CAFTA-DR: Challenges and Opportunities after 10 Years of Success

Remarks by Ambassador Laura F. Dogu
Managua, April 19, 2016

Thank you for the opportunity to speak with you today.  I am pleased that we are having this conversation on CAFTA’s 10th anniversary.

During a visit to the Port of Miami last week, I had the opportunity to see many cargo vessels filled with products that are traded between the United States and Nicaragua.  While I was at the dock, I remembered that, at first, when it was negotiated and considered, there were significant doubts about the value of CAFTA in both the United States as in Nicaragua.  However, 10 years later, I personally saw the flow of products between our countries and believe that CAFTA has been a success for the people of the United States and Nicaragua.  Specifically, CAFTA has succeeded at creating trade, investment, and jobs in both countries.

The main purpose of a trade agreement is to facilitate trade.  According to U.S. statistics, Nicaraguan exports to the United States increased 170 percent from $1.2 billion in 2005 to $3.2 billion in 2015.  At the same time, Nicaragua imports from the United States increased 100 percent from $625 million in 2005 to $1.26 billion in 2015.  By any account, the agreement achieved its principal goal of increasing trade.

A trade agreement also improves the investment climate, thereby hopefully attracting more investment.  In 2005, Nicaragua attracted approximately $241 million in foreign direct investment.  Last year, the Central Bank estimated Nicaragua received around $1.2 billion in foreign direct investment.  This is an impressive increase.  Nicaragua’s physical security, low labor costs, and government-private sector dialogue are frequently cited as reasons to invest in Nicaragua.  On the other hand, U.S. firms which are thinking of investing in Nicaragua but have chosen not do so have said the poor rule of law due to weak institutions, unpredictable customs practices, and limited protection of property rights were the reasons they chose not to invest in Nicaragua.  We encourage Nicaragua to address these challenges in order to create a better climate for investment and business which in the end will create more economic opportunities for the Nicaraguan people.

Trade agreements also help raise labor and environmental standards for the benefit of workers and local communities throughout the region.  The CAFTA Environmental Program has spent nearly $85 million since its inception to support environmentally and social responsible economic growth in Central America.  Participating businesses have become more efficient, more sustainable, and ultimately, more profitable.

Of course, trade, investment, and sustainable growth are not the end goal – but rather prosperity for the citizens of both countries is the end goal.  One measure of impact is jobs, and once again there is a positive story.  The U.S. Commerce Department estimates that over 5,000 jobs in the United States are supported by U.S. exports to Nicaragua.  In addition, the AmCham estimated that over 300,000 Nicaraguans are employed because of the American investment.  This is more than the ten percent of the Nicaraguan labor force!  Let me provide a few examples of how CAFTA has made a difference to specific Nicaraguans and Americans.

Five years ago, Carolina Pastora de Gammans, fulfilled her dream create with her family, Carphil Industries, a food factory dedicated to the production of Rollitos and Galletas Wafer.  Carolina had the goal of producing goods which could compete with products around the world on quality, trademarks, designs and original packaging.  Starting with just 10 employees, Carphil now employs 50 people.  The first export of $35,000 to the Siesta supermarket chain in Florida and Texas took place in December 2015.  And in January 2016, Carphil became the first processed food plant in Nicaragua which to obtain the ISSO 22000 certification.  Congratulations!

As you know, the construction sector grew over 25 percent last year.  Recognizing this, Embassy officials recently assisted the Nicaraguan firm, John Head, purchase approximately $350,000 in specialized concrete products from an American firm, Ellis Formwork Manufacturing from Oklahoma and Wacker Neuson from Wisconsin, to be used in buildings here in Nicaragua.  This type of trade will create jobs in the United States and in Nicaragua.

Similarly, U.S. restaurants are well respected in Nicaragua not only for the quality of their food but for the quality of their jobs.  In addition to well-known franchises which are already here, we are working to bring more U.S. franchises to Nicaragua.  This is the case with the Nicaraguan firm, Delipollo, the owner of the Tip-Top and Gualpllon restaurants.  They buy all of their equipment from the United States, and soon will open the U.S. restaurant chain, Carl’s Jr.

Nicaragua is known for its agricultural products.  Burke Agro was established in 2007 to develop value chains of organic fruit to increase access to international markets for Nicaraguan farmers.  To achieve this, Burke Agro has invested almost $2 million in Nicaragua and is now employing over 200 Nicaraguans to assist over 450 Nicaraguan famers sell their quality, sustainably-produced natural products to conscientious consumers in other countries.  Burke Agro is the only Nicaraguan exporter of processed organic foods, and as a result of their successes, they are looking to expand their operations; we hope they succeed.  Congratulations to Burke Agro, ProNicaragua, and all of those who made this possible.

We are halfway through the implementation of CAFTA.  Tariffs will continue to go down, including on some products which are sensitive to Nicaraguan producers and important to Nicaraguan consumers. The United States will continue to follow the agreement as signed in 2004 and entered into force 10 years ago.  There are no surprises and there will be no changes.

The broader question is – what are the next steps for Nicaragua to increase prosperity for the Nicaraguan people?  CAFTA was not the end, but the beginning for Nicaragua’s greater involvement in the global economy.

TPP

In this sense, CAFTA is the agreement for today, and TPP is the agreement of the future.  We are pleased the government of Nicaragua has started a conversation with businesses, unions, and civil society about potentially joining the Trans-Pacific Partnership (TPP).  The successful conclusion of the TPP is a critical step towards strengthening our economic security and deepening U.S. strategic relationships in the Asia-Pacific region.  It is a high-standard agreement which covers 40 percent of the world’s GDP, significantly reduces tariffs, includes the strongest worker and environmental protection of any trade agreement, helps small business, prioritizes good governance and promotes sustainable development.  But what does it mean for Nicaragua?

First, the TPP must be ratified and entered into force for the existing members.  The Obama Administration will continue consulting closely with Congress on the timeline for U.S. Congressional consideration of this important agreement.  Once we have obtained U.S. Congressional approval, TPP members left open the possibility of expanding membership to countries that are interested in adopting high-standard commitments and deepening their trade and investment ties with TPP partners.  We encourage like-minded Central American countries to collectively prepare for potential accession to the TPP.  The Central American Integration System through its Secretariat should play a strong role in this process.  The TPP text is public, so the roadmap is clear on what standards Nicaragua and other potential TPP applicant countries would need to meet in order to demonstrate their readiness for this high-level trade agreement.

It is too early to know what exactly will be the impact of the TPP.  However, the United States structured the textiles chapter so that almost all of the products of greatest interest to CAFTA-DR countries are in the most sensitive basket, with the lowest up-front tariff cuts and longest tariff phase-out periods.  While we are looking to expand trade with new FTA partners under TPP, the TPP textiles chapter reflects careful consideration of U.S. business relationships with existing FTA partners given our strong interest in supporting economic activity in these countries.  So the vast majority of textile and apparel products that CAFTA-DR partners export to the United States will continue to enjoy – for a decade or more – a significant duty-free tariff advantage over similar products exported to the U.S. under TPP.

Domestic Actions

In addition to opening markets, such as possibly building on CAFTA by joining the TPP, we encourage the Nicaraguan people to consider other steps which could increase prosperity without the need for a treaty.  Specifically, we encourage Nicaragua to consider how best to benefit from its existing strengths – specifically CAFTA and its geographical proximity to the United States; Nicaragua does not need to wait years to take positive steps on these issues.

The results of the recent COSEP study are a good place to start.  Survey respondents had significant concerns about customs, which suggests one way in which Nicaragua could benefit more from its geographical proximity to the United States.  Shortcomings in human capital were also a major concern, with respondents emphasizing the need for more English-language training and technical vocational education in Nicaragua.  Support for entrepreneurs to move them out of the informal economy and continued short-comings in rule of law due to weak institutions were also key results of the survey.

Let me focus a moment on customs.  I was just at the Port of Miami to see the operations in one of the largest ports in the United States and one of the most important ports for Nicaragua.  What most impressed me with their operations was how they balance maintaining security with facilitating trade.  For many years the countries of Central American have discussed how to increase trade; for many years, the countries have not been able to balance business with security which has resulted in major delays and complications for businesses at the border and limited impact on security.  This is unfortunate for the people of Nicaragua since it reduces economic opportunities.  If Nicaragua and Central America wish to be competitive, then I encourage you to consider how best to take advantage of one thing which can never change – your geographic proximity to the United States.

Future

Finally, I would like to direct your attention toward the future, which may arrive sooner than we think.  We all live in a world that is changing rapidly.  We are experiencing the 4th industrial revolution, with technology that will, within the next ten years, change the global economy and our daily lives.  As there were in previous economic revolutions, there will be winners and losers in this new technological revolution.

Drones or driverless-cars are starting to deliver goods which were produced by robots or 3D printers to people who have bought them via the Internet.  How will these changes impact manufacturers, distributors, warehouses, and sellers of clothes and shoes?  What will happen to old industries if we do not need garment factories because we print some or all of our clothes and shoes using 3D printers at home?

These are questions governments and people are asking around the world – at this time, the only wrong response is to not ask the question.  It is important that Nicaraguans consider how technology is changing the world and the global market.  Nicaraguans should also consider how to build a society that can compete in the world of the future.

In his recent book, “Industries of the Future,” Alec Ross, a leading innovation expert, asked the following question: “what drives growth in the leading cities around the world?”  He concluded “they share a common culture of openness… cities that are advancing in the global economy are those that are more open to the outside world.”  He concludes that cities and countries which facilitate communication, participation, and information exchange are stronger and more sustainable.  Regardless of the decisions which Nicaragua makes, other countries are advancing and positioning themselves for the future.  Nicaragua will not be left behind if it makes and implements optimal policy decisions.

In today’s globalized and interconnected world, no single country can expect to face all of the challenges of poverty, diseases, environmental changes, economic development, social changes, and security by itself.  Not the United States, not Nicaragua.  But together, we can face and overcome these challenges.  The Embassy of the United States in Nicaragua will continue to promote a prosperous, secure, and democratic‎ Nicaragua that is an integrated and constructive bilateral, regional, and global actor.

Conclusion

In conclusion, I appreciate the opportunity to speak with you.  I believe CAFTA has been a success for the United States and for Nicaragua.  And I believe there is more to be done to achieve Nicaragua’s goals.  Some actions are external, such as the TPP.  Other actions can be done immediately.  We have an impressive panel who will share with us their perspectives on this important issue.  I look forward to learning more about the Nicaraguan perspective on CAFTA on this 10th anniversary of the treaty, and about what the future holds for Nicaragua.  Thank you.