The anecdotes of CAFTA's impact

A recent article in the Miami Herald takes a look at the impact of the Central American Free Trade Agreement (CAFTA) on El Salvador. While citing the figures the Salvadoran government uses to proclaim the treaty a success, the article also speaks with business owners who believe they see benefits and those who see none:

El Salvador was the first Central American nation to implement the CAFTA-DR accord, in March 2006, followed by Honduras, Nicaragua and Guatemala. The Dominican Republic implemented the accord this year, and Costa Rica is awaiting ratification. The agreement eliminates most tariffs on two-way trade between the United States and the five nations that have ratified the accord.

While experts say it is too soon to effectively measure the impact of CAFTA-DR, both exports and investments have clearly climbed in El Salvador. The United States is El Salvador's largest trading partner outside of Central America, and the region is now the second largest U.S. export market in Latin America, behind Mexico.

But even as owners of small and medium-size businesses acknowledged that the accord has increased trade, many said CAFTA-DR requirements benefit mostly large companies with lots of capital to invest in upgrading their products and implementing requirements such as nutrition labels for food products.

About 60 Salvadoran companies began to export to the United States for the first time after CAFTA-DR was implemented. U.S. imports have also increased about 23 percent. Foreign investment, too, has seen a spike with as many as 29 new operations in sectors such as call centers, software, textiles and electronics.

Among the bigger firms profiting from CAFTA-DR, according to the Ministry of Economy, are Pasteles de El Salvador, which began operations in 1998 with three workers and now has 120 employees who prepare ethnic foods, and Exportaciones Agrícolas, which exports dried shrimp. The United States, now the company's largest export market, receives about 300,000 pounds of dried shrimp each year.

While smaller businesses also get breaks, some owners say they are minimal. ''My business has grown, but it has little if anything to do with CAFTA,'' said Francisco Serrano, who opened his Bioproductores butterfly company with a partner in 1989 and began exports in 1990. ``I do not see true incentives.''(more)

Under any trade agreement like CAFTA there are going to be winners and losers. It is too early to say whether the net impact of CAFTA has been favorable or not, even if everyone could agree on what are favorable impacts and what are unfavorable impacts and how they should be measured. There are too many other changing forces on the world economic stage to be able to isolate the effect of a single trade agreement.