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Free Trade in Nicaragua

Most Free Trade Zones (known as maquilas) are located in developing or economically depressed countries; Nicaragua is no exception to this unofficial rule. The Nicaraguan government currently allows 112 factories – most of them owned by American or Taiwanese multinational companies – to operate within the country’s 12 maquilas.

International companies receive incentives and benefits from the Nicaraguan government when they import raw materials, assemble goods or export products. The free trade zone rules encourage the corporations such as Chentex, which makes jeans for companies like Bugle Boy, Cherokee and Gloria Vanderbilt, to set up shop in the country and then export the completed products. In Chentex’s case, the products are sold at stores like Target, K-Mart, JC Penney and Kohl’s. International companies find Nicaraguan Free Trade Zones very attractive due to the existence of cheap labor and the country’s relative political stability.

The government makes no tax revenue off these factories; the main benefit for Nicaragua is the creation of thousands of desperately needed jobs for its citizens. In August 2004, the Nicaraguan government signed the DR-CAFTA (Central American-Dominican Republic Free Trade Agreement). The agreement came into effect on April 2006, eliminating 80 percent of trade barriers for United States’ exports into Nicaragua and increasing the amount of sugar and beef that Nicaragua could ship to North America.

The regional trade agreement was created with a similar format and ambition as NAFTA, but included the countries of Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States. As well as increasing Nicaraguan exports to the United States, DR-CAFTA has created thousands of jobs for workers (90 percent are single uneducated mothers who would otherwise have no means of support). However, the wages are so low that workers remain poverty stricken.

On the world stage, the agreement remains very controversial. DR-CAFTA supporters argue that the new jobs are better than nothing, particularly in a country that has the second lowest per capita income in the Western Hemisphere. Opponents of the agreement claim the working conditions permitted under DR-CAFTA are inhumane and the fact that the workers are not allowed to unionize is a violation of human rights.

Here are some related tips to help plan your trip to Nicaragua : Nicaragua: Today’s Politics and Government and Economy.

By Michelle Lillie
I am currently living on my fourth continent. I think that backpacks are one of the greatest inventions of all times. I adhere to the idea that if...
16 Apr 2010

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