The Braziliansit Magazine - Clipping Desk - How Free Trade Will Alter a Hemisphere

Send your opinion about this article to: editor@brazilianist.com

Bush administration has recently opened negotiations to create a free-trade agreement similar to Nafta with five Central American countries, a large step in the administration's plans for a free-trade zone throughout the Western Hemisphere. An agreement with those countries — El Salvador, Costa Rica, Guatemala, Honduras and Nicaragua — could be completed within a year and cause a rush of American investment to Central America, which only a few years ago was still reeling from effects of protracted civil wars. Peter Hakim, the president of Inter-American Dialogue, a research group in Washington, spoke last Thursday about an agreement's effects.

A. There are two sorts of winners. The first are investors who see new opportunities in Central America: Intel putting a factory in Costa Rica, for example. It opens up a whole new perspective for investors. They [these countries] seem to have a greater stability, a secure access to the United States, so U.S. companies looking to locate abroad, looking for the advantages of lower-cost labor, looking for a variety of other opportunities like being close to suppliers of raw materials, will benefit a good deal.

The second sort of winners are people who import the products that Central America produces. Central America exports a lot of textiles. The apparel industry in the United States could benefit a great deal.

Q. Just last month, the United States reached a free-trade accord with Chile. Why the expansion to Central America now?

A. The U.S. made a commitment to Chile back in 1994 at the Miami summit [where the United States and 32 Latin American countries pledged to create a free-trade area larger than Nafta by 2006]. The Chileans say the promise goes back to 1990. It was very hard to move on any other country before making good on that promise. Indeed, it would have been hard to move without Congress giving trade promotion authority [last summer]. Once negotiations began with Chile, it opened up the process for others.

Q. Why is the administration negotiating with the Central American countries before negotiating with Brazil, which dominates Latin American trade?

A. In some ways, we already have a longstanding trade relationship with Central America. We had a whole set of trade preferences — the Caribbean Basin Initiative — approved back in 1985 and 1986 to help those countries involved in those horrible wars.

When Mexico got Nafta, suddenly the preferences under the Caribbean Basin Initiative were worth less. It was followed by what was called Nafta parity so the Central American countries wouldn't fall behind. Around 1998 it passed as part of the African Trade Act.

The other reason is there are countries very well prepared to move forward, particularly El Salvador and Costa Rica. The fact is, these countries are really tied to the United States, economically, demographically. If one really wanted to talk about a North American Free Trade Agreement, in terms of flows of investment, people, trade, these countries look an awful lot like Mexico.

Q. Are trade-agreement critics justified in saying such agreements — Nafta, for example — have caused a net drain in American jobs?

A. When you look at the numbers, the numbers are just so small — the impact of a Nafta on the U.S. economy compared to technological changes, or the value of the U.S. dollar. Mexico's economy is about the size of Florida's. The impact that Mexico can have on the U.S. is very small. Now there are certain regions and factories that were impacted. The countries of Central America would have an even smaller impact. Finally, U.S. companies are always looking for countries to invest in with lower wages, cost of living. If it wasn't Mexico, it would be China. It's hard to avoid the fact.

A. Almost certainly, you'll have people moving out of less profitable into more profitable areas. I hope the governments will supply some kind of retraining and a safety net for those who are affected. If they don't, that's tragic. There's no question small farmers will be forced off the land. Mexico should have been preparing for this and they haven't, and that's wrong. Maybe the best way to break that cycle of poverty is that they do move off the land. There should have been more measures built into Nafta to cushion those impacts — enormous and unhappy effects for families and communities. But over all, countries that have opened up to trade have done better.