- The Washington Times - Wednesday, May 11, 2005

During the 1980s, Central America was a fierce battleground of the Cold War and a breeding ground for despotic dictatorships and totalitarian regimes. Today, the region is poised to enter a historic free trade deal with the United States that represents its best chance for prosperity and economic growth in decades.

Unfortunately, some members of the U.S. Congress want to turn their back on America’s third border by failing to approve DR-CAFTA, the negotiated free trade deal, that will essentially extend NAFTA benefits to the Dominican Republic and the Central American countries of Guatemala, El Salvador, Honduras, Nicaragua and Costa Rica.

This historic trade deal represents Central America’s best opportunity in a generation to shed its Cold War image and debut onto the world market as a “near South” alternative to the far East for labor-intensive manufacturing and services operations. Competitive labor, logistics and other basic costs, as well as an enviable location just a couple hours’ flying-time from the United States, position Central America as a competitive export platform for the U.S. market. Often overlooked, this region is an eager market of 37 million for U.S. name-brand goods and services.

Apart from opening markets and bringing new investment into the region, CAFTA will help shape Central America into an integrated, strongly democratic region with clear legal accountability and independent public institutions.

Further harmonization, economic integration and institutional transformation is essential to speed the astonishing economic and political progress in the region over the last decade and a half. The agreement will provide the foundation for closer economic ties with the United States, and will signify the end of a troubled chapter in most of these nations’ history.

Pre-ratification negotiation has already put the region on the short list of major foreign corporations interested in preferential access to the U.S. market from a low-cost location.

For example, Nicaragua’s burgeoning apparel industry saw 22 percent growth in 2004 from foreign companies opening operations on the assumption the agreement will be ratified.

Higher value-added operations such as automobile parts are beginning to take root: One is a Japanese-Mexican joint venture between Yazaki Corp. and Mexico’s Xignux group employing nearly 4,800 workers in Leon, Nicaragua, assembling wire harnesses for Ford pick-up trucks and SUVs manufactured in the United States. Continued growth, stimulated by ending tariffs and trade barriers, will generate thousands of new jobs with modest but steady incomes for working-class families.

By giving them hope at home, CAFTA will keep tens of thousands of Central Americans in their native lands, curtailing illegal immigration, which means less competition for U.S. jobs.

DR-CAFTA also will give U.S. products an advantage because current trade preferences extended by the U.S. under other agreements are unilateral: They give Central American goods one-way access to the U.S. This increases the cost of U.S. exports and reduces their market access. With CAFTA, experts claim U.S. agricultural exports will grow nearly $1 billion.

In the services sector, DR-CAFTA presents a first-time opportunity for equal treatment of U.S. businesses in the Central American market for telecommunications, insurance and financial services, as well as infrastructure, including energy, environmental, transportation, construction and engineering.

U.S. service industries will have the right to operate businesses across borders and to establish a local presence in CAFTA countries. If the agreement does not go into force, these sectors will remain largely closed to U.S. investment.

DR-CAFTA will also serve as an important defense 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 disappeared. North and Central American textile and apparel manufacturers will have to compete directly with China on costs alone.

Central America, already one of the U.S. textile industry’s largest markets for fabric, is a natural ally of the U.S. efforts to withstand a tidal wave of cheap Chinese garments. Under DR-CAFTA, textiles and apparel that meet the agreement’s rules of origin will be duty-free and quota-free immediately. This will allow the region to build a stronger, integrated, “quick response” value chain with which to differentiate itself from China. Without CAFTA, U.S. and Central American textile and apparel jobs will be on a collision course as they compete on an undifferentiated basis against China.

For both Central America and the United States, approving DR-CAFTA will increase economic growth, market access and prosperity in years to come.

The U.S. Congress should not turn its back on DR-CAFTA because ratification will send a signal to dozens of struggling democracies the U.S. is a genuine partner, willing to lend a hand though free trade, the ultimate replacement for foreign aid.

Juan Carlos Pereira is a graduate of the Harvard Business School and executive director of ProNicaragua, a public-private institution that assists foreign businesses exploring offshore opportunities in Nicaragua.

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