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Central America: Readying for Free Trade with United
by Joachim Bamrud | February 22, 2002
The United States is once again turning its focus on Central America.
President George W. Bush announced in January that the United States
would explore a free trade agreement with Central America, and he is scheduled
to make a March 24 stopover in Central America on his Latin America trip
next month.
Welcoming these developments are Central American government and business
leaders who felt abandoned by the United States and other powers after
the end of the cold war conflicts in El Salvador and Nicaragua.
In addition to bloodshed, the cold war brought some Central American
countries billions of dollars in military and economic assistance from
the United States, its main rival the Soviet Union, and Cuba. But the
aid dropped significantly as the cold war tapered off.
Then, while Central American policymakers were busy rebuilding their
economies, the United States dealt them what they considered a serious
blow by giving Mexico a competitive edge over their region with the North
American Free Trade Agreement (NAFTA).
The agreement gave Mexican textile exporters permanent, duty-free access
to U.S. markets, while Central American exporters had to settle for the
temporary duty-free access provided them by former U.S. President Ronald
Reagan’s 1983 Caribbean Basin Initiative (CBI), which had to be renewed
in 1990 and 2000.
One of the big complaints from Central American free trade backers is
that NAFTA has taken away their maquiladora business—a key part of
several of the region’s economies—with Mexico as the beneficiary.
Once implemented, a Central American Free Trade Agreement (CAFTA) would
give the region’s businesses guaranteed admittance to the U.S. market,
no matter who runs the White House.
Meanwhile, regardless of who is in the presidential palaces of Central
America, U.S. business would have clear terms for trading with the region,
whose combined GDP makes it the seventh-largest Latin American economy,
ahead of Peru.
Critics of free trade, however, counter that as under NAFTA, the social
and environmental impacts of CAFTA could outweigh the economic benefits.
CAFTA is expected to be ready as soon as the first half of next year,
facilitating U.S.-Central American trade far sooner than was envisioned
with the proposed Free Trade Area of the Americas (FTAA), scheduled for
implementation in 2005 at the earliest.
Unlike talks surrounding the FTAA, CAFTA negotiations should go smoothly,
say U.S. and Central American officials. At a Feb. 18 meeting in Managua,
Nicaragua, the trade ministers of Central America approved a model agenda
and schedule that was expected to be close to that proposed by United
States, Costa Rica’s Foreign Trade Minister Tomás Dueñas
told reporters the following day.
In addition to boosting trade with the United States, the CAFTA may also
increase economic integration within Central America, which remains weak
to date.
Costa Rica does not form part of a regional customs union, and neither
Costa Rica nor Nicaragua are included in the so-called Northern Triangle
(El Salvador, Guatemala and Honduras). As a result, Costa Rica has negotiated
its own free trade agreements with Canada and Mexico, while the Northern
Triangle reached a separate trade treaty with Mexico.
U.S. Surprise
Bush surprised both Washington insiders and Central Americans when he
announced the CAFTA negotiations in a Jan. 16 speech at the Organization
of American States.
Only a few months earlier, U.S. officials had declared that a Central
American free trade agreement was a low priority, as the Bush administration
was busy wrapping up its free trade agreement with Chile, and trying to
get fast-track authority from Congress for negotiating the FTAA. Bush
himself had pretty much said the same thing shortly after assuming office
in January 2001 and at the Summit of the Americas in Quebec three months
But U.S. officials now say CAFTA will boost FTAA negotiations, since
it will largely set forth the goals for Central America under an FTAA
and thus, when successfully concluded, represent one less puzzle piece
in FTAA negotiations.
Joachim Bamrud, editor-in-chief of Latin Business Chronicle ,
has covered Latin America for nearly 20 years for various media, including
Reuters, United Press International, The Miami Herald and Latin
Trade magazine, where he worked as editor-in-chief. He can be reached
at joachim.bamrud@latinbusinesschronicle.com .
"Fact Sheet
U.S.-Central America Free Trade Agreement" | The White House, January
16, 2002

Foreign Commerce
Ministry of Costa Rica (Spanish)
Secretaria de Integracion
Economica Centroamericana (Spanish)


by the Interhemispheric Resource Center’s Americas
Program . All rights reserved.
Recommended citation:
"Central America: Readying for Free Trade with United States,"
Americas Program Feature (Silver City, NM: Interhemispheric Resource Center,
February 22, 2002).
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