U.S. Reaches Central American Trade Deal

The United States concluded a free-trade agreement with four Central American countries Wednesday, boosting the Bush administration’s trade agenda but setting the stage for a bruising ratification battle in Congress.

Although commercially modest, the Central American Free Trade Agreement with El Salvador, Honduras, Guatemala and Nicaragua looms large in symbolic terms.

Its conclusion follows a string of trade policy setbacks for the United States, and administration officials hope it will help revive momentum for further liberalization.

“CAFTA is an important milestone in our journey to hemispheric free trade,” said U.S. Trade Representative Robert B. Zoellick.

The pact’s prospects are far from certain in Congress. Administration officials have acknowledged that it will be difficult to persuade lawmakers to ratify the pact during an election year in which the legacy of NAFTA and other trade pacts have become hot-button political issues.

Several Democratic presidential candidates have made opposition to trade deals central elements of their campaigns, with some even proposing to renegotiate the North American Free Trade Agreement and withdraw from the World Trade Organization. The Central American trade deal became an instant target of Democrats.

Rep. Richard A. Gephardt of Missouri accused Bush of “selling out American workers with a bad trade deal” that would worsen conditions for workers around the world.

CAFTA is drawing fire from U.S. sugar and textile interests, which would face more competition under its provisions, as well as from unions, environmentalists and other traditional critics of the administration’s approach to trade expansion.

“You’ve got the perfect storm of protectionist opposition,” said Brink Lindsey, director of trade policy studies at the conservative Cato Institute. “There’s a convergence of anti-trade pressure from both ideological and commercial interests. That’s going to make it tough going in an election year.”

Administration officials describe CAFTA as an essential element in their campaign to keep the trade bandwagon rolling despite the virtual collapse in September of global talks in Cancun, Mexico, and the scaling back of a proposed Free Trade Agreement of the Americas last month in Miami.

“They’ve kind of been on a losing streak lately,” said Edward Gresser, trade policy director at the Progressive Policy Institute, a centrist Democrat think tank. “The administration needs some successes to turn things around. The psychological importance of even a partial success is significant.”

Five Central American countries participated in 12 months of negotiations. One, Costa Rica, dropped out at the last minute, refusing U.S. demands to open its telecommunications and insurance industries. U.S. officials hope to bring Costa Rica back into the fold next year.

The administration wants to win congressional approval of CAFTA in 2004. This year, Congress endorsed pacts with Singapore and Chile, which took their place alongside Canada, Mexico, Israel and Jordan as the only countries that have entered into broad free-trade agreements with the United States.

CAFTA faces choppier waters than either of those pacts. Its approval would expand the ability of Central American apparel makers to send products to the United States duty-free without being required to assemble them from U.S.-made fabric. U.S. textile makers fear the change will eliminate jobs in this country, and they are pressuring home-state lawmakers to vote against the pact.

Similarly, Midwest sugar beet farmers and Southeast cane growers want their lawmakers to oppose CAFTA because it would relax quotas that keep lower-cost Central American sugar out of U.S. markets and help prop up domestic sugar prices.

Moreover, critics of administration trade policy have identified CAFTA as the principal target of their ongoing campaign to oppose new agreements unless they contain tougher provisions to protect worker rights and the environment and impose fewer restrictions on access to cheap medicines.

“This is going to be one of the ugliest trade deals presented to Congress in quite a while,” said John Audley, trade policy director at the Carnegie Endowment for International Peace. “The politics are going to be vicious.”

If approved by Congress, CAFTA would remove tariffs and reduce other barriers to trade in a wide range of goods and services between the United States and the four countries. More than 80% of U.S. exports would be duty-free immediately, and remaining tariffs would be phased out over 10 years.

In dollar terms, CAFTA would be relatively small. U.S. trade with the four countries totaled $15.3 billion last year, compared with $603 billion with NAFTA partners Mexico and Canada. The biggest participant would be Honduras, with $5.8 billion in trade with the United States, followed by Guatemala, $4.8 billion; El Salvador, $3.6 billion; and Nicaragua, $1.1 billion.

CAFTA would be a modest boon to farmers in California and other states that export grain, fruit, vegetables, meat, wine and processed food to Central America. Other industries expected to benefit include information technology, construction equipment, paper products, chemicals and medical and scientific equipment.

Last year, the four countries purchased $280 million in goods from California firms, according to figures compiled by the Massachusetts Institute for Social and Economic Research. California’s exports to the region include textiles and apparel, computers and electronics, food products, machinery, plastics and petroleum.

The agreement also contains provisions giving U.S. firms greater access to Central America in areas such as financial services, telecommunications, insurance, entertainment, tourism, energy, engineering and construction.

It would increase protection of patents, trademarks, copyrights and other forms of intellectual property rights for firms such as Intel Corp., which operates an assembly testing plant in Costa Rica.

“Intellectual property is the key to what Intel does,” said company spokeswoman Jennifer Greeson. “We need to make sure that our products and our customers’ products can’t be ripped off.”

But those same patent protections also limit the ability of poor countries to obtain low-cost generic medicines, making it more difficult to fight pandemics such as AIDS, according to critics.

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Times staff writers Nick Anderson in Washington and Marla Dickerson in Los Angeles contributed to this report.