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CAFTA: More Free Trade for the Americas

By Carol Amoruso, Editor

Note: This feature originally ran on the Village in 2004, and was reposted here in August 2005 in light of recent developments with CAFTA.

CAFTA--Central American Free Trade Agreement--is wedged geographically and chronologically between this hemisphere’s other major trade agreements, NAFTA and the FTAA, but will have less importance in determining the overall role trade is playing in reshaping the economic and social character of the New World. The North American Free Trade Agreement, in place since 1994, includes Mexico and Canada, which have, respectively, the third and fourth largest economies in the hemisphere (Brazil is second to the United States); the proposed FTAA encompasses 34 of the hemisphere’s 35 nations (Cuba is excluded). They dwarf CAFTA, but this agreement is being used as a stalking horse for the passage of the mega-FTAA in 2005.

Except for Costa Rica the signatory nations are greatly impoverished--Guatemala, Honduras, El Salvador, Nicaragua, the Dominican Republic. Despite dire predictions of even greater hardship after ratification, all 6 governments are expected to sign on with few hurdles to hold up passage which the Bush administration has put on a fast track to accomplish at the end of this year. If Washington gets its way on key provisions, then the US is expected to have an easy time pushing through radical trade policies—such as the removal of all protective tariffs-- in the FTAA agreement, expected to be ratified in 2005.

Democracy and free trade have been equated in the Bush administration, a point the government has stressed in these negotiations as the region is now relatively calm after decades of civil unrest and repressive military governments
. Regina Vargo assistant US trade representative for the Americas said recently that the values of a free market “reinforce the habits and institutions of democracy that Central America is struggling to create right now.”

As with the protracted FTAA negotiations, CAFTA talks are held in a Star Chamber of closed doors and top secrecy; it is thus difficult to assess the debate, if any, on the various issues, and who the contending parties may be. Publicly, representatives of the Central American countries and US trade negotiators are presenting an amicable face of progress. The two most salient issues in CAFTA negotiations are deregulation of services and agriculture. Manufacturing, of major importance in the FTAA talks, is of little discussion as already 75% of goods manufactured in Central America—the vast majority produced in maquiladoras, or assembly plants—are exported to the US, mostly duty-free.

With deregulation, industries previously watch-dogged by governments would be regulated essentially by the market. Minimum wage laws, for example, and laws regarding child labor and environmental protection, could become deregulated. In addition, the accord would open the door for privatization of many of the service industries: education, the postal service, water collection and generation, etc., most of which stand to be bought up and run by foreign multinationals.

In all talks, the US has stood firm against lowering or abolishing farm subsidies on export food items such as soy, rice and corn, allowing US farmers to flood foreign markets with considerably lower-priced produce, driving many small and subsistence farmers out of the market. It is reported that the US is stonewalling all attempts to put subsidies on the table of the CAFTA talks. Allowing US subsidies to go un-negotiated will bode poorly for Latin America in FTAA talks, especially Brazil, whose agricultural products, currently traded heavily throughout the region, would not be able to compete with much cheaper American products.

Coffee is a specific agricultural peril for the 5 Central American countries, which combined are the world’s largest producer, after Brazil. It is likely that passage of CAFTA’s provisions will do nothing to protect the coffee growers of Central America who are desperate. Production was severely curtailed after Hurricane Mitch and then prices plummeted to the lowest in 30 years when production in Vietnam suddenly boomed. In Nicaragua alone, over 100,000 Nicaraguan coffee farmers have left their land to live by the roadsides in tent encampments. Most coffee growers are small, near-subsistence farmers.

The agreement, if implemented along the lines of NAFTA provisions and those proposed for the FTAA, says Karen Hansen-Kuhn Trade Program Coordinator of the NGO the Development Gap, “would prevent coffee producing countries from working together to find long-term solutions to their problems…Countries would not be able to work together to regulate supply in order to ensure that producers get a fair price for their coffee, something that used to happen under the [now defunct] International Coffee Organization. This… prevents countries from finding creative and democratic
solutions to pressing problems of economic instability and poverty…”

After an April meeting in Washington with President Bush, U.S. Trade Representative Robert Zoellick, Bush’s point man on the free trade agreements, and the Inter-American Development Bank--a key source of loans in the hemisphere—the five Central American heads of state came away united, looking forward to a year-end signing of CAFTA. The US, for its part was buoyed for the next formal round of FTAA talks set for Miami this fall.