Central America ambivalent toward free trade

President Bush arrives here Sunday and expectations are running high. Leaders in the region have long wanted a free-trade agreement with the United States. Ever since Bush expressed interest earlier this year – and then announced his upcoming visit – many here have become convinced that it just might happen.

Business leaders and government officials say that free trade is the key to development in a region that, after a decade of peace, is still struggling to win the battle against poverty.

"Everything will improve with free trade," says the Guatemalan Vice Minister of Economy, Marco Ventura. "Our expectation is that free trade negotiations will be launched in El Salvador and that we will have an agreement by 2003."

But on the eve of this highly awaited visit, some are questioning whether a free-trade accord is the answer to the region's woes.

"I am not convinced that an FTA [free-trade agreement] with Central America would actually open up a lot of opportunities for Central America," says George Vickers, Latin America director of the Open Society Institute, a think tank founded by US businessman George Soros. "I just don't think it would change a whole lot."

Sectors of the US government say that a free-trade agreement between the US and Central America would stimulate economic development and thereby bring stability to a good chunk of an increasingly fragile region. With increasing instability in South America there is an interest in making sure that it doesn't spread. Trade is a good way to assure that, say supporters.

This is not a new theory. It has been pushed in the region for decades and the region has responded. Nations have flung open their doors to US investment and have received trade preferences for some of their exports under agreements like the Caribbean Basin Initiative.

"Bush's logic is that trade is the motor of development," says Enrique Palamo Lacs, who is the coordinator of the a private-sector committee working on trade issues in Guatemala. "The logic, however, was the same in the 1980s and we followed it. But this logic hasn't shown results. We export more, but we are not any richer. We continue with the same problems as always."

US restaurants line the streets of most Central American capitals and the nations here benefit from trade preferences for textiles and some clothing, yet without the promised economic gains.

Because poverty still exists after much trade liberalization, critics charge that free trade only benefits the privileged classes.

"Trade is something that has worked mostly for the wealthy elites in these nations," says Manuel Orozco, Central America program director of the Inter-American Dialogue, a Washington-based think tank. "All the governments in Central America are led by private-sector and business-sector people, and they are pro-free trade because they know what it means for their pockets."

Some observers also say that free trade could further aggravate already-existing problems of poverty and income disparities in Central America. Agricultural products still enjoy protective tariffs across the region. Producers say they couldn't compete with an influx of US goods if these protections were removed.

"With an FTA in which there are no clauses to protect agricultural products – basic grains, poultry and dairy – this will be the final blow to the many rural people already in very delicate economic situations," says Lilian Vega, director of the Economic Det of the Central American University in San Salvador.

Those who say there is too much optimism about free trade say governments here should be searching for ways to make their nations' economies more competitive and battling inequalities at home, such as improving education to create a better workforce.

"The leaders say things are not good here because we need a trade agreement to make things better," says Mr. Vickers. "They use it as a way to detract attention from their failure to deliver. It's an excuse governments use for why things aren't better."