Current CAFTA-DR Numbers a Mixed Bag; Fuel Costs Involved

Alvaro Morales Molina
Honduras This Week

According to U.S. authorities based in Tegucigalpa, the Free Trade Agreement between the United States, Central America and the Dominican Republic (CAFTA-DR) is reason for Hondurans to be optimistic about better exportation balance. CAFTA-DR began in force in Honduras on April 1, 2006.

After a year and a half of negotiations and yet another year and a half of debates and internal deliberations, the six signatory countries completed the processes of approval and ratification. The treaty has 22 chapters plus annexes, for a total of more than one thousand pages. In the first two years since the treaty has been in effect (from April 2006 through March 2008), total commerce between Honduras and the U.S. has increased by 21%, to $8.6 billion annually, according to numbers provided by the U.S. Department of Commerce.

Honduras exported approximately $4.0 billion in goods to member countries of CAFTA last year, including $3.9 billion to the U.S. Those exports from Honduras have been fairly diverse: to the U.S., non-textiles exports grew by 11%, agricultural exports grew by 17% (up to $540 million). Between January and May of this year, agricultural exports grew an additional 20%.

Honduras is also exporting some agricultural products for the first time, products that require additional manpower in regions with high poverty levels. Between 2005 and 2007, dairy product exports to U.S. increased by more of the double; cheese exports have increased by 15% so far of this year. Total dairy exports have grown by 35%.

The U.S. Department of Agriculture (USDA), USAID, FDA and other organizations are helping small Honduran producers to meet better hygienic standards so, in turn, these producers can increase their exports to the U.S., including dairy products, poultry and tomatoes.

Foreign investment in Honduras increased by $600 million in 2005 and by $815 million last year, according to the Central Bank of Honduras. Industrial machinery imports from the U.S. went up 56% in 2007, indicating an increase in production of Honduran agricultural products.

Poverty in Honduras decreased six percentage points between May 2005 and May 2007, according to official numbers, and extreme poverty lowered 12 points; unemployment and under employment figures also decreased.

The current bilateral commercial deficit with the U.S. is due to a large extent to the increase in fuel prices. While export/import levels with the U.S. were almost equal in 2007, due to spikes in fuel costs, so far, 2008 cannot boast the same statistic.

In other trade news, Honduras is currently in negotiations to enter into the ALBA (the Bolivarian Alternative for Latin America) agreement.

For many, increasing trade relations to countries to the south has both commercial and social implications.

The Unpredictable Consequences of ALBA

Antonio Martin
Courtesy of La Tribuna

Members of the National Congress of Honduras have been watching the developments surrounding ALBA with wary, skeptical eyes. According to article 205 of the Constitution, an agreement such as ALBA must be ratified by the majority of the National Congress. The nationalists, so far, have not voted for the ratification of ALBA and the liberals are divided in their opinions.

President Manuel Zelaya powerfully affirms, “Nobody can prohibit me from moving forward with ALBA.” The Tegucigalpa Chamber of Commerce echoes his sentiment, but goes further: “ALBA must be widely accepted before being approved by the Congress.”

Economic expert Jaime Rosenthal believes, “What we need in Honduras is to generate hydraulic energy, not to depend on thermal energy, and thus reduce fuel importation. Those countries with strong hydraulic energy reserves are going to be leaders in the export market. If we wait for our timid industrialists to give us their green light on ALBA, we might never effectively enter the global market.”

Rigoberto Chang Castillo states that if we enter into ALBA, we must resign from ALCA. “ALCA, with the U.S., represents 300 million dollars worth of trade, with ALBA it is 30 million.” Industrialists reject ALBA for a number of reasons. ALBA demands that its members resign from other commercial treaties they have entered into with other countries and includes a military component between its member countries.

Industrialists will not accept any agreement that works against the maquilas and other subscribed commercial deals with other countries. Maquilas currently generate some 140.000 jobs, the majority of its output in foreign capital.

Latin American industrialists are also convinced ALBA counteracts free trade principles while also fostering the political ideals of Venezuela, Cuba, Bolivia and Nicaragua, who have Honduras in their sights.

Both national and liberal Congress Members say that they will not support ALBA in a Congressional vote. Honduran Vice-president, Elvin Santos, has denied that the Executive has given a million lempiras to several Congress Members so they vote in favor of ALBA.

According to industrialist Miguel Facussé, the private entrepreneurship sector of Honduras is extremely worried about statements made by President Zelaya, who practically declares war on the industrialists and blames them for most of the ills of the country.

The President has attacked anyone who opposes his opinions regarding the controversial ALBA agreement. National Congress President Roberto Micheletti rejects the adhesion of President Zelaya to ALBA, “Impelled by Hugo Chavez, Evo Morales, Daniel Ortega and Rafael Correa. The strength of Honduran exports lies with the U.S., not with countries to the south. To make this drastic change will be like exchanging a shoe for a dirty sandal.”

Ex- chancellor of the Republic Eliseo Perez Cadalzo believes ALBA forces Honduras to be enemy of the U.S. and that it is a treaty of confrontation that looks to antagonize what they call ‘imperialism.’ When we are demanded to support ALBA, we reach an inevitable impasse. Honduras also risks getting in the middle of the tensions between the U.S. and Venezuela. ALBA is more than a trade agreement: it has commercial, political and military implications, some possibly fatal.

Renowned industrialist Emilio Larach concurs, “We live with fear and uncertainty in Honduras. With respect to relationships with Cuba and Venezuela, we are not criticizing the commercial alliances nor do they worry us much, but the political and military alliances, those we worry about.”

Who advises President Manuel Zelaya to move forward so quickly with ALBA? Is it in our best interest to toy with our strong markets to the north? And then risk that with a decidedly uncertain market to the south? Would we be committing global market suicide? Will Honduras’ luck run out one day with the military and political implications being an ALBA member entails? Will our National Congress carefully weigh the ‘pros’ and ‘cons’ of ALBA?

This is an opinion article and does not necessarily reflect the philosophy or opinion of HTW.