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Assessing CAFTA
Inter Press Service
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Free trade deal with US a menace to local producers, figures show.

Eight months after the Central American free trade treaty with the United States came into effect, small-scale producers and economists in El Salvador warn that it only benefits a few sectors of society, to the detriment of most national production and thousands of jobs.

The Free Trade Agreement between the United States and Central America and the Dominican Republic was hailed by the government of El Salvador as a panacea for the national economy.

President Antonio Saca and his administration argued that CAFTA was essential to boost faltering economic indicators. They said it would create 40,000 jobs at a stroke, and would attract foreign investment to this country which has the second worst investment rate in the region, ahead only of Guatemala.

But economist Raul Moreno argues that since the agreement went into effect on March 1, it has only benefited a group of big businesses, mainly importers, while it has damaged small farmers and consumers.

CAFTA "is the final blow to agriculture in El Salvador, and some types of farming, like rice production, are going to disappear by the time the treaty is one year old," leading to a loss of food sovereignty, Moreno said.

Miguel Alemán, a leader of the Confederation of Agrarian Reform Federations, says of his concern for the future of El Salvador’s rural areas. He stated that "CAFTA, as we predicted, means death for several sectors, for example some 400,000 producers of basic cereals who are being hit hard."

"Our cooperatives have cut back 20 percent of their employees," equivalent to more than 2,000 workers this year, he said.

Agriculture grew by 4.3 percent in 2005, the best result in the last six years, according to the Economic Commission for Latin America and the Caribbean, in the context of overall economic growth for El Salvador of only 2.8 percent, the lowest in Central America, which averaged around four percent that year.

Scarce jobs

The Central Reserve Bank reported a gross domestic product of US$17 billion (El Salvador adopted the US dollar as its official currency in 2001). Nearly 7 percent of the economically active population is unemployed and 35 percent is underemployed. More than half of the 7 million Salvadorans live in poverty.

The free trade agreement was signed in May 2004 and ratified in December of that year, with the votes of lawmakers from the governing right-wing Nationalist Republican Alliance, the National Conciliation and the Christian Democrat parties.

CAFTA is also in force in Nicaragua, Honduras and Guatemala. Meanwhile, the Dominican Republic has ratified but not yet implemented it, and the Costa Rican National Assembly has not yet approved it.

Ever since the negotiations for the trade pact began, the region’s governments have faced fierce opposition from social sectors convinced that Central American producers are not in a position to compete with products from the United States.

In El Salvador, ratification was pushed through while hundreds of opponents were demanding a national debate on the issue, and parliamentary leaders themselves admitted they were not familiar with the contents of the treaty, which they were not allowed to debate.

The risky move to the United States has become an attractive alternative for many.

"Many people are going off to the United States because of CAFTA’s impact, which has resulted in 133,000 hectares [328,510 acres] of land lying idle. We get no lines of credit and the cost of production is high," Alemán said. His agrarian confederation has 12,000 members organized in 131 cooperatives producing grains, cattle and coffee.

An estimated 700 Salvadorans, on average, leave the country seeking jobs every day. Most go to the United States and try to enter as undocumented migrants.

Official statistics indicate that some 2.5 million Salvadorans live abroad, including 2.3 million in the United States. The cash remittances they send regularly to their families prop up the country’s fragile economy.

Unequal footing

Moreno reiterated that one of the main factors in the trade imbalance with the United States is the huge government subsidies shelled out to farmers in that country.

"Added to that, US products now enter El Salvador tariff-free, making the situation even more complicated for our national producers," he added.

Local farmers with small plots of land receive no subsidies whatsoever, and lack both affordable lines of credit and technological support.

The massive influx of US goods demonstrates the competitive disadvantage under which small Salvadoran farmers must labor, and they feel their future to be most uncertain.

"Under CAFTA, US maize sells in El Salvador at $6.40, so who’s going to buy from us?" Alemán asked. "Last year I cultivated just under a hectare of maize for my family’s own consumption, but I’m not going to do that any more because it’s not cost-effective."

During its first year, CAFTA provides for up to 35,000 tons of white maize, 350,000 tons of yellow maize, 10 tons of milk and close to 65,000 tons of rice to be exported tariff-free from the US to El Salvador, among other products, most of which are already sold in the country.

Afterwards, these "quotas" will be increased by between one and 10 percent a year, for the 20 years’ duration of the agreement.

According to a study by Moreno, imports of white maize, sorghum and rice under the treaty will eliminate 92,471 jobs a month during the first year of CAFTA, and thereafter there would be further job losses of 1,557 a year, on average.

Latinamerica Press / Noticias Aliadas
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