CAFTA: 'With free trade, everyone gains'
On May 11 and 12, the presidents of the Dominican Republic and the five Central American countries of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua visited Washington to push for the approval of the Central American Free Trade Agreement (CAFTA), an initiative which would boost US exports by an estimated $3 billion a year. On May 11, the presidents met with Senators and Congressmen on the Hill until they, in the words of Nicaraguan President Enrique Bolaños, "were chased out by a small plane," and on May 12 the presidents were invited to meet with President Bush at the White House.
The agreement, favored by the Bush administration, has met strong resistance from the sugar lobby and farmers dependent on agricultural subsidies for their survival.
DiplomaticTraffic.com had the chance to meet with Nicaraguan Minister of Foreign Affairs Norman Caldera on May 12 to ask about resistance to the agreement and what CAFTA would mean for Central America.
DiplomaticTraffic.com: The United States, Europe and Japan all speak for free trade, but have done little so far to phase out farm subsidies and open their markets to agricultural imports. Do you feel the United States is paying lip service to the concept of free trade?
Norman Caldera: Lip service is too harsh of a term. I think we have made relative strides towards free trade. I think the administration is having a hard time with CAFTA because they went about the issue of subsidies in a different manner. They gave Central America a piece of the action on the subsidies the American public pays on sugar. Every time you use sugar you as a consumer pay a subsidy to the sugar barons. By negotiating with Central America a very small piece of that subsidy they are doing something in favor of free trade. Sugar is the only commodity that opposes CAFTA and the negotiations are fiercely resisted. Ninety-eight other commodity associations are in favor of CAFTA. So I wouldn't put the advance on [abolishing] subsidies in absolute terms. I think it has to be seen on a case-by-case basis. In the case of the Central American Free Trade Agreement there has been progress made on sugar, peanuts, dairy products and beef where subsidies paid by the consumers through higher prices are now going to be lowered.
Prohibitive sugar tariffs and restrictive import quotas cost Americans at least $1 billion a year in subsidies and artificially high sugar prices. The sugar lobby seems intent on killing CAFTA. Can one powerful lobby group actually kill this trade agreement?
I don't think so. I think the sugar lobby miscalculated the support from other lobbies. They thought two or more associations were going to come out against CAFTA. The textile association found that CAFTA in fact might be their last hope against the assault by China on garment and apparel manufacturing in the United States. And while China uses only one to two percent of US raw materials in their products, Central America and the Dominican Republic use up to 50-55 percent US raw materials. The textile plants in South Carolina are in the same boat as the textile manufacturers in Central America. Instead of rejecting CAFTA they see CAFTA as a way of defending themselves against low-price products from China. I think the sugar barons miscalculated and went for an all-out battle, which they lost.
What happens if CAFTA doesn't pass? What is the backup plan?
If it doesn't pass it's a return to isolation and I don't think the United States wants to go that way. The credibility of the US as a trading partner and the ability of the administration to negotiate an agreement would be blown to pieces. I think there is too much at stake here for CAFTA not to pass. For Central America it would be a disaster. Democracy is the way to go, but what happens if this democracy isn't able to provide a decent life? This is the question people are going to ask and that line of thought has powerful allies.
We're talking a lot about CAFTA from an economic perspective, but what about CAFTA as a security measure - what would increased prosperity in the region mean for the flow of illegal immigrants and drugs?
What about CAFTA as a development measure? By providing a tribunal where trade disputes can be solved outside the court system you are ensuring investors in the region that their money is safe, that their investments are not going to be confiscated. These investors can resort to a mechanism outside of the country courts, a mechanism in the hands of independent judges. CAFTA would build a continuous legal highway between the countries of Central America and the United States. It would also mean that we wouldn't have to worry about what will happen when the Caribbean Basin Initiative ends in 2008. For most dollars traded with Central America there is already a free trade arrangement through CBI.
There are a lot of myths around about what CAFTA would mean for the poor peasants in Central America. The poor peasants in Nicaragua grow corn, but it's white corn and white corn is exempt from the trade agreement. The tariffs will remain high. It was the one product that was excluded just like the United States excluded sugar. The peasants who grow white corn have nothing to fear. There is a lot of compatibility on the agricultural side. We don't grow any wheat. We do not grow apples or grapes. We grow bananas which you don't. For most products we are complimentary, not competitive.
Hundreds of thousands of high-paying export jobs in growing service and technology sectors will be sacrificed to preserve the livelihood of 10,000 subsidy-dependent farmers. Has this debate become a little bit skewed in favor of farmers?
The debate has become skewed and I'm only talking about these issues because of what I have heard and the questions I have been getting, from the congressmen and senators voicing their doubts. The funny thing is the opposition in Nicaragua is saying exactly the same thing as the opposition here: jobs will be lost. Obviously someone is wrong. I think free trade increases economic development far beyond the sum of its parts. You put in two plus two and you come out with five. With free trade, everyone gains.