How Close Are Nicaragua and China to Signing a Free Trade Agreement?

On Thursday, July 14, Nicaragua and China signed an Early Harvest Agreement, a mechanism that experts consider as a prelude to a Free Trade Agreement. Sputnik asked analysts about the benefits of the Early Harvest Agreement, which is to identify export products of the two countries with 0% tariffs.

According to Jorge Capelán, Uruguayan political analyst residing in Managua, the China-Nicaragua agreement signifies, in practice, that the US policies of isolating and punishing Nicaragua will be useless, because the Central American nation is now entering a gigantic market that is on the path to becoming the largest economy in the world.

At the same time, Nicaragua will have access to industrial goods and investments from the Asian giant, under conditions that “would never be possible under the aegis of the United States and Europe,” Capelán told Sputnik. The most important contribution of the agreement will be “the support given by the preferential tariffs to the key sectors” of the Nicaraguan economy, added the analyst.

Political scientist, analyst and researcher Josseline Yaleska Muñoz Berroterán expressed that the agreement with China represents a strategic turn in the foreign policy of Nicaragua, “that is breaking its historical dependence on the North and is diversifying its alliances and sources of investments, looking for a rupture with the conventional system and advancing towards multilateralism.”

What the Early Harvest Agreement means
According to Andrea Pérez Espinoza, Bachelors in International Relations and Law, political scientist and member of the ruling Sandinista National Liberation Front (FSLN), the Early Harvest Agreement represents an “act of confidence,” a prelude to the establishment of a Free Trade Agreement (FTA), which would be signed in 2023.

“These negotiations will allow China to identify the products necessary for its basic food basket, and in addition to that, the liberalization of tariffs,” she explained. “Similarly, it provides a period of time that will be favorable for Nicaragua to raise production and supply of goods like beef, honey, leather, sugar, seafood.”

Adolfo Pastrán, expert in economy, journalist, and FSLN deputy, commented to Sputnik that the strategy makes China one of the most important markets for Nicaragua, and cited the increase in exports that amounts to $100 million.

The Early Harvest Agreement greatly substitutes the Nicaraguan trade relations with Taiwan that existed before the recent termination of diplomatic relations, and constitutes Nicaraguan exports of cattle offal, vegetables, red beans, raw peanuts, textile garments, and automotive harnesses to China at 0% export duties.

“Everybody would like to have a business partner of 1.4 billion consumers,” Pastrán said, referring to the population of China. “In the memorandum of understanding, signed in recent months, Chinese companies are provided comprehensive opportunities to do business with Nicaragua, especially in the free trade zones.”

According to the analyst, Nicaragua supports foreign investments with tax benefits, opportunities, competitiveness, excellent roads—considered the best in Central America, almost 100% electricity and potable water coverage, as well as labor and working conditions.

Pastrán added that the Early Harvest Agreement will contribute to the reduction of poverty levels, which is one of the principal objectives of the Sandinista government headed by President Daniel Ortega and Vice President Rosario Murillo. In fact, poverty levels decreased in Nicaragua in 2021 thanks to the 10.3% increase in GDP, according to data from the World Bank.

At the same time, China will export, under similar conditions, plants and flowers, garlic, sweet corn, sardine, tuna, confectionary and baked goods, fish food, insecticides, fungicides and herbicides, plastic goods, wheels for buses and trucks, and raw material for textile and toy industries, all of which will provide a robust and continuous supply of raw materials for the Nicaraguan industries, and agriculture and service sectors.

Capelán added that apart from all these benefits, the initiatives undertaken by Moscow and Beijing for establishing an alternative to the Western monopoly in the global financial system will have a very positive effect on Nicaragua, and the detractors of Nicaragua’s socialist project will not be able to strangle its economy in the way they did in the 1980s.

“This agreement is much better than what Managua had with Taiwan just because China has a much larger market: its GDP is 17 times that of Taiwan and its public spending is 44 times greater,” Capelán said. “Moreover, China’s population is 61 times larger, with considerable possibility of growth in terms of consumption. There is no comparison.”

A Free Trade Agreement about to be signed?
In Pérez Espinoza’s opinion, the future FTA would boost the expansion and diversification of trade between the two countries, the elimination of obstacles to the commercialization of goods and services, and the promotion of fair competition for the markets of the two countries.

Similar agreements already exist between China and a number of Latin American countries “which serve as an excellent platform for greater opening to the outside world and integration into the world economy,” said Pérez Espinoza, referring to Chile—the first Latin American country to sign an FTA with China given its status as the largest producer of copper in the world, Peru, and Costa Rica.

The analyst commented that although commercial relations existed between the private sectors of Nicaragua and China after the reestablishment of diplomatic ties in December 2021, now the will to strengthen and broaden mechanisms of interchange and development for mutual benefit is perceptible at the administrative levels of the two countries.

This has been possible due to “the implementation of the win-win scheme, based on the socialist foreign policy of China, as well as its promotion of economic development associated with a culture of peace, and its application of proletarian internationalism for the reduction of intercontinental inequality,” explained Pérez Espinoza.

According to Capelán, an FTA with China will signify a lot more than compensating for the “loss” of commercial relations with Taiwan, which ended after Nicaragua’s recognition of the One China policy at the close of 2021. The upcoming Nicaragua-China Free Trade Agreement will also provide investments in infrastructure, funding mechanisms, and knowledge transfer.

“It will represent the start of a new era of progress for this country in a multipolar world and in alliance with the present largest economic power in the world,” Capelán emphasized. “This is in contrast with the policy adopted by Europe and the US, that has always forced our countries to buy industrial goods from them at high prices and give up our resources at low costs.”

Other sectors of cooperation
Capelán also mentioned other areas of exchange between Nicaragua and China—among them, the signing of a convention of cooperation amounting to $60 million for the financing and execution of a program of public housing construction, which has already started, and agreements between the Nicaraguan Corporation of Aqueducts and Drainage and Chinese companies for drinking water supply and sanitation projects.

The Nicaraguan Ministry of Energy and Mines signed agreements with the China Communications Construction Company to begin renewable energy projects in Mojolka and El Hato, in the department of Matagalpa, with an investment of $251 million.

“Similarly, the Transport and Infrastructure Ministry is discussing support for the Puerto de Aguas Profundas [deep water port] in the South Caribbean region and the land corridor between Corinto and South Caribbean, which will be the materialization of a dry interoceanic canal between the Caribbean and the Pacific,” Capelán explained.

In June of 2021, Beijing officially designated as its new ambassador in Managua Chen Xi, who was formerly the Chinese ambassador to Cuba, where he received the Medal of Friendship for his role in strengthening the ties of cooperation and brotherhood between Cuba and China.

(Sputnik)

Translation: Orinoco Tribune

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