The North American Free Trade Agreement (NAFTA) has, over the past decade, been the subject of intense debate. It was the spark that lit up the zapatista uprising in Mexico, and in the years that followed—particularly this past one—has fired debates about the state of the US and other economies. No-one, it seems, can agree on whether NAFTA has been good for the US economy. The signs from some of the other economies involved are more stark.
In the wake of so much debate about its North American compatriot, I was surprised not to have heard more about the Central American Free Trade Agreement, which sees the provisions of NAFTA extending into El Salvador, Nicaragua, Guatemala, Honduras and Costa Rica. Under this arrangement, those countries will dispense with trade barriers between each other and with the United States.
My wakeup call came with the airing of this piece on NPR’s Marketplace just over a week ago. The report rightly highlights concerns regarding this new agreement, and highlights the fallacies in many of the arguments for the agreement.
In particular, the commentator, Bruce Strokes, picks up on the example of Nicaragua where nearly 50% of the population live on less than $2 per day and people are, in real terms, poorer today than they were twenty years ago. There are already few barriers against Nicaraguan products entering the US. Some US companies would benefit from being able to flood the Nicaraguan marketplace with subsidised agricultural products, but with such a low average income, any attempt to move into that market would take a long time to become profitable.
In reality, that may be a risk those businesses are willing to take. Some will no doubt desire that level of market proliferation and global recognition enough to take the risk of significantly impacted profits over some years, believing they can raise prices once they control the local market. Unless incomes also rise, that will have disastrous results for many local people. And if that practice results in the closure of local businesses…
But this is no anti-free-trade rant that Marketplace were playing. Wisely the reporter cites the example of Spain and Ireland’s entry into the European Union and notes the level of financial assistance those countries were given to smooth that entry.
Free trade doesn’t work on the cheap. If you don’t believe that, ask the Spanish or the Irish. Their entry into the EU only worked because they got huge dollops of aid, to level the playing field. What’s good for the goose is good for the gander. Their farmers got subsidies, just like ours. They also got money to build roads and ports and bridges. If we truly care about helping the poor in Nicaragua, they need aid, not just free trade.
It is not hard to see why Spain and Ireland would want to join the European Union. When efforts are made to level playing fields, free trade can be very good for a country’s economy (though it needs to be balanced with environmental and cultural protections). But the advantages of this agreement for Central American countries are much harder to discern.
It is clear that some of those governments have seen the danger of opening their markets too quickly. According to this article at The Nation:
The CAFTA text itself exhibits signs of a delicate political compromise. Zoellick’s office has emphasized the decline in tariffs on consumer and industrial products that would go into effect with the agreement. But the United States and Central American countries alike exempted their most sensitive goods from immediate competition. The United States maintained protections for sugar and textile industries in exchange for exceptionally laggard phase-out periods of up to twenty years for tariffs on Central American corn, dairy and other farm products.
Exemptions and long-term phase-outs are likely good news for Central American economies (though it waits to be seen whether such principles stand further rounds of negotiation) but it would be useful to see statements from those governments as to what steps they intend to take to prepare their indigenous industries over the time of those phase-outs.
The article goes on to outline serious concerns such as intellectual property restrictions in CAFTA which may make it much harder for the poorer countries within the agreement to afford AIDS drugs.
It may well be that there are good arguments for such agreements. Personally, I fail to understand why the USA should be involved in an agreement that purports to be about “Central America” and wonder whether this might not be a more constructive agreement were the US excluded. But beyond that, however long it is phased in under, agreements like this need to be placed under further scrutiny, so that the governments involved are forced to articulate exactly how they will deal with the new challenges it presents, how it will serve to help their people, and what reasons beyond political ideology they have for getting involved.
According to stopcafta.org, the agreement should have been signed by trade ministers at the end of last month. It will then need to be ratified by the legislatures of each member country.