One step forward: the US trade agenda on the Americas

North American influence in Central America’s politics and economics is huge. According to Brazilian analysts the recently free trade agreement signed among Central America countries, Dominican Republic and the United States (CAFTA-DR: Central America Free Trade Agreement-Dominican Republic) is only an institutionalization of a preferential trade which already happens, just institutionalizing American influence in that region.

Nevertheless, for the United States CAFTA-DR agreement is not that simple. American social pressure against this FTA – comparing with the expectations which NAFTA created in Mexico – was very intense. As a result of this pressure, its approval was reached only by a small difference of votes in both American legislative houses.

In the House of Representatives the voting was 217 against 215 and in Congress 54 against 45. In one hand, the victory was a hard one and was negotiated on the floor of the Houses. On the other hand the American government was accused of using obscure means and pressures to persuade the members of both Houses to approve the agreement.
During the negotiations, started in 2002, American government justified the agreement with 4 main arguments: (1) Central American opening market to North American businesses, (2) removal of trade barriers from several North American products (80% of Central American exports to the US was already a free trade movement even before the agreement) so it will not have their counterpart for Central American exports, (3) support for Central America development and (4) maintenance of regional political stability.

Even though the lack of competitiveness of Central American products, compared with the ones produced in the US, some American sectors felt threatened by CAFTA-DR. Sugar primary sector was one of these. Possible problems for American producers were solved out with a mechanism called “alternative compensation”.

If the US considered that Central American sugar exports are threatening its sector, those exports can be prohibited. But to take this action the US need to provide benefits for the countries affected to decrease their losses (it is not explicit if it will be a financial compensation).

But the removal of trade barriers is what will effectively increase the trade between the US and Central American countries. The primary sector (the most important for developing countries) was the one which had the highest trade barriers to US. In this way, North American products, with better quality, will get in the Caribbean market with no trade tariffs at all. Tourist sector should receive the most benefits from CAFTA-DR, especially because of the quality of products and the low costs after the agreement.
           

Product US export barrier before CAFTA-DR
vegetables, fruits and nuts 16.70%
grains 10.60%
wood products 10.00%

Source: ___.fas.usda.gov/itp/CAFTA/cafta.html

However, while American benefits are related with free-trade and economic growth, the advantages of CAFTA-DR to Central American countries are democracy and political stability. In other words, this may also mean regional institutionalization of US influence.

Because of it, CAFTA-DR also finds a political answer for its existence. Although it is essentially a free-trade agreement, the US lean it in democratic instability of Central America, to support the contemporary western political values in the region, arguments for neoliberal free trade.

We need to bear in mind that Central America is a geoestrategic point in the continent, so as close the region is from US as far the possibility of rebellion. In case such thing happens, military intervention will also be justified by the agreement.

The US trade agenda
Besides political and trade explanation to CAFTA-DR, the US states that this agreement is a step forward to Free Trade Agreement of Americas (FTAA). Other than NAFTA and Chile, with CAFTA-DR United States can co-opt commercially one more important continental region, only deep South America missing.

But the difficulty in signing the FTAA also has American inside causes, specially what concerns internationalization of production, particularly in the case of companies looking for the cheapest labor force for production.

The argument against CAFTA-DR uses Mexico’s example. Although the country has a positive balance of trade with the US, its increase generated a 2,1% GDP growth between 1996 and 2003. It happened because of the contemporary industrial production process and its “maquiladoras”, which do not produce growth for the country, only supply labor force.      

In this way, the free trade agreements signed by the US with underdeveloped and developing countries of the continent affect North American society because the possibility of employment decrease in some economic sectors (mainly manufactures). It is more profitable for companies to invest in “maquiladoras” in peripheral regions around the world than pay for a regular worker in the US.

The labour legislation in CAFTA-DR does not accomplish American society requirements. Also environment legislation is under Americans’ expectations and could let companies prefer to produce in Central America better than in the US.

During the agreement voting process there was a clash in House of Representatives and in Congress with Democrats being against CAFTA-DR and Republicans in favor.

Democrats contest two points of the agreement: a lack of framework for labor legislation and the trade of low-cost generic medicine. They reply that both issues do not carry out American expectations regarding pharmacy industry and employment level.

With a considerable part of Republicans also against the agreement, the Bush administration negotiates with party members benefits for the states they represent to bargain domestic interests against international political intentions.
           
CAFTA-DR voting in House of Representatives

Party YES NO Abstention
Republicans 202 27 2
Democrats 15 187 0
Other 0 1 0
Total 217 215 2

Source: ___.stoptheftaa.org

The protests in the US and in countries like Nicaragua and Costa Rica may be an indication that free trade strategy is a way to project power and to promote regional cooperation. Especially when open market and economic cooperation are “common values” in contemporary international society.

Inside the North American government (House of Representatives and Senate) the agreement did not reach its potential as demonstrated by President Bush’s strategy – first with “fast track” for the negotiation of the agreement, and after with the concession of benefits to aligned members of the party.

The negotiation with Central America is quite easy because of the US influence in the region, even before CAFTA-DR. The biggest challenge that the North American government will face is in South America, where there is resistance from countries like Venezuela and Brazil and political instability in both Colombia and Mercosul. Although it is just a free trade agreement between the members and did not reach its full potential and expectations, it is one of the most important issues in Brazilian foreign policy agenda.

At the same time American approach to Paraguay has un-stabilized an already fragile Mercosul. Paraguay’s president affirmed that the country is not stuck only to Mercosul and Paraguayan vice-president announced the possibility of negotiations between Paraguay and the United States on a free trade agreement.

Following this strategy, the United States starts to put in practice the last step to FTAA, and make this through its large influence with the weak countries (Caribbean, Paraguay). The remaining point is how Brazil is going to deal with this American strategy and then be able to take further its influence in South America.

Rodrigo Cintra and Mariana Ricci

Brazil

This article is part of a partnership between Newropeans Magazine (Europe) and Revista Autor (Brazil) devoted to build a mutual comprehension of each region’s realities. The main task in this partnership is to promote and contrast perceptions of and from Europe and Latin America.


Publicado originalmente em:
Newropeans Magazine

Trancontinental

Friday, 07 October 2005

 

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