CAFTA turns 10 (...almost)

This coming June marks the 10^th year since the ratification of CAFTA. Branching off John’s post, I decided to write about the Central American Free Trade Agreement and how it has affected Central America. The countries included in CAFTA are the Dominican Republic, Costa Rica, El Salvador, Guatemala, Nicaragua, and Honduras. CAFTA was first crafted as an expansion of NAFTA. This agreement set out to eliminate most of the tariffs and barriers to investment between the United States and Central America and also to enforce labor regulations within Central America.

Prior to the ratification of CAFTA there were many mixed views on the topic. Some individuals, primarily Bush supporters, liked the agreement because they believed it would help minimize the United States’ trade deficit and create jobs for those in Central America resulting in fewer immigrants moving to the United States. On the other hand, there were also many individuals who strongly disagreed with the agreement. These individuals were worried about a list of things including American jobs lost to cheaper labor in Central America and the increased volume of trade putting a larger burden on the region’s already “critical” environmental status. Ten years later and the effects of CAFTA seem to have caused more harm to the economies of Central America than good. (Here's a link discussing the main issues swirling around CAFTA before it was ratified.)

In the article I have linked in the title, Congresswoman Marcy Kaptur and Research Director for Public Citizen’s Global Trade Watch, Ben Beachy, discuss the effects of CAFTA. Ben starts the discussion by quoting a previous Representative, Tom Davis, who encouraged listeners to pass CAFTA in order to “ebb the growing flow of immigrants from South America and fight the ever-more-violent MS-13 gang.” For the rest of the article Beachy provides arguments as to how CAFTA has not accomplished nearly anything it was created to do for Central America. “Gang and drug-related violence in Central America has reached record highs and the ‘growing flow’ of immigrants from Central America has surged.” Beachy makes it quite clear that the argument of CAFTA being solely responsible for the rise in gang violence and increased immigration to the U.S. cannot be made. However, discussing some of the changes in Honduras, El Salvador, and Guatemala might lead one to believe CAFTA has not really benefited Central America.

After CAFTA was ratified, imports in Honduras, El Salvador, and Guatemala rose 78%. Farmers in these countries didn’t have the technology, land, or subsidies to compete with American companies and, therefore, caused many farmers in Central America to lose their jobs. People in these countries were also promised to find jobs in the textile industry due to CAFTA but since its ratification textile exporting to the United States has dropped 40% causing less creation of jobs than anticipated. This kind of financial distress for families is thought to be one of the primary reasons for higher gang activity in communities. Finally, Central America was promised to experience a boost in economic growth after CAFTA but this has not happened. Average growth rates in Honduras, El Salvador, and Guatemala in the years since CAFTA was ratified have fallen below the overall growth rate in Latin America.

To conclude, CAFTA seems to have hurt countries in Central America more than help them progress globally. When constructing trade policy, the U.S. should try to take a better look at how the agreement will affect those in the partnering countries.