U.S. makes push for free-trade in Central America

Knight Ridder News

WASHINGTON - Tiny Central America may soon benefit from an outsized eagerness in Washington to energize the march toward a free-trade area stretching from Alaska to Argentina.

This week, the Bush administration will launch formal talks with five Central American nations to strip away trade barriers. The goal: reach a free-trade accord by the end of the year.

The five Central American nations have tiny economies. But taken together, the region's 36 million people buy and sell nearly $20 billion worth of goods and services a year with the United States, even amid grinding poverty in corners of the isthmus.

"We buy half of what China buys from the United States," said El Salvador's economy minister, Miguel Lacayo, during a recent trip to Washington, referring to the region's purchasing power. "We buy more than what Chile, Colombia and Peru combined buy from the States. So we certainly are a significant trading partner."

Trade between Central America and the United States has nearly doubled in the past seven years, and any further increase would bring new jobs to South Florida, a conduit for a significant portion of exports and imports.

Washington's efforts toward hemispheric trade liberalization have stumbled in recent years. Economic collapse in Argentina and a leftward political tilt elsewhere in South America, most notably Brazil, have dimmed prospects further. A skeptic of free trade, Luiz Inacio Lula da Silva, took office Wednesday as leader of Brazil, the regional economic powerhouse.

The Bush administration - seeking to build on the 1994 agreement that united Canada, Mexico and the United States in a powerful North American trade bloc - hopes to invigorate the march toward a Free Trade Area of the Americas (FTAA), and it has had some recent successes.

On Dec. 11, the Bush administration wrapped up a free-trade agreement with Chile, the first with any South American nation. Congress is expected to approve the accord in coming months. Adopting a piecemeal approach, administration officials believe a less ambitious free-trade accord with Central America may give vigor to the FTAA talks.

"The administration is saying, 'Look, the FTAA is a lugubrious process, and we want to show some quick progress with Central America,' " said Jerry Haar, a trade expert at the North-South Center of the University of Miami.

Global terrorism has also stirred the Bush administration to push harder for free-trade agreements, believing they will bring greater prosperity and stability to a troubled region.

Whether a free-trade agreement would be an overall boon to Central America is still under debate. Some experts believe the value of free-trade agreements is oversold.

Huge disparities mark Central America. In prosperous Costa Rica, per capita production of citizens is $3,960 a year, while in neighboring Nicaragua, it is $420 per year, the World Bank says. The other countries in the free-trade talks are Honduras, El Salvador and Guatemala.

Leftist opponents say a Central America trade accord would weaken unions, lower wages, foster sweatshops and generally enrich those who already have money.

Others suggest that it will boost overall economic performance of the region, but that the five nations will benefit to different degrees and income disparities may grow.

"At the end of the day, the rich will get rich faster than the poor," said Gary C. Hufbauer, a senior fellow at the Institute for International Economics, a Washington think tank.

Several of the Central American nations lack mechanisms of modern economies, and cling to rigid labor laws, inefficient judiciaries or state ownership of key areas that may inhibit investment even with a free-trade accord, U.S. experts said. "Costa Rica and El Salvador are very entrepreneurial. They probably have a business community ready to exploit it," said Ricardo Hausmann, an economics professor at Harvard University. Disparities between the five nations should not block an accord, proponents say.

After the trade negotiations kick off on Thursday in Washington, they will resume in the last week of January in San Jose, Costa Rica. Nine meetings have been scheduled for the year.

"They are not incompatible. Costa Rica will move into the higher echelon or higher niches, while Nicaragua will be more linked to the lower end of manufacturing," said Alfredo Milian, executive coordinator of the Central American and Caribbean Textile and Apparel Council.

One of the obstacles to reaching an agreement is "great concern" within the Bush administration over corruption in Guatemala, the most populous nation in Central America.

At a congressional hearing Oct. 10, State Department officials said "high-level officials" in President Alfonso Portillo's government in Guatemala maintain close links with drug trafficking and organized crime syndicates.