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TRADE-CENTRAL AMERICA: Global Wave Drowns Small Businesses

Danilo Valladares

GUATEMALA CITY, Apr 20 2011 (IPS) - “If we could export our products, it would open up a lot of possibilities for us, but we don’t have any direct support from the government, or training or credit facilities,” said Efraín Patzán, a small-scale furniture maker in the central Guatemalan town of San Juan Sacatepéquez.

“Most micro-enterprises are run by people who have not studied, and you have to have an education to understand the steps for exporting,” Patzán told IPS. “And they don’t have a capacity to invest, which means it is necessary to facilitate access to credit.”

With all of these difficulties, in San Juan Sacatepéquez, a working-class town just outside of Guatemala City where most of the population is made up of Cakchiquel Mayan Indians, the streets are lined with carpentry workshops where furniture is made of cedar and mahogany.

But although the furniture is sought-after in the country, the local industry has not yet managed to export its products, which “would bring us greater benefits,” he said.

In 2006, Central America and the Dominican Republic signed the DR-CAFTA free trade agreement with the United States, and now this region appears to be close to reaching an association agreement with the European Union.

Central America is also negotiating a free trade deal with Peru, and awaiting the results of a study on the feasibility of similar talks with South Korea. There are also the bilateral trade negotiations carried out by each country on its own.

But thousands of micro, small and medium-sized Central American companies, like Patzán’s, observe the trade negotiations and agreements without being able to take part, in order to help bolster development in their communities. In fact, many of them have been driven under by the implacable competition of large corporations.

In Costa Rica, former lawmaker Ronald Solís (2006-2010) of the centre-left Citizen Action Party said “free trade treaties are leading to the disappearance of Costa Rican businesses.”

According to the state of the nation report 2010, “in 1998 there were 2,403 export companies, only 732 of which survive today,” said Solís. “That is, seven of every 10 have disappeared, mainly small and medium companies.”

Although exports grew considerably from 1998 to 2010, this happened in a context of heavy concentration of business, according to the former legislator.

Thus, “82.2 percent of Costa Rican companies that export less than one million dollars (in goods) represented just 3.1 percent of total exports in 2009, while the biggest 1.5 percent of the companies were responsible for 70 percent of total sales abroad,” he said.

Jeffery López, of the Association of Popular Initiatives (DITSO), told IPS that “we don’t believe that small and medium companies can grow this way; the concentration of exports will just continue.

“The problem from the start is that the free trade agreements are not negotiated between equals,” he said. “Local markets must be strengthened and investment must be made in local productive sectors, through credit and technical support.”

Costa Rica, unlike the other six countries of Central America, has also signed a free trade agreement with China, in 2010, a year after cutting off diplomatic ties with Taiwan, as the Asian giant demanded.

Edgardo Mira, with the non-governmental Investment and Trade Research Centre in El Salvador, told IPS that small and medium-sized businesses “are at a disadvantage” in the trade agreements.

The trade deals “favour large companies, which have greater facilities for exporting, financing and competing in large markets, putting them at a huge advantage against small and medium companies,” he said.

As an example, Mira cited the principles of most-favoured nation status and national treatment – basically, treating foreigners and locals equally – that are contained in DR-CAFTA, which according to some non-governmental organisations grant U.S. companies treatment that is equal to or better than the treatment given to Salvadoran firms, putting the latter at “a clear disadvantage.”

“Alternatives to the neoliberal model should be sought, as well as trade relations based on the interests of the local population and on each country’s real possibilities of producing goods for export, not based on the logic of large companies that impose needs,” the expert said.

Luis Linares, with the Association for Social Research and Studies (ASIES), an independent research centre and think tank in Guatemala, told IPS that in an international trade agreement, “there are always winners and losers” and “things cannot just be left up to the laws of supply and demand.

“Measures of financing, credit, training and technical assistance must be identified,” he added.

Elmer Velásquez, the coordinator of CONGCOOP, a network of NGOs and cooperatives in Guatemala, told IPS that the problem with trade agreements “is the economic model, because the interests of small countries with little bargaining power are hurt by the imposition of the interests and ideas of big countries.”

Although some countries in Central America have seen an increase in their exports to the U.S. under DR-CAFTA, the trade balance is still negative for this region.

While trade has grown, the benefits have not reached the poor, and “the big winners are medium and large companies,” Yuri Marín at the Nitlapán Institute of the Jesuit Central American University of Nicaragua.told IPS.

“Globalisation does not equal a fairer world, because there are those who seek to concentrate power, information and resources, capitalising on advantages. Globalisation should be democratised,” he said.