An Overview of the Central American Free Trade Agreement
Visión General del CAFTA

By Rachel Dickson

The Central American Free Trade Agreement will open markets between the U.S., Guatemala, El Salvador, Honduras, Costa Rica, Nicaragua, and the Dominican Republic.

The U.S. Congress approved the treaty July 27, 2005 and three countries from Central America have ratified the treaty, including Guatemala, which ratified CAFTA on March 10 of this year with a vote of 126 to 12. The treaty will go into effect January of 2006.
Under CAFTA, taxes and tariffs which impede trade of food, as well as other various manufactured products, will be lowered or repealed altogether. The purpose is to raise trade between the countries, and, in the long run, the productivity and income of each country.
Already 80 percent of Central American exports enter the U.S. duty-free. By making 80 percent of U.S. exports to Central America duty-free as well, CAFTA will open the Central American market for products from U.S. companies. CAFTA could raise U.S. agricultural exports by $1.5 billion each year. Yet if this occurs, what will happen to the small farmers from Central America that can't compete? 60 percent of Guatemalan workers depend on agriculture for their livelihoods.
The real problem with CAFTA stems from the fact that the gross national product combined of Central America is only .5 percent of the gross national product of the U.S. To put this in perspective, in just five days the U.S. what Honduras, El Salvador, Costa Rica, Nicaragua, and Guatemala combined can produce in a year. A trade agreement between countries with this much economic disparity can only lead to more inequality.
Already a lot of trade liberalization has occurred in Central America, and it doesn't appear that development has followed. Central America's export rate grew rapidly in the nineties but import rates grew even faster, leaving Central America in debt. The total factor productivity growth of Guatemala between 1991 and 2000 was -.5 percent; the productivity actually fell. In the World Economic Forum's Growth Competitiveness Index, Guatemala ranks 90 out of 102 countries.
CAFTA will harm the U.S. as well. International companies will be inclined to move employment opportunities to Central America where minimum wage is low and labor laws are weak. Many U.S. workers will lose their jobs along with the small farmers of Central America.
The fact, that CAFTA lacks strong labor regulations, one of the main points of concern for opponents of the trade agreement. CAFTA does not mandate that companies conform to international labor standards, only that they follow the existing laws of their own countries, yet none of the countries that are part of CAFTA meet these standards, let alone enforce these standards.
Many groups have protested the treaty, including labor unions, development organizations, farmers, indigenous groups, and religious groups, and the opposition still appears to be growing. More and more citizens from both countries are realizing that only big international companies will come out on top. CAFTA may lower the prices of foodstuffs and other products, but it will also lower employment rates, wages and the rights of workers.