US Congress to Consider Preferential Trade Status for Paraguay

By Elisabeth Burgess
Latin America Advisor, November 14, 2008

Originally published in the Dialogue's daily Latin America Advisor

ASUNCION, PARAGUAY—Rep. Eliot Engel (D-NY) this week said he plans to introduce legislation early next year to grant Paraguayan exports duty-free access to the US market. Such trade preferences would give Paraguay similar advantages to those that Andean countries have enjoyed since 1991 under the Andean Trade Preference Act and subsequent Andean Trade Promotion and Drug Eradication Act (ATPDEA), which require countries to cooperate with the US in anti-narcotics efforts.

"It would be a win for both countries," Engel told the Advisor Wednesday. Engel, who chairs the US House's Western Hemisphere subcommittee, visited Asuncion with seven other members of Congress this week to discuss issues including trade preferences with Paraguayan President Fernando Lugo. Other House members in the delegation included Dan Burton (R-IN), Lincoln Davis (D-TN), Virginia Foxx (R-NC), and Maxine Waters (D-CA).

When asked whether Paraguay would have to meet certain conditions to get trade preferences, like the anti-drug cooperation required of Andean nations under ATPDEA, Engel said the bill would "certainly include some anti-drug measures." However, he said it is unclear whether the requirements would be as specific as ATPDEA.

Paraguay, a landlocked country of just 6 million people, is not a major narcotics producer, but it is a big transit hub. Also, marijuana growing is on the rise in the northeast part of the country.

Paraguay has felt excluded from the Andean trade preferences, said Raul Cano, trade director of the country's foreign affairs ministry. While Paraguayan exports to the US amounted to just $66 million in 2006 (0.2 percent of Paraguay's total exports), Bolivia's reached $362 million because of Bolivia’s "unfair" advantage, Cano told the Advisor. "We never had a policy of confrontation with the United States like a neighboring country has, yet we don't have trade deals," he lamented. Hearing about Engel's proposal "is music to our ears," Cano said.

Imposing conditions such as anti-narcotics cooperation could make the deal more thorny, but not impossible, said Frank Mora, a professor at the National Defense University in Washington and an expert on US-Paraguayan relations. Drug trafficking "remains a critical security issue for the US in Paraguay," Mora told the Advisor, noting that anti-drug cooperation is limited, despite some training and institution building, and there are some "trust issues" between the two countries' anti-narcotics agencies.

In the Paraguayan Congress, "some parties or factions will make an issue of 'conditionality,'" Mora said. "Anti-Americanism is in vogue so there are some political points to be made. The US will have to navigate carefully but ultimately it will be supported but not without some heated rhetoric."

Ninety percent of Paraguay's exports to the US are diverse manufactured or semi-manufactured goods, rather than Paraguay's traditional commodities exports of beef, soy, cotton, and wood products, according to Fernando Masi, director of a local think tank, the Centro de Analisis y Difusion de Economia Paraguaya.

Under the General System of Preferences, some Paraguayan exports enter the US duty free, but many products don't fall under GSP rules.