Free Trade Agreement with China: Impact on Nicaraguan Businesses
A Chinese fruit and vegetable stall. Photo by Beauty van Stam on UnSplash.
Complaints of Unfair Competition
Martha, a shop owner at Roberto Huembes Market in Managua, Nicaragua, has complained to a reporter from Voice of America that her year-end sales have dropped. She claims that many Chinese businesses have opened around her store recently, offering cheaper products. "Imagine, they’ve undercut my prices. It’s unfair," she says, preferring not to share her full name for fear of her store being shut down.
Free Trade Agreement
The Free Trade Agreement (FTA) between China and Nicaragua, effective January 1, 2024, is poised to significantly impact Nicaraguan businesses by enhancing trade opportunities and economic cooperation. Key aspects of the agreement include:
- Approximately 60% of goods traded between the two countries are now exempt from tariffs, with plans to gradually reduce tariffs on over 95% of goods to zero.
- This development is supposed to benefit Nicaraguan exports such as meat, seafood, sugar, peanuts, rum, leather, charcoal, wood, and automobile parts, making them more competitive in the Chinese market.
Increased Chinese Competition
Since the FTA began, around 400 new Chinese businesses have opened in Nicaragua, according to Jorge González, president of the Nicaraguan Merchants Association. Several merchants, speaking anonymously, claim unfair competition as Chinese stores are able to sell at lower prices than local businesses.
Expert Analysis
Evan Ellis, a professor at the U.S. Army War College and expert in Latin American affairs, told Voice of America that the increase in Chinese stores "is a phenomenon seen in other Latin American countries, where there are complaints about unfair competition." He also noted that there is no clear evidence that Nicaraguan exports to China have grown as expected since the agreement took effect in January 2024.
Chinese Expansion in the Caribbean
There has also been a notable increase in Chinese retail businesses in the Caribbean in recent years. Chinese enterprises have expanded their presence across various sectors, including retail, infrastructure, telecommunications, and manufacturing. In Jamaica, for instance, Chinese-owned stores and supermarkets have become prevalent, offering a wide range of goods at competitive prices.
Economic Impact
Manuel Orozco, director of Migration, Remittances, and Development at the Inter-American Dialogue in Washington, estimates that by 2024, imports from China made up 15% of Nicaragua’s total imports, while exports to China were only 1%, far behind the 54% exported to the U.S. Orozco argues that the FTA with China has not significantly impacted Nicaragua’s economy, the second poorest in the Americas. "China’s presence only increased formal debt without disbursements. Trade has not grown as portrayed. The U.S. remains Nicaragua’s main fuel supplier, with over 40% of fuel imports coming from the U.S. China cannot offer what the U.S. provides," he stated.
Government Perspective
The Nicaraguan government, led by Daniel Ortega, continues to promote the FTA with China as a potential wealth generator for the country.
Sources
VOA. Jamaica Gleaner.
Conclusion
The Free Trade Agreement between China and Nicaragua has led to an influx of Chinese businesses in Nicaragua, with many local entrepreneurs complaining of unfair competition. While the agreement aims to enhance trade opportunities and economic cooperation, the impact on Nicaragua’s economy remains uncertain.
FAQs
Q: What are the key aspects of the Free Trade Agreement between China and Nicaragua?
A: The agreement includes the exemption of 60% of goods traded between the two countries from tariffs, with plans to gradually reduce tariffs on over 95% of goods to zero.
Q: What are the benefits of the Free Trade Agreement for Nicaraguan exports?
A: The agreement is supposed to benefit Nicaraguan exports such as meat, seafood, sugar, peanuts, rum, leather, charcoal, wood, and automobile parts, making them more competitive in the Chinese market.
Q: What is the current economic situation in Nicaragua?
A: Nicaragua is the second-poorest country in the Americas, with a significant reliance on imports from the U.S.
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