MIAMI (AP) — The Biden administration is considering trying to kick Nicaragua out of a lucrative regional free trade pact — or allocating its prized sugar quota to another Central American country — to retaliate against President Daniel Ortega’s crackdown on his opponents, according to a US official.
The economic impact of the action is still being analyzed and no decision has been made, according to a US official speaking on condition of anonymity to discuss internal conversations.
But any action affecting billions of dollars in annual trade with the United States could inflict severe economic hardship on the country’s business elite, which has remained mostly silent as Ortega’s repressive tactics have faltered. developed, the official said.
“The Nicaraguan private sector has a choice to make,” said Eddy Acevedo, son of Nicaraguan immigrants and chief of staff at the Woodrow Wilson Center in Washington. “Either they continue to aid and abet this tyrannical regime with blood on their hands, or they stand with the people of Nicaragua who yearn for freedom and democracy.”
Such economic patriotism can be hard to come by with several business leaders already among those imprisoned.
Nicaragua is holding what the United States considers daily show trials against anti-government activists gathered ahead of elections last fall. With his likely opponents unable to compete, Ortega easily wins a fourth straight term. So far, each defendant has been found guilty and sentenced to prison.
The Biden administration’s response to Ortega’s authoritarian tilt has so far been to target people in the president’s inner circle and family members with sanctions cutting off their access to the United States.
Expulsion from the Central American Free Trade Agreement, which was signed in 2004, would be a blow, depriving Ortega’s government of significant export revenue and foreign investment. Nicaragua is the only CAFTA country to post a trade surplus with the United States, of around $2.5 billion last year, or 20% of its gross domestic product.
But kicking Nicaragua out of the trade pact is no easy feat.
CAFTA is an international treaty ratified by seven nations, and Nicaraguan suppliers, particularly in the textile and light electronics sector, are deeply integrated into the supply chains of many US retailers.
The treaty doesn’t have an eviction mechanism, so any attempt to lock Ortega in would force Nicaragua’s neighbors plus the Dominican Republic, also a signatory, to pull out of the deal and negotiate a new deal in which other Grievances – ranging from US farm subsidies to the impact on US businesses – could be back on the table.
Moreover, free trade agreements negotiated by the United States generally do not include so-called democratic clauses such as the one used in 2012 by Argentina and Brazil to suspend Paraguay from the Mercosur trade pact after the dismissal rush from the then president, Fernando Lugo.
“It would surely be messy,” said Eric Farnsworth, a former US trade negotiator in the Clinton White House and now vice chairman of the Council of the Americas, which is funded by US companies doing business in Latin America. “But it would send the right message to the private sector to stay away from Nicaragua.”
A less complicated alternative, says Farnsworth, would be for the United States to refuse to import certain products on the pretext that Nicaragua is under American sanctions. Such a decision would effectively challenge Ortega to sue under the terms of the treaty, thus initiating a long and costly process.
The other option being considered, reallocating Nicaragua’s annual sugar quota to another Central American country, would remove what is essentially a US subsidy worth millions of dollars each year.
Farnsworth said hitting a labor-intensive industry like sugar could stoke resentment against Ortega in rural Nicaragua, site of the bloody 1980s civil war between Ortega’s Sandinista army and rebels. Contra supported by the United States.
Choosing sugar could be a way to mobilize Carlos Pellas, Nicaragua’s richest man and owner of the biggest sugar producer. Pellas was a signatory to an open letter from business leaders after the 2018 anti-government protests, calling on Ortega to speed up the election. He warned that the country’s economic model was bankrupt. But he’s been on the sidelines, at least publicly, since Ortega really started to crack down.
His family, however, owned significant properties targeted for expropriation under Ortega in the 1980s and could be wary of suffering a repeat.
Ortega has already sent a clear message to economic elites who may oppose him. In June, police arrested two prominent business leaders and in October the president and vice-president of the country’s main business association, charging them with crimes including money laundering, acts that undermining the country’s independence and inciting foreign interference.
The charges were similar to those applied to his political opponents.
Just before the November election, the US Congress passed the Renacer Act, giving more tools to pressure Ortega. Among the provisions of the law was a mandate requiring the White House to review Nicaragua’s participation in CAFTA. He also called for a report on Russia’s security ties with Nicaragua to be released later this month.
Manuel Orozco, a Nicaraguan expert with the Inter-American Dialogue, said Ortega’s government was already violating several elements of the trade deal, particularly the labor provisions.
But he warned that disbanding CAFTA could backfire and even benefit Ortega, who could try to reimpose tariffs on imported U.S. goods and blame Biden for the extra cost to consumers.
“It’s a double-edged sword,” Orozco said. “If you try to dismantle CAFTA, it could mean more revenue for the Nicaraguan government.”