The Central American Free Trade Agreement will mean an immediate boost – albeit small – to some U.S. agricultural commodities, said an expert with Texas Cooperative Extension.

But that small boost has potential for more increase in trade, said Dr. Parr Rosson, agricultural economist. The agreement was passed by the U.S. Senate in June and approved by the House of Representatives on July 28.
"We've got to put in into perspective," Rosson said.

The export market for U.S. agricultural products to Central America is worth $1.7 billion. That's a small part of total U.S. agricultural exports of $60 billion, he said.

"It's quite a dynamic market, he said. "In most developing countries, things can change very quickly. I think initially out of this agreement we'll see more exports of high-quality beef to countries like Guatemala and the Dominican Republic and Costa Rica."

The tariffs on beef – which now range from 15 percent to 30 percent – are going to vanish when the agreement implemented by all countries involved.

Cotton also will be duty-free immediately, so Rosson expects more of that commodity to be exported as well.
The United States also will probably export more rice, wheat and corn in the next two or three years, he said.
The agreement has passed in El Salvador, Honduras and Guatemala, but still needs approval in the Dominican Republic, Nicaragua, and Costa Rica, Rosson said.

Currently, about $10 million worth of beef is annually exported to Central America. With the agreement, Rosson said, exports could increase to about $70 million during the agreement's phase-in.

"While the high-quality beef is duty-free immediately, the lower quality is phased in over a longer period of time, over 18 years," he said.

"We won't see the impacts on the lower-quality beef for a while," he said.

When the lower-quality beef is phased in, that will boost total U.S. beef exports to that region about $74 million.
That may translate to another 1,600 jobs just in the beef industry and about another $60 million in income.

"That's a fairly significant," he said. "It's better to have that than to forego it."

Cotton and rice will have a similar impact. The agreement is expected to add 1,200 to 2,700 jobs with a financial impact of $60 to $100 million, depending on the sector.

However, "We may see negative impacts in terms of competition (for other crops)," Rosson said. "In the melon sector, for example, we're seeing more imports of some melons that are driving down prices to Texas producers.
Competition could intensify, not from elimination of tariffs, which are already low, but from increased investment and productive capacity in Central America. "Potentially, as this agreement gets phased in, we could see some price pressure on sugar," he said.

Some textile companies are concerned about losing U.S. jobs to those countries, particularly in the manufactured clothing industry.

"As a result, there are some special provisions to mitigate some of those impacts," Rosson said. "We've also agreed to a sugar compensation program. If, for example, the imports cause our prices to drop and cause our producers to forfeit sugar, we've agreed to pay them not to export sugar to the U.S. market."

Organized labor was not very supportive of the agreement, mainly because of issues with labor standards and the potential to lose U.S. jobs, Rosson said.

On the other hand, "One way to create incentives in these countries is to create growth and development, which does generate higher paying jobs and jobs that tend to be more stable," Rosson said. "From that standpoint, it's an agreement that locks in the tariff preferences these countries have on a temporary basis, so it's pretty important to them to be able to plan and ensure workers they do have a steady source of employment. "The economies are not only small, they're fragile, and I think we'll see a lot of ups and downs in their economic growth and economic performance. "Probably in the grand scheme of things, from the U.S. perspective, it's not going to have a huge impact either way, just because these economies are so small," Rosson said.

The total population of the region is only about 45 million people, and the average annual income ranges from about $2,200 in Nicaragua to $8,300 in Costa Rica. The poverty rate is as high as 75 percent in countries such as Guatemala, he said.

These countries are competitive producers of labor-intensive agricultural crops, such as fruit and vegetables, and some textile goods.

"Certainly we could expect to see some additional competition, maybe not so much from the agreement, because they already have duty-free access to the U.S. markets," he said, "but from more investment as well as improvement of infrastructure."

However, with improved roads, port systems and cold storage capacity, more U.S. products can be shipped there as well, he said.