US Goes Ahead With Central American Free Trade

by Mike Godfrey, Tax-News.com, Washington

20 November 2002

Hearings began yesterday in Washington into the administration's intention to negotiate a United States - Central America Free Trade Agreement (CAFTA) next year. The agreement would be with five countries, Costa Rica, El Salvador, Guatemala, Nicaragua and Honduras, and substantive negotiations, which are scheduled to begin in San Jose, Costa Rica, are expected to be concluded by the end of 2003.

The countries concerned have been pleasantly surprised by the vigour with which the US is approaching the project, when the more grandiose FTAA, encompassing the whole of Central and Southern America, sometimes seems to resemble a talking shop more than a real negotiation. As a result, the five countries are putting aside a number of minor spats over boundaries and trading relationships in order to take advantage of the opportunity being offered them.

Despite protectionist measures adopted by the administration earlier this year, notably the imposition of tariffs on imported steel and a set of farm support subsidies, both of which elicited howls of rage from liberals, the soul of the administration seems to be that of a free-trader, and the hand of arch free trader Robert Zoellick has been immeasurably strengthened by the administration's success in regaining fast-track neogtiating authority, under which Congress can only accept or reject trade measures, but not tinker with them. And the new Republican dominance of Congress can only help to bring forward a series of free-trading deals which might have seemed impossible just a few months ago.

When the upcoming round of negotiations was being prepared in October, Commerce Undersecretary for International Trade Grant Aldonas said that, as far as the United States is concerned, “nothing is off the table”.

'While there will certainly be sensitive issues on both sides – particularly in the agriculture area – the United States will enter the talks early next year willing to put everything on the negotiating table,' said Aldonas.

In addition to agriculture, an official noted that textiles and apparel could also be a sensitive area, although Mr. Aldonas added that the United States and Central American textile industries are becoming increasingly inter-connected.

In October the United States and Costa Rica signed a joint statement on commercial cooperation aimed at boosting trade and facilitating the FTA. The agreement includes information sharing on major infrastructure and commercial opportunities, electronic commerce, technical standards, small business development and manufacturing quality improvements. It also seeks to facilitate trade missions between the two countries and support the growth of tourism.

Costa Rican Trade Minister Alberto Trejos said that CAFTA is very important to the small economies of Central America, whose major trading partner is the United States. He expressed appreciation for the high level of priority the Bush Administration is giving the trade deal.

Everything is on the table, Mr. Trejos said, but there are sensitive sectors for all parties and at the end of the day there are areas that may have to be left out of the agreement in order to get a deal that can win approval in all six countries. Telecommunications is likely to be a sensitive issue for Costa Rica, he said. There also is awareness that some issues – like agricultural subsidies – are best addressed at the World Trade Organization.

The Central American countries are prepared to discuss the sensitive issues of labor and the environment, the minister said, and would prefer language along the lines of that contained in the Central American trade agreement with Canada. That agreement provides for arbitration, penalties for non-compliance and capacity building to help the smaller economies meet their commitments.

Panama and English-speaking Belize will not be included in the talks because they traditionally have not formed part of the Central American alliance on the international front. The United States is the primary destination of the five nations' exports, while 54 percent of their international purchases come from the North American giant.

”We have to seize the moment. We have the chance to increase our penetration in the world's largest market,” said Mr Trejos. ”It will be worse if we don't negotiate.”

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