Central Americans, Dominicans Lobby Hard for Passage of Free Trade Agreement With U.S. by Larry Luxner Five Central American countries and the Dominican Republic are pushing for free trade with the United States and are planning to sign the Central American Free Trade Agreement (CAFTA) soon. But the controversial CAFTA must also be ratified by the United States, and all sides in the debate agree that passage is unlikely to happen in an election year. In the United States, opposition centers around the possible loss of textile and other jobs, with the AFL-CIO leading the fight against CAFTA. In Central America, hostility toward CAFTA is far more vocal and visible. In Costa Rica, for example, thousands of people filled the streets for a recent May Day protestówaving signs, shouting slogans and burning effigies of Costa Rican President Abel Pacheco. Similar demonstrations occurred throughout the other CAFTA member countries. Costa Ricaís state-run electric utility and leading economists warned that CAFTA would trigger a dramatic decline of small- and medium-size businesses, which will be unable to compete with larger firms and U.S. imports. According to the latest Gallup poll taken in April, 66 percent of Costa Ricans say CAFTA will benefit the country, compared with 52 percent in December 2003. Opponents say the turnaround is partly because the government has been running an intensive radio and television campaign touting the benefits of CAFTAóan effort clearly backed by U.S. big business. ìNegotiators have hammered out a good trade deal that opens up markets to American goods and services,î said James Fendell, president of the Association of American Chambers of Commerce in Latin America (AACCLA). ìNow Congress must match that commitment and approve this agreement so American companies and workers can benefit.î Ambassadors of the six countries covered by CAFTA showed up at a May 6 rally on Capitol Hill pushing support for the trade agreement, which aims to improve market access for U.S. goods, strengthen intellectual property and investor protections, open service markets, and enhance transparency in government procurement. ìIt is our responsibility to work together in order to achieve passage of this agreement in our parliaments and congresses,î said Honduran Ambassador Mario Canahuati, who before becoming ambassador ran several garment factories at an industrial free zone in his hometown of San Pedro Sula. Canahuati was joined at the rally by four other Central American ambassadors: Costa Ricaís Jaime Daremblum, El Salvadorís RenÈ LeÛn, Guatemalaís JosÈ Guillermo Castillo and Nicaraguaís Salvador Stadthagen. The Dominican Republicís Hugo Guiliani Cury also attended, as did the ambassadors of three South American countries not included in CAFTA: Colombiaís LuÌs Alberto Moreno, Ecuadorís Ra?l Gangotena and Peruís Eduardo Ferrero Costa. The rally was sponsored by AACCLA and featured the release of a new publication called ìFaces of TradeóSmall Business Success Stories in Central America and the Dominican Republic.î The book is a collection of 40 profiles and stories of small- and medium-size businesses in 18 states that have benefited from free trade. One of those companies is Pennsylvania-based American Textile Co. (ATC), which makes mattress and pillow protectors, duvet covers and other bedding products at a factory in El Salvador. Jim Kelley, ATCís director of planning and production, said he wants Congress to ratify CAFTA because ìour company would realize significant savings as our products made in Central America would qualify for duty-free status. This agreement is necessary to keep our company, our U.S. employees, our U.S. supply chain and our factory in El Salvador globally competitive.î Thanks to the explosive growth of free zonesódriven by the regionís relatively low wages and proximity to the U.S. marketótotal trade between the United States and the six CAFTA countries has nearly doubled since 1995 to $30 billion in 2002. Yet a formal trade agreement between the United States and the six countries involved in CAFTA faces serious opposition from the AFL-CIO and other labor groups concerned about the export of American jobs to poor countries, where workers toil in huge factories, sometimes for less than $1 an hour, including fringe benefits. Federico Sacasa is the executive director of Caribbean Central American Action (CCAA), a Washington-based nonprofit group thatís fighting hard for CAFTAís passage. ìWeíre advocates for policy change, both in the United States and throughout the region, so we can confront the two forces at play in the region: competition from the global economy and poverty, which is getting worse,î Sacasa told The Washington Diplomat in a recent interview. CCAA was founded in 1980 as a predecessor to the Caribbean Basin Initiative passed three years later by the Reagan administration. ìAfter 1989, with the fall of the Iron Curtain, the Caribbeanís geopolitical importance diminished, and as we got into the 1990s, we saw the movement toward hemispheric trade, so we changed our name in 1995 to Caribbean Latin American Action,î Sacasa recalled. But that didnít last, and a few years ago the organization changed its name back to CCAA. At present, the groupóhoused in a third-floor office near Dupont Circleóhas nine full-time staffers and a budget of just under $1 million. About 60 large- and medium-size companies with interests in the region support CCAA, each paying the group $10,000 a year or more. Sacasa, born in Nicaragua and raised in Washington, is a banker by profession. He took over as executive director of CCAA in April 2002 after having served on the organizationís board of directors for many years. ìWhen I came on board, we decided that we needed to focus our efforts on the Caribbean Basin, which has always been our niche,î he said. ìOur goal has always been to promote private sector-led sustainable economic development in the Caribbean.î Sacasa stressed that CCAA is not a lobby group. ìWe try to educate people about our advocacy position, focusing on public policy changes,î he said. ìWeíre not involved in specific legislation as a matter of course. CAFTA is just one piece of the puzzle. Market access is important, but not as important, for example, as fighting corruption.î Every December, CCAA sponsors the Miami Conference on the Caribbean. Last year, the annual event attracted 650 people, down from 2,000 in the late 1980sóa reflection of how the regionís importance has shrunk with the advent of the North American Free Trade Agreement (NAFTA), the European Union and global development in the Far East. This year, the meetingís theme is ìAn Integrated Third Border,î and CCAA has invited the heads of state of El Salvador, Guatemala, Honduras, Jamaica, St. Vincent and the Grenadines, and Trinidad and Tobago to participate. ìWe look at the Caribbean Basin as being the third border of the United States [after Canada and Mexico], and our mission is to strengthen that border,î Sacasa said, noting that in April 2001, the Bush administration announced its ìThird Border Initiativeî focusing on relations between the United States and the 15-member Caribbean Community (Caricom). ìWe believe that definition needs to include all the smaller economies of the Caribbean Basin,î Sacasa said. Yet the fact is that the region simply isnít getting the foreign investment flows that it needs to keep up with population growth. ìTraditionally, Central America and the Caribbean have always had low wages, but the reality today is that nobody can compete with Asia, and particularly China,î Sacasa said. ìOne of the things thatís lost on many people is that the region [which has around 40 million inhabitants] buys more American products than Russia, India and Pakistan combined [with 1.3 billion people],î he said. ìWeíre not looking for handouts.î Sacasa described CAFTA as ìgiving back to the United States what the U.S. had given to Central America through [the Caribbean Basin Initiative].î All told, Central America has only 12 percent of the United Statesís population, just over 4 percent of its landmass, and only 0.5 percent of its gross domestic product. At present, nearly 80 percent of Central American goods already enter the U.S. market tariff-free, but U.S. goods must pay tariffs going into the region, Sacasa pointed out. ìWith CAFTA, it becomes a two-way street. It puts into a treaty the mutual obligations of both parties, as opposed to preferences being granted by the United States,î he explained. ìAt the end, this is all about raising standards. Weíre dealing with immature institutions that are struggling as they wrestle with the implementation of democratic principles.î According to Honduran Ambassador Canahuati, 56 percent of Central American apparel and textile exports have some U.S. content, compared to only 0.26 percent of Chinese apparel and textile exports. Central America is already the number-one importer of U.S. yarn in the world. ìWith the lifting of quotas on worldwide apparel as of Jan. 1, 2005, and without CAFTA being ratified, itís estimated that between 30 percent and 50 percent of all apparel production in Central America and the Dominican Republic will shift to Asia,î warned Sacasa. ìEven though Chinaís apparel would still be subjected to tariffs because of their low wage structure, theyíd still be more competitive.î That could devastate the apparel industries of Central America, most notably that of El Salvador, where 14 percent of the gross domestic product comes from apparel exports. That countryóthe most densely populated republic of Central America, with 6 million peopleówas caught up in a civil war that ended 12 years ago. ìSince then, theyíve been able to incorporate all the political parties into the political process,î Sacasa said. ìThey ended up dollarizing, theyíre investment-grade, and theyíve reduced poverty by half in 20 years. But 30 percent of the people are still living below the poverty line.î An estimated 2 million Salvadorians live in the United Statesómany of them in the Washington areaóand they send more than $1 billion back home in remittances every year. ìThe most valuable export of the region is our people, and weíve got to change that,î Sacasa said. ìThe great competitive advantage of the Caribbean Basin compared to other regions of the world is its geographic proximity to the largest market in the world, the United States. The problem is that foreign investment is not coming because the markets are small, workers arenít skilled and the region suffers from too much bureaucracy. Even though weíve made a lot of progress, itís hard to do business down there.î And one of the hardest places is Haiti, which also happens to be the poorest nation in the Western Hemisphere, with a per-capita income of only $300 a year. ìHaiti is the best example of what happens when everything goes wrong,î Sacasa said, noting that CCAA has sent several missions to Haiti with the aim of helping that countryís private sector straighten out Haitiís severe economic and social problems. One country notably absent from the Bush administrationís free trade initiatives is Cubaóby far the largest Caribbean nation in both size and population. In fact, the White House approved tough new regulations that make it even harder to send money and travel to Cuba in an effort to deprive the communist government of dollars. Thatís unlikely to change as long as Fidel Castro remains in power, but what happens after the 77-year-old revolutionary passes from the scene is anyoneís guess. ìI think the potential for Cuba once it opens up will be extraordinary,î said Sacasa. ìItíll be a very real competitor and will be a magnet for foreign investment. Thatís why the other countries in the region need to make themselves more attractive for investors.î Larry Luxner is a contributing writer for The Washington Diplomat. CAFTA Highlights The Central American Free Trade Agreement (CAFTA) would open up the Central American market to American goods and services and bring about major changes in trade policy, including: Enhanced Market Access More than 80 percent of U.S. consumer goods and industrial products, as well as 50 percent of U.S. farm products, will gain immediate tariff-free entrance into the Central American region with CAFTA. Within 10 years, 100 percent of all U.S. goods and services will enter the region tariff-free, while tariffs on the remaining agricultural products will be gradually phased out over 15 to 18 years. Key products to receive immediate duty-free status include information technology, construction, paper, medical and scientific instruments, and chemicals. Farm goods benefiting immediately include beef, soy, processed foods and wines. Government Procurement CAFTA further enhances U.S. market access by granting non-discriminatory rights to bid on contracts from Central American and Dominican ministries, agencies and departments. The agreement also makes bribery a criminal offense. Services CAFTA liberalizes key sectors of interest to U.S. service providers, including express shipments, telecommunications and financial services, and it ensures full rights of establishment of subsidiaries, joint ventures and branches. The agreement also provides for cross-border insurance and reinsurance and eliminates residency requirements. Moreover, CAFTA eases laws that lock U.S. companies into restrictive distribution agreements. Textiles and Apparel CAFTA provides duty-free access for textiles and apparel that meet the agreementís rule of origin. All benefits will be retroactive to Jan. 1, 2004, to satisfy U.S. industry sourcing requirements. The rule-of-origin provision includes accumulation of origin and significant short-supply provisions, encouraging further integration of the North American market. Investment and Dispute Resolution Modeled after the U.S.-Chile Free Trade Agreement, CAFTA sets out clear and enforceable rules for foreign investment that limit restrictions on capital flows. It ensures that U.S. investors will receive the same treatment as local investors and protects all forms of U.S. investment. Dispute resolution also follows the Chilean model of a consultative process followed by suspension of tariff benefits if the dispute cannot be settled. Intellectual Property In the trademark area, the agreement includes cyber-squatting provisions and first-in-time, first-in-right provisions. In the copyright arena, it includes protection for encrypted satellite transmissions, protection of Internet service providers and national treatment for sound recordings. In the patent area, it calls for stronger criminal and civil penalties for patent violations, bars the marketing of copies of patented medicines, and provides five years of data exclusivity for pharmaceutical patents and 10 years for chemicals. óLarry Luxner