Juan Carlos Pereira, a graduate of Harvard Business School, returned to Nicaragua after the country's civil war. In 2002, he co-founded ProNicaragua, the Investment Promotion Agency of Nicaragua. As its executive director, he promotes trade and investment from the U.S., and is building support for the Central American Free Trade Agreement, signed last May by the U.S. and six countries of the region.
Q. What signals are you getting about the prospects for CAFTA's approval by the U.S. Congress?
A. We are getting good signals, but we are extremely concerned by the timeline. The later it passes, the harder it will be for U.S. textile companies to survive. CAFTA gives them the opportunity to export to Central America, manufacture there and ship back to the U.S. duty-free. The longer we wait to pass CAFTA, the better the opportunity China will have to take market share from Central America. We see this as a competitive struggle between Asia and the Americas.
Q. What impact do you expect CAFTA to have on Nicaragua?
A. First, CAFTA will allow us to shed the image of what we were in the 1980s. When people think of Nicara-gua, they still think of conflict and civil war. Second, CAFTA will allow us to demonstrate that the region has changed in a very concrete way, and it is ready to compete.
Q. Will it really help you compete with China in textiles and apparel?
A. Yes, we are extremely competitive in textiles and apparel. CAFTA will take us a step further in consolidating the comparative advantage.
Q. Which provisions of CAFTA will help you most?
A. The tariff-preference levels in CAFTA allow us to import fabric from third countries, and manufacture in Nicaragua, for re-export to the U.S., duty-free. It's similar to provisions in AGOA (the African Growth and Opportunity Act). It is limited to 100 million-square-meter equivalents a year, for five years. This buys us time to integrate vertically and expand our manufacturing base.
Q. In what other sectors will CAFTA help Nicaragua?
A. Apart from textiles and apparel, we are competitive in most labor-intensive assembly operations, such as wire harness assembly and electronics assembly in general. Overall, CAFTA provides concrete and tangible advantages by reducing tariffs to make this region more competitive. CAFTA puts us on the radar screen of world commerce. Portions of CAFTA also remove non-tariff barriers and harmonize the import and export process in the region.
Q. What are Nicaragua's comparative advantages, head-to-head with your Central American neighbors?
A. First, we have our own special tariff-preference levels for textiles and apparel. Second, our cost structure: We have a 35 to 40 percent cost advantage over the rest of the Central American countries. Third, because of our low GDP per capita, Nicaragua will provide investors with 100 percent tax holidays in free zones beyond 2010. Most other countries will have to end these incentives by 2010, but we will maintain them because of Article 7 of the Doha agreement, which permits such tax holidays in countries that have less than $1,000 per capita income in 1996 dollars.
Q. How much progress have you made in attracting textile and apparel companies?
A. We now have more than 60 textile and apparel companies in Nicaragua. The sector is growing at over 25 percent a year; there is a lot of interest. Total foreign direct investment in Nicaragua rose 38 percent in 2003; that made us No. 2 in Central America after Costa Rica. Our U.S. customers - large retailers - are pushing the textile manufacturers to consider Central America because of the proximity to the U.S. market. Central America allows U.S. companies to have the best of both worlds - Asian-style costs, plus Mexican-style delivery times. It takes only four or five days from Central America to U.S. distribution centers.
Q. What are you doing to upgrade your transportation infrastructure so that you can deliver on time, even after trade volume grows?
A. We have invested close to $100 million a year in road infrastructure. With help from the World Bank and Inter-American Development Bank, we have been freeing up cash for infrastructure. Thanks to the IMF's provision for Highly Indebted Poor Countries - so-called HIPCs - Nicaragua qualified in 2003 for relief from $4.5 billion in foreign debt. As for ports, Nicaragua does have a disadvantage; our largest port, Puerto Corinto, is on the Pacific side of the country. How-ever, we can also use Puerto Limon in Costa Rica and Puerto Cortes in Hon-duras, which are on the Caribbean, to ship to the United States.