According to a U.S. official, the Biden administration may try to expel Nicaragua out of a lucrative regional trade pact or to allocate Nicaragua's valuable sugar quotas to another Central American country to counter President Daniel Ortega’s crackdown on his rivals.
According to an American official, the economic impact of the actions are still being analyzed and no decision has yet been made.
However, any action that affects billions of dollars in annual trade with America could cause serious economic pain to the country's business elite who have mostly watched as Ortega's repressive methods have grown, stated the official.
Eddy Acevedo (son of Nicaraguan immigrants, chief of staff at Woodrow Wilson Center in Washington) stated that Nicaragua's private sector must make a decision. They can either aid and abette this bloody regime or stand with the Nicaraguan people who long for freedom and democracy.
This type of economic patriotism might be difficult to find among the many business leaders currently imprisoned.
The U.S. considers Nicaragua to be daily trial of antigovernment activists. This was done ahead of the last fall's elections. Ortega won easily a fourth consecutive term, with his likely opponents not able to compete. All of the defendants have been sentenced and convicted.
To date, the Biden administration has responded to Ortega's authoritarian tendencies by targeting individuals within the president's inner circle as well as family members with sanctions that cut off their access to U.S.
The 2004 signing of the Central America Free Trade Agreement would have been a significant blow to Ortega's government. It would also deprive Ortega of valuable export earnings and foreign investments. Nicaragua is the only CAFTA member to have a trade surplus of $2.5 billion with the U.S. last year. This represents 20% of the country's gross domestic product.
It is not easy to remove Nicaragua from the trade agreement.
CAFTA is an international treaty that was ratified in seven countries. Many U.S. retailers have deep ties to Nicaraguan suppliers, particularly in the textile sector.
U.S.-negotiated trade agreements don't usually include so-called democracy clauses, like the one Brazil and Argentina used to suspend Paraguay in the Mercosur trade pact following the rushed impeachment Fernando Lugo.
Eric Farnsworth, who was a former U.S. trade negotiator under the Clinton White House, is now vice president of the Council of the Americas. Funded by U.S. businesses doing business in Latin America, Farnsworth said, "It would certainly be messy." It would send the right message that the private sector should stay clear of Nicaragua.
Farnsworth suggests that the U.S. could refuse to import certain products arguing that Nicaragua is under U.S. sanction. Farnsworth says this is a simpler alternative. This would allow Ortega to sue the United States under the terms of the treaty, which would start a long and expensive process.
Another option, which would see Nicaragua's annual sugar supply re-assigned to another Central American country, is also under consideration. This would eliminate what amounts to a U.S. subsidy of millions of dollars each year.
Farnsworth stated that a labor-intensive sector like sugar could cause resentment towards Ortega in Nicaragua's rural areas. This was the scene of the bloody civil conflict in the 1980s between Ortega's Sandinista Army and the U.S-backed Contra rebels.
Carlos Pellas, Nicaragua’s richest man and largest sugar producer owner, could be mobilized by choosing sugar. Pellas signed an open letter by business leaders following the 2018 antigovernment protests. It called on Ortega for higher elections. He said that the country's economy was in crisis. He's been on the sidelines since Ortega started to crack down, at least publicly.
However, his family had significant properties that were expropriated under Ortega's 1980s regime and they could be at risk of being retaken.
Ortega has sent out a clear message of support to any economic elites that might be opposed to him. Police arrested two business leaders and the president and vice-president of the top business association in the country in June. They were charged with money laundering, inciting foreign interference, and acts that reduce the country's independence.
Similar charges were brought against him by his political adversaries.
The U.S. Congress passed Renacer Act just before the November elections, giving Ortega more power. The law included a mandate that the White House must review Nicaragua's participation to CAFTA. It also required a report on Russia’s security ties to Nicaragua. This report is due late this month.
Manuel Orozco is a Nicaragua expert who spoke at the Inter-American Dialogue and said Ortega's government has already violated several parts of the trade agreement, particularly labor provisions.
He warned, however, that CAFTA's dissolution could lead to its downfall and even benefit Ortega. Ortega could then try to reimpose U.S. tariffs and blame Biden for the increased cost to consumers.
Orozco stated that it was a double-edged weapon. "It could bring in more revenue for Nicaragua if you attempt to dismantle CAFTA."