What is Ortega Seeking by Signing Free Trade with China?

Is it fresh financing or taking advantage of a market?

Free Trade agreement between China and Nicaragua

Daniel Ortega negotiated a Free Trade Agreement with China in less than a year, which will be signed in the coming days and enter into force in January 2024.

By La Prensa

HAVANA TIMES – Without details of the document being known so far, the Ortega Murillo regime announced that the negotiations of the Free Trade Agreement (FTA) that will be signed with China in the coming days have been completed. The National Assembly will then ratify it in the following months so that it will enter into force in January 2024. Hereafter, the official propaganda sells it as another significant step to stimulate the economy. However, producers and exporters, who supposedly will benefit from the agreement, do not have any expectations, mainly because the document’s content is unknown.

Laureano Ortega Murillo led the negotiation of the agreement. “It was a great challenge to negotiate the FTA in one year, and we have achieved it,” said the dictator’s son. Later, Murillo, through her daily address, said that the agreement would also boost the import of Chinese products and Chinese investment in Nicaragua.

After an online meeting with Chinese trade authorities, Finance Minister Ivan Acosta informed the government media that this was a unique opportunity for trade, investment, and foreign financing, which is vital for the country’s development. “This is very relevant and guarantees that we will have more investment and trade… private investment, in this case foreign direct investment, and at the same time, it mobilizes large amounts of financing, which is vital for the country’s development,” Acosta pointed out.

What are they seeking with this agreement?

Some exporters, who, fearing reprisal, prefer not to be identified, consider that although the main objective of the FTA is to boost trade, in this case, it could be focused on the search for financing, as mentioned by Minister Acosta. So, although the Chinese market has more than one billion consumers, the regime may be aware of the significant challenges for local exporters to place their products in that market.

“To take advantage of the Chinese market and the so-called Silk Route, Nicaraguan exporters will have to acquire a new export culture that will take at least four years. This implies that it will take many years to get that market to absorb half of Nicaraguan exports, as the United States currently does,” warns a foreign trade specialist.

Among the major obstacles that Nicaraguan exporters will have to overcome is the distance of that country, cultural differences, customs, and consumption patterns. Although it cannot be discounted that, in reality, the interest might be focused on getting financing, as Acosta mentioned.

Will ENIMEX be the big exporter?

Ortega may be seeking substitutes for traditional sources of funding, such as the International Monetary Fund (IMF), World Bank (WB), Inter-American Development Bank (IDB), and others, which after the deadly consequences left by the repression with which the dictatorship quelled the 2018 protests, tightened the requirements and in other cases completely closed the tap of external financing.

The search for new financing could replace even the main ally in recent years, the Central American Bank for Economic Integration (CABEI). In November, this entity will elect a new executive president who, on December 1, will take over the post from Honduran Dante Mossi, who —after the criticism received for becoming the main financier of a dictator who, according to international human rights organizations, committed crimes against humanity— failed to be reelected for another five years in his post.

Regarding the lack of consultation and the secrecy that characterized the negotiation of the treaty, of which it is only known that it has 22 paragraphs, some exporters agree that it could be due to the idea of taking advantage of the few or many opportunities provided by that market through the Nicaraguan Importing and Exporting Company (ENIMEX), created by Ortega in 2018. That is, to repeat the export scheme they used during the boom in sales to Venezuela through Alba Foods of Nicaragua (ALBANISA).

The Asian Giant buys less

Faced with so much uncertainty and aware of how difficult it will be to take advantage of the Chinese market, some exporters hope that the treaty allows them at least to replace the Taiwanese market that was lost after the break in relations to establish the alliance with China. However, currently, export statistics are not very encouraging.

According to details in the official reports on Foreign Trade from Ventanilla Única de Comercio Exterior de Nicaragua (Vucen), in the first semester of 2023, Nicaragua sent 7,209 tons of products to China, for which it received 6.76 million dollars. Last year, in the same period, it shipped 17,568 tons and obtained 7.56 million dollars in revenues.

This drop of 58% in volume and in 10% in value occurred despite the entry into force on May 1 of the Early Harvest Agreement, which opened the doors to the Chinese market free of tariffs for 66 Nicaraguan products. According to exporters, this situation reveals the great obstacles involved in sending their products to that market, even with the tariff benefits provided by the referred agreement.

Taiwan buys more than China

Oddly, and even though since July 1 of last year, Taiwan withdrew tariff benefits to Nicaraguan products, because in December 2021, Ortega ended the FTA that the country had signed with them, that market continues buying more products than China. In the first semester of 2023, 8,679 tons of products were placed in that market, which generated 19.98 million dollars in revenues.

That figure triples the income generated by shipments to China in the same period, so at this moment it is not even compensating for the loss of the market that was abandoned to establish relations with them.

Because of that, the trade specialist warns that after the entry into force of the FTA with China, trade with the United States should not be neglected, since it is the most important for local products. According to the VUCEN report, 169,738 tons of products were sent to the United States in the first semester of this year, for which exporters received 945.99 million dollars.

Will China be the main beneficiary?

Regarding the increase of imports from China, economist and former political prisoner Juan Sebastian Chamorro thinks that the one to most benefit from this treaty will be China, since it can use Nicaragua as a springboard to send its products to the US market, which is of greater interest.

There is also uncertainty about the investments this treaty could bring about since so far, the interest of Chinese capital is focused on textile maquilas that generate precarious employment with low wages. They even consider that this alliance, more than a commercial endeavor, has a political interest on the part of Ortega to strengthen his narrative against the hegemony of the United States.

Hence the interest of Minister Acosta to ensure that the treaty’s signing becomes a unique opportunity, since it will open the doors to Nicaraguan products to the economy that is on track to position itself in the next ten years as number one in the world.

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