News Column

The Long Road to Free Trade: Politics, opposition weigh on CAFTA and FTAA pacts

July/August 2004, HISPANIC BUSINESS Magazine

Debra Beachy

U.S. efforts on two free-trade pacts with Central and South American countries continue to face uncertain futures amid the complex interests of global economic development, business, and politics. While President Bush and five Central American governments have signed the Central American Free Trade Agreement (CAFTA) designed to bolster commerce in Costa Rica, Guatemala, Honduras, Nicaragua, and El Salvador continued opposition has stalled the accord's final approval in the political arena. Prospects are even cloudier for the Free Trade Area of the Americas pact (FTAA) , which would expand NAFTA to include 34 countries in a trade zone with 800 million people and a $13 trillion market.

CAFTA countries already have duty-free access to the U.S. market for many of their exports, but the free-trade pact would further reduce barriers, cutting the Central American countries' tariffs on 80 percent of U.S.-made industrial and consumer goods, and phasing out the remaining tariffs over 10 years. U.S. farm goods exported to CAFTA member countries would pay no duties after 15 years. The pact also would require reforms of the domestic legal and business environments.

CAFTA would benefit large U.S. exporters, including those in the agricultural sector. And it would tear down barriers for U.S. investors interested in utility and service sectors. For its part, the United States would increase market access to sectors including textiles and sugar.

But staunch opposition has come from powerful U.S. labor unions, as well as from environmentalists and opponents in Central America who say jobs would be lost, workers' rights lessened, public services lost, and family farms, ranches and small businesses threatened. Large U.S. sugar growers and the textile industry also oppose opening their markets. The World Bank, while noting opportunities CAFTA would bring, also acknowledges challenges, and is identifying main areas on which the Central American countries must focus to benefit from CAFTA.

The continued pressure by opponents makes it unlikely that progress will be made on CAFTA in a presidential election year, say many observers, including Isaac Cohen, former director of the U.N. Economic Commission for Latin America and the Caribbean and a key negotiator of CAFTA. Sen. John Kerry, the presumptive Democratic presidential nominee, says he would renegotiate the agreement to strengthen its labor and environmental standards. Meanwhile, the Bush administration says it will send the deal to Congress only when there are enough votes to ensure approval.

Approval of CAFTA is widely seen as key to advances for the larger Free Trade Area of the Americas accord, which was expected to be final by the end of this year. But the ongoing economic crisis in Argentina, and disputes between the accord's two chief negotiators, Brazil and the United States, have cast a shadow over the deal's future.

Under the FTAA, the United States is proposing that nearly two-thirds of all U.S. imports of consumer and industrial goods from member countries not already covered by NAFTA would be duty-free immediately, and all remaining duties eliminated by 2015.

But the economic crisis in Argentina, which tied its currency to the dollar and opened public sectors to foreign ownership, has raised some concerns about the pact.

Disagreements between the United States and Brazil also have hampered progress. "U.S. officials are reluctant in this election season to touch import-sensitive products like sugar, and can't address Brazilian concerns about domestic farm subsidies in the FTAA, since such problems require reform commitments from all significant producers in the world market...," says Jeffrey J. Schott, of the Institute for International Economics, a Washington, D.C.-based think tank. Likewise, Brazil is reluctant to open its markets because of domestic opposition, he said.

All the political parrying has rendered immediate advances for the pacts unclear. But some Hispanic business owners who have benefited under NAFTA continue to hope CAFTA and FTAA will be approved.

Jorge de la Riva, owner of Houston-based RHO Industries, a distributor of packaging film, says his company's exports rose 7 percent after the adoption of NAFTA, and sales of U.S.-made products to Latin America surged. "The more free trade there is, the better," says Mr. de la Riva.


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