By Francisco Hernández | 2024-09-30

TEGUCIGALPA -- A Free Trade Agreement (FTA) being negotiated between Honduras and China has raised significant concerns about its potential negative impact on local businesses, a pattern that has already been observed in other Central American countries, according to analysts and representatives of economic associations.

The sixth round of negotiations for the FTA between Honduras and China took place in Beijing from July 29 to 31.

The date for the seventh round of negotiations has yet to be determined, but it is expected to occur in Tegucigalpa before the end of 2024.

In response to concerns raised about the potential negative impact of an FTA with China, Minister of Economic Development Fredis Cerrato stated in late August that the government will not approve any agreements that could harm key sectors of the Honduran economy.

"We will not negotiate anything that could harm us in sectors where job losses may occur, as we've seen happen with some past agreements," he stated.

Wiping out business

The potential FTA has drawn criticism from many quarters of Honduran society.

Salvador Nasralla, former vice president and a candidate for the 2025 presidential elections, has been a vocal critic of the negotiations with China and the Xiomara Castro administration's decision to sever ties with Taiwan in favor of establishing diplomatic relations with China in March 2023.

"Honduras cannot sign a Free Trade Agreement with China; it must be stopped," he said.

The presidential candidate argued that China's economy is far more powerful than Honduras's, warning that "they will flood our market with their products, wiping out our small businesses and leaving them without job opportunities."

Nasralla indicated that, if elected, he would restore diplomatic relations with Taiwan, a historically reliable partner for Honduras.

Armando Urtecho, executive director of the Honduran Council of Private Enterprise (Cohep), also said that "the terms proposed by China are unacceptable to both the government and the private sector."

"It is crucial to protect investments and jobs in Honduras," he said in comments published by the digital media outlet El Espectador de Honduras on August 7.

Meanwhile, journalist and analyst Lourdes Chávez, in an editorial published in La Tribuna, criticized the FTA negotiations, arguing that China is solely pursuing its own interests and is enticing the Honduran government with gifts and economic aid.

"Honduras has paid a steep price since Spanish colonization; now, the Chinese are enticing this government with the 'mirage' of trade and mega-infrastructure projects, promising an escape from poverty like that of neighboring countries," she wrote in her piece published on September 8.

She also asserted that China has succeeded in persuading Central American countries to shun their historical allies, including Taiwan and the United States.

"They [China] entice us with 'little gifts' that will come at a great cost. Costa Rica serves as an example of what we should avoid; it is crucial that we urge our authorities to reconsider this unequal trade relationship with China," Chávez wrote.

'Dark side'

Recent reports from the CADAL Foundation (Center for the Opening and Development of Latin America) have found a clear conclusion regarding the FTAs signed by Costa Rica, Chile and Peru with China: "In all three cases, China emerges as the clear winner in the relationship."

"China accomplished its objectives while its Latin American partners found their expectations either completely or partially unmet," states a CADAL report published on September 23.

The FTA with Costa Rica, signed in 2010, held considerable political significance for Beijing.

"It was the first piece of the domino effect... As of early 2024, the FTA with Nicaragua has come into force, while negotiations are under way for three others -- Honduras, Panama and El Salvador," according to CADAL, a foundation that advocates for an active foreign policy focused on human rights.

Costa Rica's trade expectations were not fulfilled.

Twelve years after the FTA came into effect, Chinese products have inundated the Costa Rican market, leading to a staggering 431% increase in imports.

This surge has resulted in a concerning trade deficit for Costa Rica, according to the latest foreign trade report from the Economic Commission for Latin America and the Caribbean (ECLAC), published in November 2023.

Furthermore, the FTA has failed to stimulate significant Chinese investments, which remain at minimal levels.

Analysts Sascha Hannig and Juan Pablo Cardenal from CADAL argue that a trade relationship focused solely on the export of natural resources raises questions about whether both parties truly benefit equally from the arrangement.

Such trade creates dependence on China because natural resources impart no added value.

Down in South America, another country has taken the Chinese bait.

Ecuador became "the latest regional country to have an FTA with China in force (May), following an expedited negotiation that lasted just 10 months. The rhetoric of a 'win-win' scenario overshadowed the evidence of the 'dark side' associated with FTAs with China," they concluded in their report.