Thursday, March 04, 2010

CAFTA's 5 year anniversary

The Central American Free Trade Agreement (CAFTA) turns 5 this month. An article from the Latin Business Chronicle looks at the benefits of the treaty from a business standpoint:

Over its first few years, U.S. companies reaped significant benefits. Between 2005 and 2008, U.S. exports to the region increased by around 48 percent to reach $24.3 billion, while U.S. imports from the region increased by 10 percent to $14.4 billion. Inward foreign direct investment as a percentage of region’s GDP rose from 3.4 percent in 2005 to almost 5 percent in 2008, and higher remittance inflows and tourism from the United States helped lift per capita income. “Before the recession, the countries of the region all increased their exports by double-digit rates,” says David Lewis, vice-president of Manchester Trade, a Washington, D.C., trade consultancy. “They were very aggressive about taking advantage of new opportunities in agri-industry, agricultural products, and textiles. [CAFTA] was a shot in the arm for them.” For example, El Salvador increased its exports of agricultural products to distribution networks in the U.S. Hispanic market, to little fanfare in the U.S.

More recently, the global economic downturn has taken a major toll on the region’s economic growth, foreign direct investment and trade volumes. In 2009, all five Central American members of CAFTA – Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua – suffered declining GDP. The biggest loser was Honduras (minus 4.4 percent), hit hard not just by declining demand for its apparel exports but by the disruption in the uncertainties that emerged last summer when left-leaning President Manuel Zelaya was arrested by the Honduran military, acting on an arrest order issued by the Honduran Supreme Court. (The democratic election of Porfirio Lobo Sosa as president of Honduras last November has since restored stability to trade with Honduras.)(more)

Measuring the impact of a complex treaty like CAFTA is exceedingly difficult. How much would growth have been without the treaty? How is the income generated from trade distributed in the country? How do we measure the impact of new lawsuits permitted by CAFTA like the claims by Pacific Rim over gold-mining? There are winners and losers under CAFTA - even after 5 years no one can honestly say how the costs and benefits were distributed across Salvadoran society.

1 comment:

Joshua M Walters said...

I am reminded of the story a woman told me back in January:

When CAFTA was being proposed, she was told that she could sell her pupusas to a wider market. This was a wonderful prospect.

Unfortunately, in the fine print of CAFTA were many FDA regulations that are impossible to meet by the average Salvadoran.

Thus, the N. Americans benefit while the C. Americans struggle to get in the game.