Tag: CAFTA

CAFTA–Part 3

With the loss of protective import tariffs, most Central American farmers have no chance of competing with the US government-subsidized agricultural sector. For example, economist and CAFTA specialist Adolfo Acevedo explains that farmers in the Sébaco Valley of Nicaragua can produce rice for about $8.45 per 100 pounds, while US farmers produce the same amount for $9.40. According to Acevedo, this should imply a comparative advantage for Nicaraguan farmers. However, due to government subsidies, US rice enters the Nicaraguan market at the artificially low price of $7.65 and beats out domestic producers. Rice and corn, two of the most heavily subsidized U.S. crops, have flooded into Central American markets as a result of DR-CAFTA. Between 2006 and 2007, rice exports to the region rose 31 percent, while corn exports rose by 36 percent, according to the US Department of Agriculture.

Nevertheless, DR-CAFTA enthusiasts argue that Central American farmers can gain through the production of “specialty products” – fruits, nuts, and other goods not produced in the United States – for which the region would have a comparative advantage. However, the vast majority of Central American farmers do not have the capacity to trade these products on the international market. Small to medium-scale producers, a category that includes about 80 percent of farmers in countries like Nicaragua, are unable to produce such product lines on a large enough scale to compete in the export market or to comply with strict sanitary standards imposed by U.S. regulations. According to Matilde Rocha, a Nicaraguan activist, “the producers of specialty products are [often] too small to export individually and they lack knowledge about the rules of the market and trade regulations.” Thus, most of these farmers are forced to either sell their products to intermediary export companies (which skim off most of the profits) or to sell their land to large-scale agro-businesses.

This has led to the concentration of the food export industry into a very limited number of hands. In Nicaragua, 70 percent of the country’s export earnings go to a mere fifty businesses that possess the facilities and capital to take advantage of trade with the US. To cite an example, only one dairy processing plant in the entire country has the capacity to pasteurize milk according to USDA standards, and that plant is owned by a foreign dairy conglomerate, Parmalat. Thus, while Central American economies may have experienced a moderate amount of growth over the past few years, the benefits of U.S. trade are being reaped by only a select few, causing economic inequality to sharpen throughout the region.

CAFTA–Part 2

Continuation of the report issued by the Council on Hemispheric Affairs:

Contrary to initial promises, DR-CAFTA has largely failed to expand Central American export markets, instead bolstering imports from the US to the region. In fact, Central American countries were better off prior to DR-CAFTA. Before this new deal was signed, 80 percent of Central American exports already entered the US duty-free under existing agreements including the Caribbean Basin Initiative, which was implemented in 1984. Under this previous initiative, Central American countries maintained tariffs on many US imports to prevent goods from flooding domestic markets and paralyzing the growth of nascent industries in the region. However, in a push to implement DR-CAFTA, the Bush administration threatened Central American governments with the removal of existing trade preferences, thus strong-arming them into signing an agreement that was not truly in their best interests. Despite rhetoric about DR-CAFTA’s benefits to Central America, the accord was in fact designed to remove the region’s existing protective tariffs, “leveling the playing field” to give the US significantly more access to Central American markets.

Upon implementing DR-CAFTA, Central American governments removed all tariffs on 80 percent of US industrial goods and most agricultural products. United States Trade Representative Robert B. Zoellick enthusiastically pointed out that “small countries can be big export markets for the United States,” and went on to say that “CAFTA will expand opportunities for US exports in everything from construction equipment to high-tech software, from fruits and vegetables to financial services.” Indeed, many Central American countries have seen imports from the U.S. grow dramatically since the implementation of DR-CAFTA. In 2006, imports to El Salvador from the United States jumped 16.7 percent, turning the country’s previous trade surplus of $118 million into a deficit of over $286 million. Likewise, in Honduras and Guatemala, trade deficits with the U.S. multiplied by two and three times in the first year after DR-CAFTA’s implementation. Not surprisingly, these uneven trade balances are causing negative repercussions in a number of Central American and Caribbean countries, and consequently lowering the standard of living across the region.

CAFTA Not What Was Promised–Part 1

From a report issued by the Council On Hemispheric Affairs:

I will turn it into a four part series:
Critics argue that for over a decade, the United States has been striving to create commercial inroads into Latin America by way of bilateral free trade agreements that benefit US economic interests to the detriment of those of Latin America. A recent example of this trend was the passage of the Dominican Republic–Central America Free Trade Agreement (DR-CAFTA), a pact designed to promote trade and foreign investment between the U.S. and its Caribbean Basin neighbors. The agreement was signed in 2004 by El Salvador, Guatemala, Honduras, Costa Rica, Nicaragua and the Dominican Republic. Most DR-CAFTA countries finalized the deal a few years later; El Salvador, Guatemala, Honduras, and Nicaragua implemented the agreement in 2006, and the Dominican Republic followed in 2007.

When it was being negotiated, advocates of DR-CAFTA repeatedly assured skeptics that the agreement was a “win-win” situation, arguing that it would economically benefit all countries involved. The White House issued a statement proclaiming that “expanded trade opportunities will improve life in Central America and the Dominican Republic.” The World Bank concurred, reporting that “the treaty holds the potential of increasing trade and investment in the region, which in turn is key to lifting economic growth and improving the welfare of the people of Central America and the DR, including those living in poverty.” Similarly, El Salvador Ambassador Rene León enthusiastically stated that “people are expecting from DR-CAFTA better living conditions, more economic opportunities, and more social equity.” It was argued that DR-CAFTA would expand Central America’s export market, create jobs in textile production and other manufacturing industries, and lower the prices of consumer goods. However, two years have now passed since some Central American countries implemented DR-CAFTA’s mandates, and governments, farmers, and workers across the region are beginning to suffer the consequences of an unfair deal.