Some Nations Fear Effect of Trade Accord : Pact: Caribbean and Central American officials worry that the proposed deal could further debilitate their fragile economies.

While officials from the United States, Mexico and Canada celebrated the completion of a draft North American Free Trade Agreement among themselves, officials of some of their neighbors in the southern half of the hemisphere Friday expressed apprehensions about the pact.

Caribbean and Central American officials voiced fears that the proposed accord would further debilitate their fragile economies and warned that their exclusion from the vast North American marketplace could lead to increased drug trafficking, illegal immigration and violent political upheaval.

Elsewhere in the hemisphere, the worry was that the terms of the agreement would be seen as a model for the Bush Administration’s Enterprise of the Americas, which eventually would create a hemisphere-wide free trade zone. If the agreement is to be the model for U.S. free trade agreements with other Latin American countries, some Latin American observers said, it might discourage needed European and Asian investment in the region.

Bush announced the accord, which melds 360 million people into a single $6-trillion North American commercial zone, earlier this week after 14 months of negotiations with Mexican and Canadian leaders. The agreement, if ratified by the three legislatures, will phase out the tariffs and trade barriers that now limit commerce among the countries.

But opponents argue that the competitive edge of small Central American and Caribbean nations, which now benefit from preferential trading status with the United States, would be crushed by a booming Mexican industrial machine.

Critics from the Caribbean Basin nations of Jamaica and Trinidad, while supporting the North American pact in the context of greater hemispheric trade, said they fear that their countries will be unable to compete in the increasingly cutthroat global marketplace if the Caribbean Basin Initiative, which governs commerce for Central America and the Caribbean, is not amended to give them the same advantages NAFTA countries will receive.

Gerald Thompson, first secretary for the Embassy of Trinidad, said that while he supports Bush’s efforts to expand commerce in the Western Hemisphere, his chief concern is “the diversion of trade and investment to Mexico, which has the advantage of proximity” to the United States.

Because Mexico and the Caribbean Basin countries, which include Costa Rica, Guatemala and the Dominican Republic, produce many of the same products--from cut flowers to footwear--the agreement is “very likely to adversely affect” the region, he said.

The interdependent relationships between Trinidad and other basin nations makes each individual country more vulnerable, experts say.

If other parts of the region are plunged into economic turmoil and political instability as a result of being shut out of North American markets, Thompson said, “we will be affected also.”

He added that representatives from his country attempted to express their concerns about the ramifications of a free trade agreement while the United States, Mexico and Canada were in negotiations, but “clearly, I don’t believe those concerns were written into the agreement.”

Now emissaries “are encouraging the Administration, as well as the Legislature, to take action that will ensure the benefits (Trinidad receives) from the CBI are not eroded” as a result of NAFTA, Thompson said.

But a recent International Trade Commission report on the effects of NAFTA on Caribbean and Central American countries, whose main exports to the United States are apparel and textiles, downplays the implications of locking out the tiny nations.

“Overall, the removal of import quotas on Mexican-made apparel is not expected to have a significant impact on the cost competitiveness of (CBI) producers compared to their Mexican counterparts,” the report states. The agreement is, however, “expected to introduce incentives that will tend to favor apparel investment shifts from the (CBI) countries to Mexico.”

The trade commission estimates that 85% of Caribbean apparel exports go to the United States. In 1991, the United States imported $2.4 billion worth of clothing from CBI countries and $857 million from Mexico.

One U.S. official, who asked that his name be withheld, accused the CBI nations of voicing “overblown concerns” and “crying wolf.” In the context of today’s challenging financial times, “countries have to become integrated into the global economy, and that goes for the Central American and Caribbean countries too.”

But Larry Birns, director of the Council on Hemispheric Affairs, a Washington-based foreign policy think tank, said he is “worried” about the consequences of NAFTA, predicting that “over the next year, there will be a dramatic ebb in the textile trade and new investments at the very time (CBI countries) are suffering economic setbacks.”

A recent CHA release predicts that belt-tightening will have terrible effects on the region. “As economic prospects sag, temptation to turn to drug trafficking and illegal immigration will be great,” according to the analysis.

The Jamaican ambassador to the United States, Richard Bernal, said a level playing field would help maintain economic and political stability in the region and reduce drug trafficking.

For some Latin American nations, the issue is not so much the impact on current trade flows within North America, but how the proposed agreement would affect their ability to maintain investment from Asia and Europe, especially if it is perceived as a model for future U.S. trade agreements in the hemisphere.

“This is the first step toward any agreement that Chile might reach with the United States,” said Ronald S. Bown, executive director of the Chilean Exporters Assn. “Conceptually, this is of great importance.”

Europeans and Asians, looking beyond Mexico to the rest of Latin America, are concerned that agreements signed throughout the region may contain the same restrictions on foreign content of automobiles, textiles and other products.

That could cause serious trade upsets.

Unlike Mexico, which has 70% of its international trade tied to the United States, other Latin America countries have strong commercial relations with Europe and Asia.

Costa Rica’s economic program is sometimes referred to as “Taiwanization,” not only because of the model, but also for the source of investment in the country. Chile and Brazil have booming trade with Japan.

Becoming more attractive to prospective investors is even more of an incentive for countries further south that have seen trade with the United States decline over the last decade, said Joseph Grunwald, an economist who is studying the agreement’s impact on regional trade and investment policies.

“Their primary motivation is not so much to increase trade as to obtain investment,” he said.

Leeds reported from Washington and Darling from Mexico City.