Nicaragua
Central American-US Free Trade Agreement: Opportunity or Nightmare for Nicaragua?
The seventh round of negotiations for a free trade agreement between Central America and the United States is scheduled for September 15-19 in Managua.
Our reflections on textile investments and agriculture offer clues to Nicaragua’s future
once the treaty is signed.
Nitlápan-Envío team
Kenneth Hoadley, a professional with no leftist leanings, is the rector of the El Zamorano Pan-American Agricultural School, a prestigious agronomy and veterinary medicine center in Honduras with close ties to universities in the United States, Hoadley’s home country. In Managua at the end of August, Hoadley declared that Central America’s rural sector could experience “a nightmare” situation once the free trade agreement with the United States goes into affect. It cannot go uncommented that someone like him visualizes as a “nightmare” what Nicaraguan analysis are touting as our country’s “last opportunity to reinvent itself as a nation.”
CAFTA is a small step to a greater goalThe promoters of the Central American Free Trade Agreement (CAFTA) have presented it as the region’s great opportunity to climb successfully aboard the globalization process, linking itself commercially with the world’s largest market. This idea, which dominates the official propaganda on the agreement, raises a logic question: why would the enormous US economy be interested in a free trade agreement with the small and marginal Central American one?
The reasons are more political than economic. One of the essential ones is that CAFTA is a tactical need for a strategic project—the Free Trade Area of the Americas (FTAA). Through the FTAA, the United States plans to turn the continent into a single market of 800 million consumers under the hegemony of its own corporations so they can compete with the European and Asian blocs under better conditions. While the United States has built a militarily unipolar world in which it reigns omnipotent, it has been unable to bring the multipolar economic and trade fields to their knees. Making bilateral and regional agreements is the chosen way to move toward that strategic objective.
An investment agreement more than a trade agreementBut why does the pro-CAFTA propaganda claim that this is Nicaragua’s last chance to reinvent itself as a country, and by extension the last chance for the rest of Central America? The answer is both historic and elitist. With the region’s recent civil wars at an end, the combination of copious multilateral financing, structural adjustment programs and opening the country’s markets to more liberal trade relations has failed to rearticulate the region’s productive capacity.
In the seventies, Central America had an elite economy dominated by an agroexport sector that had achieved greater industrialization than any other sector. The wars totally disarticulated that model, not only in Nicaragua and El Salvador, but in the rest of Central America as well. Even given the peace of the nineties, the elite was unable to put together a new productive axis of accumulation for the region. The trick word in that sentence is productive, because there has been no problem of accumulation per se. Banks, trade and services filled the breach, controlling a new form of accumulation based on the administration of family remittances and foreign aid funds.
CAFTA expresses the fact that the Central American elite has washed its hands of reactivating the productive sector; it is evidence that the decision has been made to turn this mission over to foreign investment. By ceding the responsibility for patching up or transforming the productive sector to foreign capital, the elite is admitting that it is powerless to fulfill the task itself. CAFTA, then, is an investment agreement more than a trade agreement. It is fundamentally about establishing permanent rules that provide stability and guarantees not just to trade in general but most importantly to transnational investment; hence the US insistence on a regional treaty. Divided into the individual markets of its five little countries, Central America would hardly be attractive; in fact, any transnational investor would find it virtually ridiculous.
Plan Puebla Panama, which is aimed at modernizing the region’s infrastructure from north to south and coast to coast, is closely linked to CAFTA as an investment agreement. A better and more modern system of highways, ports, airports and electronic communications will provide better facilities for foreign investors. The idea is to transform the entire regional infrastructure into an import-export platform. The isthmus that links North and South America will now be a superhighway instead of a footpath.
Maquilas: a very precarious modelSince the nineties we have been observing the trend that CAFTA is designed to consolidate: the recomposition of the productive apparatus through the advance of the maquilas. For years now, free trade zones consisting of assembly plants that import inputs to assemble apparel and other goods for re-export—all tax free—have been the productive motor moving the Central American economies, to the degree that they move at all. This new model is dominating the region, even in Costa Rica, where it started early, while the other countries were embroiled in war, and is therefore more developed. The INTEL investment in Costa Rica is permitting the consolidation of a new, more sophisticated type of maquila, whose production already represents an important part of the country’s gross domestic product.
But it is a very precarious model to adopt, as the Mexican case is demonstrating. Some years ago, Mexico experienced massive maquila investments, especially along its border with the United States. With the signing of the North American Free Trade Agreement (NAFTA) this model grew considerably, making Mexico the country with the largest number of maquiladoras in the world. While Mexicans once considered these installations a net gain of the treaty, they are now discovering that it was an ephemeral windfall, since the textile market will be totally liberalized as of 2005 in the framework of the World Trade Organization (WTO) agreements, and the textile quotas that now favor Mexico will disappear. At that point, China will enter the world textile export market with its own maquilas paying Chinese woman in Huangdon province an hourly wage far below that of even a Mexican woman in Ciudad Juárez or Tijuana. Stagnation is already being felt in Mexico’s textile maquilas and many plants are even closing. Nonetheless, the free trade agreements are welcomed with typical shortsightedness in our region. While China expects to benefit from the WTO textile agreements, it has already begun training workers in a more long-term investment strategy that will allow it to head the next maquila wave, in electronics, for example. Mexico, in contrast, has done nothing of the kind.
Selling out agricultureOn what analysis did Nicaragua’s negotiators base their strategy for the CAFTA talks that got underway at the end of last year? They argue that Nicaragua’s economy in the sixties and seventies was successful, with an export sector that grew annually such that in 1978, Nicaragua exported the same amount in US dollars as it does today, 25 years later. They believe there was a business elite here in those years that had the knowledge, contacts and know-how to manage that export sector, identify new opportunities in the world and take advantage of them. They show how all of that collapsed in the eighties and acknowledge that nothing could be recovered in the nineties despite the trade opening, structural adjustment and billions of dollars in foreign aid. Concluding that today’s Nicaragua lacks the human business capital that once injected dynamism in the national economy, they see no choice but to accept that the dynamism has to come from outside.
Their analysis also features the conviction that Nicaragua’s agricultural sector has no future and that this sector will never again provide the country’s true comparative advantages in the world market because it is the most backward in the region and has the lowest productivity rates. They are convinced that the country’s transformation requires the agricultural labor force to either join the maquila sector or work in very specific agroexport sectors, or simply remain bogged down, forgotten, in subsistence agriculture. That, in essence, is our negotiation team’s vision.
In the negotiations, the United States has been very flexible on the subject of the textile maquilas, but quite firm on the agricultural issue, in which the only thing it has ceded to Central America—unlike Mexico—is a more gradual elimination of duty barriers than it would have preferred. It is this inflexibility around agriculture that presages Hoadley’s “nightmare”; it has to do with the mold the United States used in the free trade agreement with Mexico and now wants to impose on Mexico’s neighbors to the south, with a few new touches.
The white maize crisis is the greatest nightmare This inflexibility inevitably gives rise to another logic question: Why, for example, won’t the United States let white maize, the ancestral basis of the Central American popular diet, be excluded from the trade agreement so that the five million who grow it won’t be even more affected than they are today? The region’s Presidents originally hoped that the United States, aware of the asymmetries and huge differences in development levels between it and their countries, would treat us like a “generous father.” But that hope has been dashed. We now know that the United States has no intention of taking our region’s development level into consideration.
The fate of the peasant producers of white maize is the most sensitive and imminent CAFTA issue, socially speaking. What has already happened in Mexico provides a pointer for what could happen here, which would be the most somber episode of the nightmare.
As most Mexican peasants grow maize for their own diet, it was believed and publicly argued in Mexico that opening that country’s market to US corn imports wouldn’t affect them; they would still find it cheaper to plant their own subsistence plot than buy US corn in a distant market, where intermediaries always hike the prices. Eight years after the corn market was opened up in Mexico, reality demonstrated the fallacy of such an idea, which could only have been conceived in some urban office.
Anyone working in rural areas knows that when the child of a subsistence maize grower gets sick, the family sells the sacks of grain stashed away for later eating or replanting to buy the appropiate medicines. The massive US corn imports for consumption in Mexico’s cities not only lowered the price of locally produced maize, they also prevented peasants from selling their surplus at a decent price in moments of need. The free trade agreement shattered the peasant logic with the net result that rural income has fallen even further, giving rise to greater rural poverty and an accompanying crisis all over Mexico’s countryside. Mexicans would now like to roll back the agreement, but it’s too late. The only apparent “solution” is to subsidize agriculture, but these subsidies would come out of the country’s budget and are implacably opposed by the international lending agencies that control the world’s economies, Mexico’s included.
The sauce for the goose is off limits for the ganderThis implacability to government subsidies does not extend to the highly subsidized US agricultural sector. In fact, Bush has signed a farm bill that increased subsidies to US farmers to their highest point in the country’s history. While agriculture represents barely 2-3% of US economic activity, it is politically very important. In the last presidential elections, a long-standing trend was accentuated even more: Democrats won the urban centers of both the east and west seaboards, taking New York and California with huge majorities, but lost the country’s farm belt in the central and southern part of the country. The fact that the Republican base is in the most rural states would explain Bush’s enormous subsidy hike. But it is not simply a numerical equation based on voters; it also has to do with the powerful US agroexport lobby. Monsanto Corporation is a major contributor to Republican campaigns and the very strong US sugar lobby has financed the reelection campaigns of many Republican senators and representatives.
The subsidies received by US farmers are based on production levels: the more they produce the greater the subsidy. With the high production levels achieved with modern technology, food production in the United States is rising faster than demand. The immense surpluses have to be exported, the reverse of what is happening in Nicaragua, which has an enormous unmet demand for food and a population that would and should eat much more than it does now given greater purchasing power.
The United States plans to use the FTAA to control the Latin American market as an outlet for its agricultural surplus. It is already the largest importer of US cereals, grains and dairy products, with Japan second and the European Union third. In 1990, Mexico received 6.5% of US food exports, a figure that had almost doubled to 11.7% by 1999 as an obvious effect of the free trade agreement.
How the white maize crisis would play out in NicaraguaThe following figures from a World Bank study on Nicaraguan agriculture give us an idea of what the nightmare could entail. Of Nicaragua’s 200,000 farms, a full 70% (140,000) produce white maize, but only 32% of these farms have over 7 hectares. Thus despite the enormous social importance of maize cultivation, its economic weight is quite small in relative terms because of its low production volume to land volume ratio and because of the low prices fetched by the crop.
Looking at relative prices, it costs US$5.13 to bring a hundredweight of corn as far as the Nicaraguan customs office while the same amount of locally produced maize costs $5.59. This is an enormous disadvantage. Nicaragua isn’t in such bad shape with other national export products such as peanuts and sesame, or with its bean production, and there is a huge demand for black beans in the Salvadoran and Mexican markets. But no one can guarantee that the United States won’t turn its state of the art technology to growing highly productive varieties of red and black beans to export to Central America once the tariff barriers are down, wiping out our advantage.
Carlos Sequeira, Nicaragua’s chief negotiator in the CAFTA talks, has said that they will ask the United States for over a billion dollars as indemnification to protect Nicaragua’s rural producers from the negative effects of CAFTA, which will supposedly be invested in helping them learn new technologies, switch to other crops, diversify production and plug in to new markets. While it’s a nice thought, we have seen an enormous amount of international aid coming in to strengthen national agriculture over the past 13 years with notably poor results, and the same could be said for the rest of Central America. The fact is that the government has virtually no effective institutional structures for supporting peasant agriculture, and without adequate institutionality, all the gold in the world would go for naught. If radical changes are not made in the institutionality supporting Nicaragua’s agricultural sector, not even subsistence farmers will survive once the free trade agreement goes into effect.
The nightmare won’t be experienced just at homeSome US university research studies have calculated that roughly 500,000 Mexican farmers will migrate to the nation’s cities or the Unites States due to the rural crisis triggered by the free trade agreement. We could tentatively estimate that even more will suffer from the CAFTA-provoked nightmare in Nicaragua. If 140,000 families are growing white maize on that many farms and we calculate six people as the average Nicaraguan farm family, we are talking about no fewer than a million people—a full fifth of the country’s population of five million-plus. The worst part is that these potentially ruined growers have no representation or advocates in the government, the political parties or even the business associations.
This nightmare is not a fanciful hypothesis. It may begin with the rural crisis of thousands of white maize producers, but from there it will express itself in more rural-to-urban migration, multiplying the problems of marginalization and insecurity in the cities, inundating the informal sector and creating an even greater feminization of employment in the textile maquilas. And of course, the torrent of migrants to Costa Rica and the United States will continue unabated. In short, it will be more of the same, but on a more massive and destructive scale. Another chapter in the chronicle of a bad dream foretold.
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