- The Washington Times - Monday, December 20, 2004

A new wave of freedom-fighters are springing up throughout Central America in search of economic freedom, prosperity and social progress for the region. Unlike the freedom fighters of the past who fought with machine guns and grenades, this new generation is armed with business proposals and power point presentations.

Their hopes for the region lie on the ratification by the U.S. Congress of CAFTA (Central American Free Trade Agreement) — a difficult battle that the “economic-freedom” fighters are determined to win.

Today, Central America is poised at the dawn of a new era of growth and development based on the mutual benefits the approval of the CAFTA will bring to the region’s signatory countries — the Dominican Republic, Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica. This agreement is far more than a free trade agreement opening markets and stimulating investment; it will serve as the foundation for the strengthening of democracy, the rule of law, legal accountability and the modernization of public institutions. This institutional transformation is essential to speed up the remarkable economic and political progress achieved in the region over the last decade. The agreement will signify the close of a troubled past for most of these nations and serve as the underpinning for closer economic ties with the United States.

President Bush’s victory was celebrated in Central America, especially by the so called “economic-freedom fighters.” The U.S. vote on the agreement was presumed to take place during Congress’ lame duck session, but many are predicting late January or early February as more realistic dates. Nonetheless, a raging debate has begun. Opponents mistakenly believe CAFTA will drive down labor standards; drive up the dumping of subsidized agricultural U.S. exports, causing economic damage; create job loss for Americans in both manufacturing and agricultural industries; and cause a rise in undocumented immigrants to the United States that they believe will negatively impact American workers. These are all possible side effects, but none will be bigger than the benefits for each side, which have already begun. The negotiated agreement has put the region on the radar screen of major foreign investors interested in having preferential access into the U.S. market.

In Nicaragua, the apparel industry experienced a growth of close to 20 percent from January to October 2004 from foreign companies opening up operations on the presumption of the ratification of the agreement, with enhanced access to the American apparel market. This growth translates into the generation of almost 8,000 new jobs in Nicaragua with steady incomes for these working-class families. More activity will create thousands of new jobs throughout the region as trade and investment expand in response to the elimination of tariffs and trade barriers.

And what does this have to do with the United States and its economy? Everything.

The bottom line of CAFTA is job creation in Central America, which will reduce massive inflow into the United States of undocumented immigrants from these nations in search of employment. By giving them hope at home, CAFTA will keep tens of thousands of Central Americans in their native lands, curtailing illegal immigration which translates into the reduction of competition for U.S. jobs.

And CAFTA will put American products at an advantage because current trade preferences extended by the United States under other agreements are unilateral — they give one way access to Central American goods into the United States. This increases the cost of U.S. exports and reduces their market access. The exporters of U.S. apples into Costa Rica pay a 15 percent import duty while the same apple grown in Canada presently enters Costa Rica duty free, giving Canadian apples a significant advantage over U.S. apples. Also, CAFTA, eliminates tariffs on U.S. products as well as Central American exports, making U.S. exports to the region more competitive. With CAFTA, U.S. agricultural exports are expected to grow by nearly $1 billion.

Further, CAFTA will serve as a shield against the emerging threat of China to the U.S. and Central American textile and apparel sectors. Starting in January 2005, U.S. quotas on imports of Chinese garments will disappear. American textile and apparel manufacturers will have to compete directly with China on costs alone. Central America, a growing supplier of apparel to U.S. outlets, is a natural ally of the United States in withstanding a tidal wave of cheap Chinese garments. Under CAFTA, textiles and apparel that meet the agreement’s rules of origin will be duty-free and quota-free immediately. Without CAFTA, textile and apparel jobs in the United States and Central America will be disproportionately lost to China.

In banking and insurance, CAFTA presents a first-time opportunity for U.S. service businesses to increase their market access into Central America. U.S.-based companies can provide telecommunications, insurance and financial services, as well as infrastructure, including energy, environmental, transportation, construction and engineering. In addition, U.S. service industries will have the right to operate businesses across borders and the right to establish a local presence in CAFTA countries. If the agreement does not enter into force, these sectors will remain closed to U.S. investment.

The critics of CAFTA are loud but not visionary because the abundance of opportunities at both ends far outweigh the limitations. For both Central America and the United States, approving CAFTA will result in faster economic growth, market access and prosperity in years to come.

Bernardo Callejas is senior investment adviser for ProNicaragua, a public-private institution supporting foreign investors seeking offshore opportunities in Nicaragua.

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