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U.S.-Central American Trade Agreement High on Hemispheric Agenda

22 September 2003

Noriega says benefits of accord will be economic and political

The creation of the U.S.-Central American Free Trade Agreement (CAFTA) could yield considerable economic and political benefits -- not only for the region, but for the entire Western Hemisphere, says Assistant Secretary of State for Western Hemisphere Affairs Roger Noriega.

In September 16 remarks to the Institute of the Americas, Noriega said the negotiation of CAFTA "is one of the biggest items on the hemispheric agenda." He said the ongoing trade negotiations are significant not only because they are addressing sensitive subjects such as labor rights and agriculture rules, but also because the agreement holds great potential for the region.

"CAFTA is big also because of the huge potential benefits in both the economic and political spheres for the countries involved and for the hemisphere as a whole," Noriega said.

In view of CAFTA's importance, Noriega said, the Bush Administration has given the negotiations "high priority" and established an ambitious schedule for completing the trade agreement with the five participating Central American nations -- Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. He explained that the seventh round of CAFTA talks is currently under way in Nicaragua and that the final round will take place in Central America in December.

Noriega indicated that the Bush Administration anticipates negotiating the accession by the Dominican Republic to the CAFTA by early 2004, and the White House hopes to submit the complete agreement for congressional approval by mid-2004.

The assistant secretary of state said that the eventual CAFTA agreement will be "state-of-the-art" and will reflect the latest developments in international trade law. He cited the recently concluded U.S. trade agreements with Chile and Singapore as models for CAFTA. A significant additional element of the CAFTA, he said, will be trade capacity-building.

"We recognize that the Central American countries and the Dominican Republic need assistance -- far more than do Singapore and Chile -- to fulfill their new obligations under the CAFTA and to fully exploit the opportunities opened up by the agreement," Noriega said.

He said the ultimate goal of the CAFTA will be to open and integrate the seven member economies, but added that he expects the benefits will be broader.

"The potential impact of the agreement will likely go far beyond trade, giving a major impulse to economic development and political maturity," he said.

Noriega cited Mexico's experience with the North American Free Trade Agreement (NAFTA) as an example of the indirect, but important, role that trade can play in opening political systems.

Again citing NAFTA, Noriega concluded that free trade is a powerful tool for economic and political development, but he cautioned that agreements must be complemented by other appropriate policies. He said business must also adapt in order to succeed in a free-trade environment. Finally, he encouraged the private sector and regional governments to forge partnerships to address the "interlocking challenges of economic growth, political progress and social well-being."

Following is the text of Noriega's remarks, as prepared for delivery:

(begin text)

Remarks by Roger F. Noriega
Assistant Secretary of State for Western Hemisphere Affairs
To the Institute of the Americas Conference on CAFTA
September 16, 2003

I'm really glad to join you today electronically, even if my schedule made it impossible for me to join you in person to enjoy the beauty of La Jolla. The Institute has earned the respect of officials here in Washington, and indeed of informed people throughout the Hemisphere, for its work in helping the private sector promote economic and social development in Latin America. Under your leadership, Jeff, I know it will burnish its already distinguished record.

The theme of your conference today, the creation of the U.S.-Central American Free Trade Agreement (known as CAFTA) is one of the biggest items on the hemispheric agenda. As most of you know, we plan to negotiate such an agreement first with the five Central American countries (Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua) and subsequently (in early 2004) with the Dominican Republic.

I say that CAFTA is big not just because the challenges are big; the issues under negotiation touch some of the most sensitive nerves (like jobs, labor rights, sanitary rules in agriculture, textile tariffs and quotas, and on and on) in the domestic economic and political systems of all seven negotiating countries, including in the U.S. CAFTA is big also because of the huge potential benefits in both the economic and political spheres for the countries involved and for the Hemisphere as a whole.

The Importance of the Region to the U.S.

The countries participating in the CAFTA negotiations may not be large in terms of area, population or economic power, but they have strong ties with and strong impacts on the United States.

Look at trade, for example: For the first half of this year, our two-way trade in goods with the five countries of Central America amounted to almost $12 billion. That's more than our trade with Hong Kong or India, and twice what we trade with Russia. If we add the Dominican Republic to CAFTA, our trade in the first half of 2003 amounted to $16 billion, which is more than our trade with Singapore, and almost twice the amount of our trade with our top trade partners in East Europe (Russia, Hungary and Poland combined.)

Our people-to-people ties are also intense: for example, the 2000 Census counted two and a quarter million U.S. residents claiming Central American or Dominican origin. Census also estimates that Central Americans are the fastest growing group among the U.S. Hispanic population.

Last year, Central Americans and Dominicans in the U.S. remitted an astounding $7.7 billion to their home countries. Three countries of the region (Nicaragua, El Salvador and Honduras) depended on remittances for more than 10 percent of their GDP.

Finally, geography and history give Central America and the Dominican Republic key roles in our security. We share with these countries a common border on the Caribbean Sea, one of the most intensely trafficked bodies of water in the world. Regrettably, that includes not just legitimate commerce, but also much of the illegal drug trade. There is no question that promoting peace, prosperity and democracy in our Central American and Caribbean neighbors will contribute to stability and prosperity here in the United States.

This is the basis for President Bush's strong commitment to free trade with our neighbors as well as globally. I need not dwell with this audience on the well-proven record of trade as an impetus to investment, growth and jobs. Let me just emphasize that this is a lesson that many in the American public and throughout the hemisphere have not yet learned -- a lesson that all of us, whether in the private or public sector, who are concerned with expanding economic opportunities in the Americas, need to repeat persistently to our publics.

But there is an even broader argument in favor of free trade. Trade agreements consolidate into international law the market-based economic reforms that are the foundation of self-sustaining and job-creating growth. This makes it harder for governments to reverse such reforms, and helps establish the stable legal climate that attracts investment and encourages innovation. In promoting openness, competition and innovation, market-based economic systems also help promote social mobility and ultimately help strengthen democratic institutions.

The Status of the CAFTA Negotiations

For all these reasons, the Bush Administration has given the CAFTA negotiations high priority and has established a very ambitious schedule. We intend to complete the negotiations with the five Central American countries before the end of this year in a set of nine rounds. The seventh round is now underway in Managua, Nicaragua; the next two are scheduled for Houston and Washington, D.C.; and the final round will be held in Central America in mid-December. As I noted, we anticipate negotiating accession by the Dominican Republic to the CAFTA beginning early next year. By mid-year of 2004, we hope to send the complete agreement to the Congress for approval under fast-track procedures.

CAFTA's scope is also very ambitious. Seven negotiating groups are working on:

-- liberalizing market access in general (that's tariffs and non-tariff measures, and also customs procedures, standards and other related issues);

-- opening up the complicated textile and apparel sector;

-- liberalizing the rules on services and investment;

-- setting up dispute settlement procedures and institutions;

-- liberalizing regulations for government procurement and intellectual property;

-- protecting labor rights and the environment; and

-- building the capacity for trade.

I obviously can't enter into detail on the issues under negotiation. However, I can give you some broad hints as to CAFTA's content. The CAFTA agreement will definitely be "state-of-the-art," reflecting the latest developments in trade relations and international trade law. The two free-trade agreements that the U.S. recently signed with Singapore and Chile are a broad model of what CAFTA will be, although there will necessarily be adjustments to reflect the particular circumstances of the participating countries. And this agreement will be consistent with -- and we hope will push forward the moment for -- the broader trade-opening negotiations underway in the World Trade Organization and the Free Trade Area of the Americas.

One important new element in CAFTA will be trade capacity-building. We recognize that the Central American countries and the Dominican Republic need assistance -- far more than do Singapore and Chile -- to fulfill their new obligations under the CAFTA and to fully exploit the opportunities opened up by the Agreement. We have been working with these countries to develop comprehensive national strategies that identify and prioritize their specific needs for assistance. We are already providing a large amount of trade-related aid to these countries (an estimated $68 million to the five Central American countries in FY 2003) and will continue to do so over the next several years.

What It All Means

CAFTA's primary goal is to open the markets of its participants and ensure greater integration among the seven member economies. But as I noted before, the potential impact of the agreement will likely go far beyond trade, giving a major impulse to economic development and political maturity. I personally believe it would be foolish to try to predict the specific results of an agreement that is not yet negotiated and will be subject to many powerful and sometimes conflicting forces. However, I invite you to look at the history of the North American Free Trade Agreement among Canada, Mexico and the U.S. to get an idea of the general impact of free trade on developing economies. Here are a few facts:

-- Mexico's total trade with the U.S. has tripled since NAFTA (from $81 billion in 1993 to $242 billion in 2002), with Mexico maintaining a surplus. The rate of growth of Mexico's exports since NAFTA was nearly double the rate of the decade prior to NAFTA. Exports of manufactured products now account for nearly 90% of total exports.

-- NAFTA has benefited the Mexican rural and urban workforce by creating thousands of new, higher-paying export manufacturing jobs; those jobs are 37 percent higher-paying on average.

-- About 20 percent of Mexico's GDP is now attributable to NAFTA trade, and about 20 percent of Mexico's jobs are now generated by exports.

The overall judgment of informed observers is that free trade has generated broad growth in Mexico, and was a key factor in accelerating Mexico's recovery from its 1995 financial crisis. Sectors that adapted and adjusted, such as the automotive and electrical sectors, are competing extraordinarily well. Some other sectors, of course, have not adjusted and are falling behind. But the net impact has clearly been positive. Unfortunately, but perhaps inevitably, the public rhetoric in Mexico -- as in the U.S. -- has generally focused on the losers from free trade; many of the winners, such as most consumers, do not even realize how much they are benefiting. Finally, most informed observers agree that NAFTA played an indirect but important part in the opening of the political system in Mexico.

Looking at the experience of NAFTA, as well as other free trade agreements around the world, as a model for CAFTA, I would draw the following conclusions:

First, free trade is a powerful tool for economic and political development. But it is not a panacea, nor is there any iron-clad guarantee of benefits. To achieve their full potential, free trade agreements must be complemented by other appropriate economic policies, as well as sustained investments in health and education to build the human capital required for economic progress.

Second, free trade offers enormous opportunities to business, local and foreign; it also offers major challenges. To achieve sustained success in a free trade environment, business must accept the need for change, take a long-term view in its investment decisions, and be willing to work not only for its own economic interests but also for the general good of the nation and the region.

Finally, there is no substitute for partnership, because there is no alternative to interdependence. Partnerships must exist at several different levels -- between the government and the private sector in each country, and among governments and private sectors in the region as whole -- if we want to move quickly toward resolving the difficult and interlocking challenges of economic growth, political progress and social well-being.

(end text)

(Distributed by the Bureau of International Information Programs, U.S. Department of State. Web site: http://usinfo.state.gov)

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