Central American Leaders Praise Passage of CAFTA

Central American government and business leaders on Thursday hailed U.S. congressional passage of a regional free trade agreement as a boon to their consumers and modernization efforts.

But the region’s labor unions and some agricultural interests warned of job losses and other dire effects.

The Central American Free Trade Agreement won’t have much effect on the U.S. economy because U.S. trade with the region is relatively small. But boosters say the trade pact may give a much-needed lift to one of the poorest regions of the hemisphere if it delivers benefits as promised.

“We woke up today with the certainty of a free trade agreement that has been a closely held dream for many years,” said President Tony Saca of El Salvador, a strong proponent. “Central America has won, and we should all celebrate.”

Honduran President Ricardo Maduro said CAFTA would produce “economic growth and dignified, permanent jobs.”

The pact passed the U.S. House of Representatives by the narrowest of margins late Wednesday. It had been previously approved by the U.S. Senate and will soon be signed by President Bush.

The Bush administration contended that CAFTA would promote economic development in Central America, which in turn could boost the region’s political stability, stem the flow of immigration and lay the groundwork for more ambitious trade deals encompassing the Western Hemisphere and the entire world.

Over an 18-year period, the deal would remove most trade barriers between the United States and El Salvador, Honduras, Guatemala, Costa Rica, Nicaragua and the Dominican Republic. The latter three countries have yet to approve the bill but are now under increased pressure from business interests to get on board, observers say.

Assuming that the agreement eventually becomes a reality, as most observers expect, Central American consumers could be clear winners. The prices of basic foods such as beans, corn and beef would fall, and now-monopolized markets in insurance and wireless telecommunications would be opened to competition. Import tariffs on auto parts and computers would fall, lowering costs.

By giving incentives to foreigners and locals to invest in factories, CAFTA may produce more industrial jobs in a region that desperately needs them. Some Central American farm sectors will benefit, especially fruit growers, as seasonal restrictions on shipping to U.S. markets are slowly lifted.

“There is a line of businesses waiting for the starting gun, and now they have it with CAFTA,” said Henry Fransen, executive director of the Maquiladora Assn. of Honduras, a manufacturing trade group. “I have in my hands various letters from Brazilian, Korean and U.S. companies who have wanted to invest here, but only on the condition that CAFTA passed.”

The trade bill is “no panacea” but will impose structural reforms that may over the long term lead to greater Central American prosperity, said Manuel Agosin, regional economic advisor at the Inter-American Development Bank. Those reforms include modernization, transparency of customs and investment rules and the opening of government procurement procedures.

Victor Meza, a political analyst who directs a think tank in Tegucigalpa, the Honduran capital, said CAFTA would impose higher standards on Central America’s economies.

“The principal cause of poverty in Honduras and Central America is low productivity and quality,” Meza said. “CAFTA is an opportunity to change the rules of the game, to emphasize skilled labor, better education.... The politicians have to realize this is not a choice but an obligation.”

Another important facet of the trade pact is that it is a binding multilateral agreement. For Central American businesses that depend on exporting to the U.S., it offers greater long-term security than the current regional trade scheme called the Caribbean Basin Initiative. That deal could be suspended “whenever the United States wants,” said Miguel Schyfter of the Costa Rican Textile Chamber.

“CAFTA gives more confidence to investors. The United States can’t just pull the benefits,” Schyfter said.

That confidence should lead to a greater flow of investment in factories and jobs, which Central America needs if it is to lift itself from the poverty that has produced a growing list of social ills. They include gangs, spiraling homicide rates and rising emigration flows.

The pact’s terms particularly seem to favor investment in Central American textile and apparel manufacturing, sectors that have been clobbered by Asian competition in recent years. The most important rule change in the trade pact allows regionally produced clothing, thread and fabric to qualify to enter the U.S. duty-free without the high proportion of U.S.-produced content that was previously required, Agosin said.

But agricultural unions warned that some of Central America’s farm sectors could be overwhelmed by U.S. agribusiness. Union leaders said local farmers couldn’t compete against U.S. economies of scale and hyper-efficient farming methods.

Many farmworker unions pointed to the experience of some Mexican farmers after passage of the North American Free Trade Agreement in 1994. Many lost their jobs in the face of low-cost U.S. grain and livestock imports and were driven to illegally emigrate to the United States to look for work.

“With CAFTA, the death agony of agriculture in El Salvador has begun,” said Ramon Aristides Mendoza, leader of the Salvadoran Communal Union, consisting of 37,000 cattle owners and small farmers who work mainly in cotton, corn, beans and sugar cane. The competition with U.S. farmers, Mendoza said, “has always been unequal, and now the inequality has been formalized.”

Jose Pinzon, secretary-general of the 70,000-strong Guatemalan Workers Central, called the passage a “pyrrhic victory for Bush and the Central American presidents.”

“It’s going to be a disaster for peasants and workers who can’t count on the subsidies and cheap loans that the North Americans have,” Pinzon said.

Costa Rican labor leader Albino Vargas said that over time, CAFTA would lead to the privatization of his country’s public electricity, insurance and telecommunications services. That will cost more than jobs, he said.

“These public institutions have brought us 100% coverage of potable water in households throughout the country, 95% phone coverage and 97% coverage in electricity,” said Vargas, general secretary of the National Assn. of Public and Private Employees. “How will these services suffer when put in the hands of foreign companies?”

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Special correspondents Alex Renderos in El Salvador and Rebecca Kimitch in Costa Rica contributed to this report.