PRIVATE SECTOR MOBILISES

The Greater Caribbean This Week

Norman Girvan

Moved to action by the start of discussions for a US-Central American Free Trade Area (FTA), Central American businessmen, like their CARICOM counterparts, have been mobilizing to ensure they make an input into trade negotiations.

A Central American Business Council was launched in El Salvador on February 26, grouping the national private sector organizations of the five Central American countries, Panama and the Dominican Republic. The business leaders also adopted a declaration on principles for the US-Central American FTA. The American Chambers of Commerce (AMCHAM) of Central America have also met with several Presidents to offer their help in the negotiations.

In recent weeks Central American Presidents and Trade and Economy Ministers have held several meetings in preparation for the March 24 U.S.-Central American summit, when the proposed FTA will be discussed.

For actual negotiations to begin, the U.S. Senate must follow the House in approving legislation to grant the Administration Trade Promotion Authority. However, the conditions so far attached to TPA could significantly reduce Central America’s benefits from exports of textiles and garments to the U.S.

This will be a factor in the negotiations and also has implications for the Free Trade Area of the Americas (FTAA).

Another question is how far Central America will negotiate en bloc. The sub-region’s own customs union is not due to come into effect until 2005; and some negotiators are suggesting that each country should draw up its “negative” list of sensitive products to be excluded from free trade.

They suggest a broad framework U.S.-Central American agreement complemented with country-level agreements that are bilaterally negotiated. At the moment, this approach does not find favour with the U.S. 

A third issue is the degree of asymmetry that the agreement will provide. Central American businessmen have declared that this principle should be integral to the FTA with the U.S., because of the tremendous difficulties they will have in competing with duty-free imports from the U.S., especially agricultural goods, which benefit from heavy U.S. subsidies.

The Trade and Foreign Ministers have gone on record insisting that elimination of such subsidies should be a condition of the FTA.

The question of asymmetry (non-reciprocity) is central to the principle of Special and Differential Treatment that is now being re-examined by the WTO.

Non-reciprocity is linked to a fourth issue: the fiscal impact of an FTA. Central American governments earn an average of 20 percent of their revenue from trade taxes and an average of 50 percent of imports come from the U.S. The potential revenue losses are significant. 

Besides special tariff provisions, Governments will need help in reforming their taxation systems to recuperate such revenue losses. Other Caribbean countries, particularly those of the OECS, face similar problems.

A fifth issue in the negotiations is the role of financial assistance. U.S. negotiators are insisting that the agreement will be limited to trade. Central American sources, however, point to the existence of the Alliance for Sustainable Development in Central America.

Some would want to see expanded U.S. funding for the Alliance included as part of a comprehensive trade-and-aid package for the sub-region. Precedents exist in the EU-ACP accords and to some extent in the Plan-Puebla-Panama between Mexico and Central America.