CAFTA - Central American Free Trade Agreement
In late July, after a close and contentious vote, the U.S. Congress ratified DR-CAFTA, the Dominican Republic-Central America Free Trade Agreement. It is under similarly divisive debate by the Nicaraguan National Assembly; some resolution is expected by the fall of 2005. The FSLN (Sandinistas) generally oppose it, the PLC and business interests generally support CAFTA.
Most observers believe it has the support to pass into law, perhaps with added revisions. El Salvador, Guatemala and Honduras have already signed the bill into law; Costa Rica and the Dominican Republic are still debating it.
Proponents such a U.S. President Bush describe CAFTA as “commitment of freedom-loving nations to advance peace and prosperity throughout the Western hemisphere.” Former President Jimmy Carter said, “U.S. incomes will rise by $15 billion and those in Central America by some $5 billion… if the U.S. Congress turned its back on the agreement it would undercut these fragile democracies.”
Opponents of CAFTA call it and other international trade agreements thinly veiled licenses for giant multinational corporations to erode government sovereignty, subvert democracy and human rights and destroy the environment for the sake of maximized profits.
The debate over CAFTA has fueled strong emotions. Demonstrations, some of the violent, have broken out in Central American capitals. FSLN leaders in Nicaragua have called a “popular movement” against it.
Trade pacts typically lower or eliminate trade barriers such as tariffs and import quotas and strengthen intellectual property rights, though international business can and does go forward without them. CAFTA also has provisions for encouraging direct foreign investment, and protecting it from “expropriation” or interference in the host nations.
CAFTA is a complex, multifaceted legal agreement. The issues at stake are myriad. One of the first raised is agricultural provisions. The pact’s detractors raise images of poor campesinos, starved and forced off their ancestral lands after flood of imported foodstuffs undercuts the market. Opponents say that this happened in Mexico as a result of NAFTA, CAFTA’s model and predecessor.
However, while many small farmers did lose their jobs in Mexico, total corn production, mostly on large operations, went up. Is working for an agri-giant like Cargill worse than eking out a meager existence on a private plot of land?
In Nicaragua, only eight percent of the population earn a living by raising basic staples (corn, rice, beans, etc.) the other 92% would then benefit by this “cheap flood” of foodstuffs. A long list of processed foods from the U.S. and other signatories of the pact would also be less expensive. CAFTA has provisions to phase out tariffs on competing American food imports over ten to twelve years, allowing farmers time to adjust to other crops.
Those against the agreement also say sweatshops will proliferate; the working class of Central America forever doomed to toil in horrid conditions at below poverty-level wages. The greedy multi-national conglomerates get ever richer while the poor grow poorer. The question is are these jobs worse than no jobs at all, and can CAFTA improve the current work conditions.
Proponents of CAFTA say it will help preserve thousands of textile jobs, because the U.S. sends billions in cloth exports to CA factories that sew garments to send back to the U.S. Without the agreement, many of these CA factories will continue to relocate to China, where US inputs are not used. Also, CAFTA has stronger labor law provisions than those already in place, and could result in higher wages and better conditions.
CAFTA has enforcement provisions for labor law violations. It provides for fines, up to $15 million, with a mechanism to allow the US to redirect the monies toward actually solving the labor problem. But CAFTA is just the start on improving labor conditions. As part of the agreement, the US has made a commitment of $180 million in labor and environmental assistance that will strengthen labor ministries and improve labor courts. Just how well these devices can be implemented is another question.
Another key issue raised is privatization of public services such as power, water and communications. Direct foreign investment can mean buying the right to operate these services for profit. Some measure of this has already happened in Nicaragua; the Spanish-owned Union Fenose operates the power company.
By some estimates, less than half of Nicaraguan households have potable piped in water. Large-scale foreign investment could pay for the infrastructure to improve the situation. The question is at what price this water will flow; and what power would local government and citizens’ groups have to address any problems that might arise.
Protection of intellectual rights is another provision of the agreement. This could mean extending patent rights on medicines. Say opponents, CAFTA stipulations defending intellectual property threaten to move AIDS treatments and other medications beyond the reach of many C. Americans in need. Generic competition has lowered drug costs. CAFTA will lock countries into tough new patent rules that will drive the cost of life-saving drugs up and delay or obstruct generic competition. However, it would also encourage the introduction of new medications into the CA markets sooner.
Perhaps the most volatile issue raised by CAFTA is environmental protection. Activists issue dire warnings of the investment protection provisions being twisted as an excuse to wreak havoc. Massive lawsuits against the hose nations’ governments would subvert environmental protection statues. Lowered tariffs on exotic wood will accelerate illegal deforestation. CAFTA does not give corporations the right to ignore environmental laws. It does give them a new set of regulations with which to mount challenges to these laws in court.
According to some sources, corporations are planning more such lawsuits. If CAFTA passes, a subsidiary of Harken Energy has said it will demand $58 billion from Costa Rica (whose entire GDP is only $37 billion) in compensation for hypothetical future lost profits, if they are not allowed to drill offshore in Costa Rica’s protected Talamanca region. This is one of the planet’s richest marine ecosystems, and a UNESCO World Heritage Site. Is this an extreme example, or a portent of things to come?
The pact also carries provisions for bidding on government contracts. For any purchases over $117,000 (eventually to be lowered to $58,000), CAFTA forces governments to open up bidding to transnational corporations. That means that nations will no longer be able to give preference to home-based businesses, and so mom and pop operations in CA and the US will suddenly be competing with the DuPont and the Halliburtons of the world.
Overall, CAFTA’s supporters paint a rosy picture of mutual benefits, hailing the seven-nation pact as a open-door policy that will benefit exporters, expand industry and see prosperity and democracy in CA and the Dominican Republic.
Never the less, as in any evolving economic situation, there will be winners and losers. There is little doubt that the big multinational corporations have the most to gain; if they have the will and conscience to do so, these benefits could be spread across the societies of all the signatory nations.
Between the Waves Edition 12/ September-November 2005