Banking trade groups have thrown their full support behind the Central American Free Trade Agreement, saying it would help banks by opening up new markets for U.S. farmers and manufacturers and creating tens of thousands of jobs.
More directly, they say, the agreement would make it easier for U.S. banks to set up operations in Central America.
But some agricultural bankers, especially those that lend to sugar growers, are decidedly less enthusiastic. They say the agreement could flood the U.S. market with cheap imports, depressing prices and endangering farmers’ livelihoods — and their ability to repay loans.
“If CAFTA were to pass, I doubt we would do any more sugarcane loans,” said C.R. “Rusty” Cloutier, the president and chief executive officer of the $626 million-asset MidSouth Bancorp Inc. in Lafayette, La. MidSouth, a two-bank holding company, has about $12 million of loans to sugarcane growers.
CAFTA, championed by the Bush administration, would eliminate tariffs and duties on most goods and services exchanged between the United States and Central America and the Dominican Republic.
Its passage in Congress, though, is no sure thing. The Senate approved the deal 54-45 on June 30, but it is languishing in the House, where it has almost no support from Democrats.
Ellery Gould, a spokesman for Rep. Charlie Melancon, D-La., said the bill needs about 20 more votes. Administration officials are “twisting arms” in hopes of converting its opponents, he said.
The Bankers Association for Finance and Trade, an American Bankers Association affiliate, is among the trade groups lobbying for the bill. Cory N. Strupp, the deputy executive director at BAFT, said that CAFTA would mean $5 billion in new economic activity and 60,000 new U.S. jobs.
The pact would create opportunities for banks’ customers and let banks establish branches, subsidiaries, and partnerships in Central America, Mr. Strupp said. It would also allow them to advise investment funds there and would provide legal protections for banks doing business south of the border.
“CAFTA locks in the market access that American financial institutions have today in Central America,” Mr. Strupp said.
The Nebraska Bankers Association also supports the agreement. George Beattie, the group’s president, said the accord could open up new markets for cattle farmers and bean growers. The Nebraska group also supported the North American Free Trade Agreement, Mr. Beattie noted. “We’re supportive of the kinds of things that open up trade barriers because it is important for Nebraska agriculture.”
Mr. Cloutier said he has heard the economic arguments but is not convinced. “I know Alan Greenspan says Americans should be happy to keep losing jobs offshore, but I haven’t gotten there yet,” Mr. Cloutier said.
The American Sugar Cane League of Thibodaux, La., estimates that the pact would increase sugar imports by 150,000 tons a year. (They now total 1.25 million.) That would reduce the price of domestic sugar and force many farmers out of business, said Jim Simon, the general manager of the league.
Mr. Gould of Rep. Melancon’s office said that CAFTA could cost Louisiana 27,000 jobs and $2 billion in economic activity.
Tim Siegle, the president and CEO of the $92.4 million-asset United Valley Bank in Cavalier, N.D., said sugar beet farmers in his area would also suffer if prices fell.
Hod Kosman, the president and CEO of the $268 million-asset Platte Valley National Bank in Scottsbluff, Neb., agreed that sugar farmers are likely to be hit hardest. But CAFTA alone is unlikely to put them out of business, he said.
His bigger concern is that it would lead to trade agreements with other sugar-producing countries, such as Thailand and Brazil, that would further flood the market and depress prices.
The United States is working on free trade agreements with 12 countries and regional free trade agreements in Latin America, Southeast Asia, and the Middle East.
Michael Swanson, the agricultural economist at Wells Fargo & Co., said banks must evaluate their credits and decide whether their borrowers can stand foreign competition. He also noted that because of poor infrastructure in some countries, foreign producers may not be the lowest-cost producers. However, he said that CAFTA is the “thin edge of the wedge” prying the U.S. market open for foreign sugar, and that bankers and producers need to start thinking about their options.
“The highest-cost producer gets knocked off,” Mr. Swanson said.
