CENTRAL AMERICAN COMMON MARKET

(CACM) Spanish Mercado Comn Centroamericano (MCCA) association of five Central American nations that was formed to facilitate regional economic development through free trade and economic integration. It came into existence through the General Treaty on Central American Economic Integration signed by Guatemala, Honduras, El Salvador, and Nicaragua in December 1960; Costa Rica joined in July 1962. The Central American Common Market was formed in response to the necessity of cooperation among these smaller nations in order to attract industrial capital and diversify their economies. By the late 1960s the CACM had made considerable progress in stimulating the expansion of the region's commerce and manufacturing. Many trade barriers between its member states were eliminated or reduced, and between 1961 and 1968 trade among them increased to a figure seven times its previous level. But in 1969 Honduras and El Salvador engaged in a war that resulted in a break in their commercial and diplomatic relations. After cutting off El Salvador's access to the Pan-American Highway, Honduras virtually withdrew from the CACM in early 1971 and imposed tariffs on imports from the other common-market countries. The other members agreed to continue the CACM in spite of growing discontent within the group, but in 1983 Guatemala as well imposed many restrictions on trade within the region. The CACM entered a state of suspension in the mid-1980s owing to internal political instability and violence in some member countries and mounting debt and protectionist pressures. In 1993 all of the CACM's members except Costa Rica signed agreements creating a new Central American Free Trade Zone, which was basically an agreement to gradually reduce their tariffs on intraregional trade over a period of several years.