After five days of talks, trade officials from the US and five Central American countries (Guatemala, Costa Rica, Honduras, El Salvador and Nicaragua) wrapped up their latest meeting on 24 October in Houston, Texas, expressing optimism about reaching an agreement on the Central American Free Trade Agreement (CAFTA) by the end of this year.
Negotiators settled key portions of a proposed free trade agreement, including renewed and expanded open trade rules in the US-Caribbean Basin Initiative (a regional trade and investment arrangement) and a 10- year tariff phase-out on a wide range of US products, including apples, cherries, sweet corn and wine. Some of the most controversial issues related to textiles and agriculture will however be dealt with at a final set of negotiations in December.
Textiles
During talks on textiles, two provisions spurred heated debate. The first was the so called "cumulation rule," under which textiles and apparel would be able to enter the CAFTA countries duty-free even if the components came from third parties, provided that the third parties had bilateral free trade agreements (FTAs) or preferential trade agreements with the US and the five Central American countries. Since this would mean an adjustment of the "rules of origin" requirement — which usually means that products covered by specific trade agreements must be entirely or mostly made in the exporting country — the decision was postponed. The parties were still in the process of studying whether the measure would be WTO-consistent. A related decision on tariff preference levels, under which Central American countries would be allowed to export a specified number of square metres of apparel without meeting country rules of origin requirements, was also postponed.
Sugar a tricky issue in ag talks
During the CAFTA process, US sugar producers have expressed concern that full liberalisation of trade could undermine domestic markets, where sugar sells for about three times the world market prices. During the latest meeting, the US proposed that sugar be designated as a sensitive agricultural commodity, with imports controlled under a tariff-rate quota (TRQs) scheme. The TRQ would determine a specified quantity of merchandise to be imported or exported from a country at a reduced rate during a specified period, thus providing some protection to countries’ sensitive agricultural products. Although a firm agreement has not been reached on what products will be covered by a TRQ, items of interest include beef, dairy products, peanuts, rice, cocoa and cotton. Negotiations may also include a 15-year phase-out clause that will ease the liberalisation process.
Central American small farmers have generally raised concerns over their ability to compete against subsidised US products, which benefit from grants of over USD 100 billion through the US Farm Bill. For example, Guatemala’s production of staple crops such as maize, beans and rice could come under pressure due to competition with the US in terms of price and quality. If these products are included in the list of food items to be negotiated, this could be a problem for a country that centres its livelihood on agriculture, mostly at a subsistence level.
Labour and environment
The latest round of talks also touched on the issues of labour and environment. The introduction of a model under which countries can enforce their own labour laws — used also in the US-Chile and US- Singapore FTAs — has sparked controversy among all parties involved. Governments in Central America have stressed the importance of establishing their own levels of protection. US Congresswoman Marcy Kaptur on the other hand has expressed worries that expanding NAFTA to Central America will result in the loss of more jobs in the US without improving the standard of living for workers in Central America. Other US Members of Congress believe that "enforcing your own labour laws" is unacceptable for nations that do not incorporate internationally recognised labour standards, and that encouraging investment without addressing labour violations will negatively impact the region. During the discussions in Houston, delegates said that focus should be placed on enforcement, rather than creation of new labour laws.
US Democratic Senator Max Baucus, who is a ranking member of the US Senate Finance Committee, recently made propositions to tighten environmental standards in CAFTA, including improving the text of the agreement and providing support for trade capacity building and environmental cooperation (see BRIDGES Trade BioRes, 31 October 2003).
Other issues that remain to be resolved including the reluctance countries feel towards opening up the telecommunication industry to US competition and the issue of intellectual property laws, where the Central American countries fear that US corporations will want to claim exclusive property rights on resources such as medicines from the region.
Background
CAFTA is being modelled on the North American Free Trade Agreement (NAFTA, between Canada, US and Mexico), and also influenced by the Singapore-US and Chile-US free trade agreements. Supporters believe that the idea of lowering tariff barriers would encourage investment and jobs in Central America, potentially giving them benefits similar to those Mexico enjoyed from the North American Free Trade Agreement in the 1990s. However, sceptics argue that Central America is too poor to benefit from liberalised trade with the US. According to the World Bank, Nicaragua has a per capita income one-tenth the level of Mexico when NAFTA took effect in 1994. According to Honduran Secretary for Industry and Commerce Norman Garcia, US negotiators need to take into account the small size of the Central American economies, as the US produces the GDP of the five Central American countries in 7 hours and 35 minutes, with the economy of Honduras being equal to the avocado industry in California.
Although two-way trade between the US and the five Central American countries totalled USD 20 billion last year, with a growth in US exports of over 42 percent since 1996, the CAFTA agreement would involve only one percent of overall US trade. The Bush Administration has however made CAFTA a top priority, saying this trade agreement should become a vital precedent for the formation of a free trade zone throughout the Americas and the US expansion of future deals with larger blocs like MERCOSUR (made up of Brazil, Uruguay, Paraguay and Argentina).
Negotiations began in January 2003. Chief negotiators will meet on 12 November; trade ministers will meet again on 18 November; and the ninth and final round of talks is scheduled for 9-12 December in Washington, D.C.
"Talks bring hemispheric agreement closer to reality," HOUSTON CHRONICLE, 25 October 2003; "Trade accord moves ahead," WASHINGTON TIMES, 25 October 2003; "US, 5 Central American Nations Conclude Trade Talks in Houston," VOA NEWS, 25 October 2003; "Central American trade talks see progress," AP BIZWIRE, 24 October 2003; "Farmers, workers react to CAFTA Official: Free trade deal would put many Valley growers out of business," VALLEY MORNING STAR, 24 October 2003; "Controversial CAFTA Textiles, Agriculture work left for December," WTO REPORTER, 31 October 2003; "Central American pact pushed: Trade negotiations resuming this week," SEATTLE TIMES, 23 October 2003; "CAFTA Thumbscrews, The Nuts and Bolts of "Free Trade" Extortion, COUNTERPUNCH, 14 October 2003; "Ag called key to Central American trade talks," HIGH PLAINS JOURNAL, 28 October 2003.
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