Term Paper on "Cafta the Central America Free Trade Agreement"

Term Paper 8 pages (2671 words) Sources: 1+

[EXCERPT] . . . .

CAFTA

The Central America Free Trade Agreement was a free trade agreement made between the United States of America and Costa Rica, Guatemala, Nicaragua, Honduras, El Salvador and the Dominican Republic. It was the first agreement of this type to take place between the U.S.A. And countries under development. Agreements are made in order to allow countries to work together for the achievement of a common purpose. This particular agreement, focused on trade had the purpose to support the development of the markets in central America. Opening new markets for the U.S.A. while enhancing the economical development of its partners was supposed to be the final result of the agreement. However, things turned out quite differently.

First and foremost it must be stated that the agreement was characterised by huge differences between the partners. On the one side was the strong and developed USA and on the other side were all the countries from central America, all of them in need of desperate economical help. The agreement was designed as a development program for both parties, but reality showed a different perspective.

The USA was meant to benefit from the opening of new markets. However, these markets were represented by the agricultural areas of dairy, beef, soybeans, pork and also rice. Economic reports have shown that there was no real need for expanding the market in these particular fields. Even more, taking into consideration the poverty level in the partner countries, they could have hardly represented an efficacious solution.

The benefit for the United States of America came under the form of expended investment and increased export oriented production. The contemporary mechanisms supporting the development of businesses in various areas force manufacturers to cut costs in order to maintain their profits or make them bigger. One of the means of reducing costs is using cheap manual labour. This is to be found in poor countries such as the ones who signed the CAFTA agreement. The companies which decided to place their investments in these countries were offered explicit protection against discriminating actions or expropriating actions. One of the aspects that needs to be mentioned under these circumstances refers to the fact that the conditions for the workers in the central America became worse than before.

Another purpose that the U.S.A. was supposed to achieve through the agreement refers to the support of the factories which are export oriented. These huge corporations working at trans-national level would have been offered the possibility to produce consumer goods at low costs and then sell them on other markets for prices which would have highly increased their profits.

The situation in the central American countries was different than the one in the U.S.A. And the purposes for adhering to the agreement varied as well. It must be mentioned that the main characteristic of the countries under discussion is the high level of poverty. The enforcement of labour is weak, there is little attention paid to the environmental laws as well. There are big problems regarding the access of the population to food, education and health care programs.

CAFTA was supposed to allow the creation of new jobs, therefore favouring an entrance of capital which would have helped the development of the economy. The main jobs that were supposed to be created turned out to be just as bad if not worse as the already existing one sin terms of input and output. People had to work just as hard if not harder without having the chance to earn enough in order to invest in better education for their children, housing and better health care. Not only did the agreement not contribute to the improvement of the life level in the central American countries, but it did not even manage to bring about a temporary improvement of the economic situation.

Trade has always taken place between the U.S. And Central America and the numbers were as big as 13, 4 billion dollars on an annual basis. Almost half of the exports from central America have the U.S.A. As their destination. The asymmetries between the partners have been and are huge. For example, the income per capita is nineteen times smaller than the one in the U.S.A. Agriculture plays a fundamental role in Central America, while its contribution to the U.S.A. GDP is of only 2%. Under these circumstances it is worth mentioning the fact that the U.S.A. is the main destination for the Central Americans who wish to emigrate. Creating more jobs in their own countries could have meant a reduction of the annual incoming flow of persons to the U.S.A.

The negotiations managed to have a successful outcome in 80% of the goods and services industries. The following areas were more problematic: agriculture, textiles, labour rules, environmental laws. The U.S. negotiating strategy ended up imposing a number of ultimatums which divided the Central American countries. This worked only to the benefit of the U.S.A. which managed to get the maximum of advantages in this manner.

This is an aspect of extreme importance for the current analysis of the ACFTA agreement. The Central Americans ended up signing bilateral agreements with the U.S.A. instead of fighting as a single unit. It is true that their economic and social levels did not have an identical development level, but it is also true that in the end all of tehm settled for agreements which did nothing but threaten their long-term development.

Labour rights was one of the fundamental issues under discussion within the agreement negotiations. The U.S.A. was supposed to enhance the compliance with the main labour standards established by the International Labour Organization through the use of various incentives. Improved laws and a connection between labour policies and trade were supposed to take place.

The existing practices were supposed to be improved through inspections and the solving of long-term violations of the laws. While this sounded promising on paper, reality showed that there were no real efforts made in order to align the improvement and the development of the labour practices and the increased access to various markets.

The most important area of negotiation for the countries in Central America was represented by agriculture. It must be underlined that the U.S.A. exports twice as much as it imports from the region. The trade deficit is worth almost a billion dollars. It is also worth mentioning that the frail economies, the lack of investments as well as the prior USA policies in the area have devastated the condition of agriculture in the area.

The USA policy consists in dumping the subsidized agricultural exports in Central American countries. This represents an important threat for all the small producers. In fact, the Central Americans asked for a significant increase in terms of market access in the following areas: fruit and vegetables, beef, sugar, poultry. The fact that the unity of the Central American side collapsed resulted into the countries signing bilateral agreements through which they succeeded to achieve an access market of little significance. Not only did the Central Americans achieve little of what they had initially asked for, but they also lost various advantages they benefited from thanks to previous treaties, such as the Caribbean Basin Trade Protection Act (CBTPA).

Sugar was considered to be a sector where the Central American counties gained most advantages. The newly gained market access represented just 4,4% of the already existing quota. Under these circumstances regarding production in the region, it is obvious that the number of jobs which will be generated in the future can not be big enough in order to make a significant difference. All the producers from the areas which were and are considered to be sensitive from an economic point-of-view felt threatened by the final agreement terms as they could not depend on any type of assistance and this, under the circumstances in which the U.S.A. would continue to dump surplus grains in the region.

A third point in the agreement consisted in the textiles area and the rules of origin. Textiles represent the industry with the fastest growing pace within the trade process between the U.S.A. And Central America. Under thee circumstances it is possible to state that this is the most promising sector and also the only one where added value can be obtained on a long-term basis.

However, there is an important threat coming from the part of the Asian industry. The sector needs to face this threat and it can do so through various levels of trade preferences when it comes to Asian inputs. Nicaragua was the only country which managed to obtain some of the advantages it had requested at the beginning of the negotiations.

An aspect of extreme importance within the signing of the agreement is represented by the trade capacity building assistance.

When the negotiations started, this was one of the most important points that the political leaders insisted upon. At the end of the negotiations almost everybody failed to underline the fact that the TCBA quota increased within insignificant parameters.… READ MORE

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