the border.  As a result, the “Customs Union” was born. The aim was to facilitate trade between both countries, speeding it up and lowering its cost. Through the Customs Union, both countries integrated their trade procedures at three common land borders: Agua Caliente, El Florido, and Corinto.
 
2. Merge trade procedures and house officials from both countries in one physical location
Under the Customs Union, companies are now only required to visit one single customs post and carry out a single procedure to trade across the border. Previously, clearing a shipment required completing duplicate manual procedures and paperwork on both sides of the border. The Customs Union replaced this onerous process with a single online instrument called “FYDUCA” (Factura y Declaración Única Centroamericana – Central American Invoice and Declaration). At the border, a digital reader device instantly scans a FYDUCA Quick Response Code (QR code) and quickly certifies—online—whether or not an importer already paid the value-added tax on the goods in the destination country.

3. Pilot the new process with the private sector
BIMBO, a major international baked goods company, became the first business to pilot the new process using FYDUCA and the integrated procedures. During BIMBO’s first visit to the border, it only took 15 minutes to clear its goods. It used to take its cargo trucks up to 10 hours to cross less than one kilometer between both borders. Following this positive experience, Colgate and Unilever also piloted the new process. Other companies supported the new and improved process following the success of these major companies.
 
4. Train the private sector to use the new process
Once the pilot process was in place and deemed successful, the World Bank Group helped train over 150 companies how to use FYDUCA, which led to the successful adoption of the new procedures. This increased confidence in local businesses to take advantage of the new procedures.
 
The World Bank Group supported the joint Customs Union initiative via the Trade Facilitation Support Program (TFSP) – a program that provides support for countries seeking assistance in aligning their trade practices with the World Trade Organization Trade Facilitation Agreement (WTO TFA). The World Bank Group provided technical assistance to both governments and SIECA on the development of FYDUCA, helped train companies how to use it, and supported the pilot exercises. It also helped establish a baseline of time and procedures to trade at the three common borders and has measured the results after implementation.
 
Although there are still many trade challenges to overcome, the future is bright for trade in Guatemala, Honduras, and the region as a whole. El Salvador will soon be joining the Customs Union to replicate the new and improved process – further enhancing trade opportunities and economic integration in Central America.
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Authors

Bill Gain

Global Product Specialist

Mayra Alfaro de Morán

Mayra Alfaro de Moran, Senior Private Sector Specialist, Finance Competitiveness and Innovation Global Practice

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