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El Salvador-US: Free trade deal a menace to local producers

EL SALVADOR-US: Free Trade Deal a Menace to Local Producers

Raúl Gutiérrez

SAN SALVADOR, Oct 12 2006 (IPS) — Seven months after the Central American free trade treaty with the United States came into effect, small-scale producers and economists in El Salvador say that it only benefits a few sectors of society, to the detriment of most national production and thousands of jobs.

The free trade agreement signed by the United States with the Dominican Republic and five Central American countries (CAFTA-DR) was hailed by the government of El Salvador as a panacea for the national economy.

President Antonio Saca and his administration argued that CAFTA-DR 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 came into effect on Mar. 1, it has only benefited a group of big businesses, mainly importers, while it has damaged small farmers and consumers.

CAFTA-DR "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, he told IPS.

Miguel Alemán, a leader of the Confederation of Agrarian Reform Federations, told IPS 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.

The Central Reserve Bank reported a gross domestic product of 17 billion dollars (El Salvador adopted the U.S. dollar as its official currency in 2001). Average inflation is 4.3 percent a year, nearly seven percent of the economically active population is unemployed and 35 percent are underemployed. More than half of the seven 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 rightwing governing Nationalist Republican Alliance, the National Conciliation and the Christian Democrat parties. But it entered into force only last March, after the legislature approved several amendments demanded by Washington.

El Salvador was forced to change its laws on protection of foreign investment and intellectual property, as well as the penal code, to combat the pirating of CDs and DVDs, and counterfeit brand-name clothes.

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

Ever since the negotiations of the treaty 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.

Vendors on the informal ("black") market, which according to official figures is the means of survival of close to 40 percent of the population, have fought pitched battles in the past few months with the police, who in fulfilment of the treaty have been carrying out raids and seizing fake copies of merchandise in the centre of San Salvador.

"Many people are going off to the United States because of the impact of CAFTA-DR, which has resulted in 133,000 hectares 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 organised in 131 cooperatives producing grains, cattle and coffee.

An estimated 700 Salvadorans a day, on average, leave the country seeking jobs. 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.

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

"Added to that, U.S. 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 furthermore lack both affordable lines of credit and technological support.

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

For example, Alemán said, "a sack of fertiliser cost 18 dollars last year, and now it’s gone up to 23 dollars. We were selling a hundredweight (quintal) of creole maize at 11 or 12 dollars, but this year it’s only worth 8.50 dollars."

"Under CAFTA, U.S. maize sells in El Salvador at 6.40 dollars, so who’s going to buy from us?" the small farmer 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," he added.

"In five years’ time we’ll be completely bankrupt, there will be a production crisis and we won’t be able to guarantee food production to feed the country," warned Alemán.

Figures from the U.S. Department of Commerce show that El Salvador exported goods to the value of 984 million dollars to the U.S. between January and June 2005, while for the same period this year, with the treaty in force, only 798 million dollars were exported.

In contrast, purchases by El Salvador from the U.S. totalled 956 million dollars in the first six months of 2005, increasing in the first half of 2006 to 1.07 billion dollars.

During its first year, CAFTA-DR 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 U.S. 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 DR-CAFTA, and thereafter there would be further job losses of 1,557 a year, on average.

The numbers forecast tough times ahead for El Salvador, in spite of the government’s enthusiastic arguments in favour of the free trade agreement.

 source: IPS