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Central American pact pushed: Trade negotiations resuming this week

By Bradley Meacham
Seattle Times business reporter

	RODRIGO ABD / AP Susana Cou, Maria Chijui and Hermelinda Lirajau work in a field in Santiago Sacatepequez, near Guatemala City. Central American negotiators are meeting with U.S. authorities this week in Houston to discuss the Central American Free Trade Agreement.
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SAN SALVADOR, El Salvador — A gleaming four-lane highway leads from the modern airport here, past scores of new factories that offer jobs for thousands of workers.

Most were set up by foreign companies lured by low taxes, streamlined regulations and other Salvadoran government policies designed to make it easier to do business.

The country's economy has grown every year since the end of war more than a decade ago, far outpacing its neighbors.

"There's more business and traffic every year so I came back," said a taxi driver who returned to San Salvador after six years in Seattle. "There are more jobs."

That robust growth could be extended here and replicated across Central America under a trade agreement between the United States and five Central American countries being negotiated this week in Houston, backers say.

Central American trade partners Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica Total population: 34 million Total GDP: $59 billion Annual per capita income: range from $370 in Nicaragua to $4,060 in Costa Rica Adult literacy rate: range from 64% in Nicaragua to 95% in Costa Rica U.S. imports: $11.8 billion in textiles, fruits and vegetables, coffee U.S. exports: $8.8 billion in machinery, chemicals, crops Source: World Bank, U.S. Department of Commerce, United Nations

Known as the Central American Free Trade Agreement (CAFTA), the pact would lower tariff barriers, a move supporters say would encourage investment and jobs in El Salvador, Guatemala, Honduras, Nicaragua and Costa Rica, potentially giving them the same boost Mexico enjoyed from the North American Free Trade Agreement in the 1990s.

"A free-trade agreement would be a huge push for development," said Mauricio Interiano, Microsoft's top executive in El Salvador, who oversees much of Central America, where the company employs about 90.

"Right now these countries are so small it's difficult for (local) companies to really specialize," he said. "That's a requirement to grow."

The talks come at a crucial moment. Stagnation and unrest are threatening governments across Latin America, including many that back free trade and support the United States.

Last week, Bolivian President Gonzalo Sánchez de Lozada resigned after protests at plans to sell that nation's natural gas to the United States and Mexico.

Observers also worry an increase in joblessness in the region could touch off a new wave of immigration northward and that the drug trade could flourish in an economic vacuum.

The Bush administration has made CAFTA a top priority and said it wants to complete negotiations by the end of the year as a stepping stone to a free-trade zone throughout the Americas.

Agreement with Central America is especially vital after talks to create a global trade agreement through the World Trade Organization collapsed last month in Cancún, when developing countries balked at some of the terms.

Trade ties between the United States and Central America have grown 50 percent since 1996, according to the U.S. Commerce Department. Two-way trade totaled $20 billion last year, including U.S. shipments to the region of about $10 billion, the same as the U.S. exports to Russia, Indonesia and India combined.

Still, the treaty, which is being debated behind closed doors, has flaws — and plenty of opposition.

Opponents argue that Central America is too poor to benefit from liberalized trade with the United States.

Per capita income in Nicaragua, for example, is about $400, one-tenth the level of Mexico when NAFTA took effect in 1994, and education levels are lower, according to the World Bank.

"The starting point is a sobering reminder that the Central American countries have extremely limited capacity to adjust to the dislocations that always follow economic opening," Sandra Polaski, a trade expert at the Carnegie Endowment for International Peace, a foreign affairs group in Washington D.C., wrote in a recent report.

The proposed treaty would cut tariffs for manufactured goods and crops, and protect intellectual property rights — key to U.S. companies — but wouldn't address subsidies that give U.S. farmers an advantage over Central Americans.

Subsidies aren't on the table because any cut in support to U.S. producers would give Europeans an advantage, said Rich Mills, a spokesman for the Office of the U.S. Trade Representative.

Such imbalances have drawn fire in recent weeks from farmworkers in Honduras and labor unions in Costa Rica, who oppose privatization of the country's utilities, which would be open to investment and potential job losses.

And even in El Salvador support for the treaty isn't universal. Though the economy has grown and cities are dotted with construction projects, wealth is lopsided.

The country adopted the U.S. dollar as its currency in 2001, gaining stability amid blows from massive earthquakes, hurricanes and the collapse of the country's key coffee industry. But while the proportion of Salvadorans in poverty has fallen, the total number has increased, according to the United Nations.

A treaty without provisions to protect workers and the environment would allow companies to shop around for the place where they could pay the lowest possible wages for workers in textiles, agriculture and other labor-intensive industries, critics say.

"Right now there are thousands of people working in sweatshops who can't even support their families — that's not helpful," said Dave Tatrow, an activist in Seattle with the Committee in Solidarity with the People of El Salvador, a group that supports the country's political opposition.

"There is a lot of concern that CAFTA will bring the same kind of miserable jobs and conditions that NAFTA brought to Mexico."

Proponents of NAFTA, however, contend that pact brought good jobs that are now moving to even lower priced labor markets in China and elsewhere.

Tatrow's group and other opponents want delegates from organized labor to be part of the treaty negotiations. Each country would still have to approve it, Mills said.

An agreement would stimulate trade and would benefit more people, he said, by creating an incentive for governments to strengthen property rights and make positive reforms.

The latest treaty "is seen as an extension of NAFTA, creating a bigger market that will only grow," said Susana Murillo, head of Latin American lending at U.S. Bank in Seattle.

"Mexico wasn't seen as being on a level playing field but it's come a long way. This could be similar. But it's clear that it will take some time."

Bradley Meacham: 206-515-5066 or bmeacham@seattletimes.com

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