Central America trade plan opposed by labor groups

13.05.2005
Von Patrick Thibodeau

The U.S.-Central America Free Trade Agreement now before Congress is supported by IT industry trade associations but opposed by high-tech labor groups, which see it as having the potential to erode jobs in the U.S.

In terms of outsourcing IT work such as application support and maintenance, though, the proposed agreement -- known as CAFTA -- isn"t likely to make Central America more attractive than India or China, according to analysts.

The region isn"t well equipped with either the IT or human resources needed to effectively compete for technology work or to provide call center services for non-Spanish-speaking markets, said Michael J. Pisani, an associate professor of international business at Central Michigan University in Mount Pleasant.

The economic power of the countries that would be covered by CAFTA is "minuscule," said Kevin Gallagher, a researcher at Tufts University"s Global Development and Environment Institute in Medford, Mass. "It"s like we"re liberalizing trade with New Haven," he said, referring to the city in Connecticut.

CAFTA countries include Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua.

Costa Rica is seeing some high-tech development. Intel Corp., for instance, has a major manufacturing and assembly facility in that country. "Costa Rica is already an attractive place," said Jarad Carleton, a Palo Alto, Calif.-based analyst at Frost & Sullivan Ltd.

Costa Rica has a high literacy rate, and a university graduate can expect to make about US$1,000 a month working in IT development there, said Carlos Araya, CEO of ArtinSoft Inc., a maker of automated data migration tools based in San Jose, Costa Rica"s capital city. Araya said he believes that CAFTA will create opportunities in Central America for marketing and investment from the U.S. But Costa Rica has a limited labor pool; its population is only about 4 million.

There are benefits for U.S. companies that set up IT or outsourcing operations in free-trade countries, including lower costs, said Evan Chuck, a partner in the international trade and transactions group at law firm Bryan Cave LLP in Los Angeles.

Chuck said CAFTA would remove some tariffs on equipment that has to be moved to Central American countries and provide greater levels of intellectual property protection, which may be important to companies that outsource code development.

Some labor officials see CAFTA as making it easier for IT vendors to set up operations in Central America. But because the countries there are relatively small, there isn"t likely to be any appreciable gain in U.S. exports, they argue. "CAFTA "fails to open any new markets," Marcus Courtney, who heads the Washington Alliance of Technology Workers in Seattle, said during a teleconference.

But in a separate teleconference, Rick White, CEO of TechNet, a Palo Alto-based industry group, said the CAFTA countries already represent "a significant market for U.S. tech goods" of about $2.6 billion per year.