June 3, 2005

CAFTA and its Discontents

ANALYSIS

By Larry Birns and Sarah E. Schaffer

In an unprecedented trip on May 12, the presidents of Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua visited Washington to lobby for congressional approval of the Central America Free Trade Agreement (CAFTA). The agreement, which would remove virtually all trade barriers on goods entering the U.S., purportedly aims to better lure outside investment to the area by opening up Central America’s market to the U.S by means of bilateral trade preferences. CAFTA’s U.S. proponents hail it as one of Washington’s important answers to threats to its economy posed by China’s growing trade preeminence.

But according to its critics, those U.S. businesses likely to benefit will do so at the expense of impoverished Central Americans.

The House leadership hopes to bring CAFTA to a vote before the end of July. The mission of the Republican Speaker is to present the trade pact as a win-win arrangement for Central America and the U.S. But in fact, CAFTA is not good for the U.S. family farmer or his Central American counterpart. It will benefit Central American maquiladora assembly plant operators, but not necessarily their workers – a percentage of whom will be paid slave wages of around a dollar a day. Nor should CAFTA have any appreciable impact on the flow of tens of thousands of area refugees who monthly head for illegal entry to the U.S. in hopes of earning a living wage.

If CAFTA will help the poor, why have so many workers throughout Central America demonstrated against its passage both in the streets of their hometowns or by migration northwards.

Washington Under Pressure

While the Bush administration claims that CAFTA will help secure and strengthen democracy throughout the hemisphere by promoting growth and reducing poverty in Central America, economic indicators convincingly establish that U.S. agribusinesses and multinational corporations will be the pact’s overwhelming beneficiaries as a result of cheap labor and easily penetrable and non-competitive local markets. Under the current Caribbean Basin Initiative (CBI) and the Generalized System of Preferences (GSP), 80 percent of Central American products already enter the U.S. duty-free, while U.S. exports to CAFTA nations presently face tariffs of forty percent or more.

The U.S. Chamber of Commerce, a major proponent of CAFTA, insists that the pact would “level the playing field” for U.S. workers and businesses and that CAFTA could expand U.S. agriculture exports by $1.5 billion a year. Yet those exports would come not from family farms but almost entirely from multinational agro-industries like Cargill.

Moreover, the CAFTA countries today can freely export to the U.S. at no or very low tariffs and already are the second-largest U.S. export destination in Latin America, receiving $15 billion of U.S. exports, making them the tenth largest global export market for this country. U.S. trade with the region now exceeds shipments to Russia, India and Indonesia combined. Bilateral trade between the U.S. and Central America currently amounts to approximately $32 billion. Clearly, the current playing field is not slanted enough to be a significant deterrent to U.S. exports, or enough of an incentive to justify the stampede tactics the Bush administration seems intent on mobilizing in order to gain support across the country for House passage of the bill.

Trade between markedly asymmetrical economies such as those of the U.S. and Central America, could likely have a catastrophic impact on the latter’s relatively uncompetitive markets. While the Bush administration may be justified in wanting to stimulate the U.S. economy by expanding trade, it must be wary of doing so at the expense of developing nations or the weaker components of America’s own labor pool. Central American farmers will simply not be able to compete against subsidized agricultural products from the U.S., while increased American exports will only make CAFTA members more dependent on U.S. deliveries. Unfortunately, this scenario could be precisely what some Washington insiders are hoping for.

One of the White House’s greatest fears is that Central America and Mexico may decide to join South America’s spreading coalition of new left-leaning governments, which now includes Argentina, Brazil, Uruguay and Venezuela. With much of the hemisphere moving to isolate the U.S., Washington feels immense pressure to bolster its regional assertiveness and the Bush administration sees CAFTA as its vehicle to exert masterful authority in a part of Latin America closest to the continental U.S.

CAFTA already has been approved by all of the Central American governments and many business leaders, but it still must be voted upon by several legislative bodies, including that of the U.S., Costa Rica and the Dominican Republic. However, the CAFTA presidents do not necessarily represent even a simple majority of their constituents in spite of the megalithic public relations campaign they have been waging to influence the affected populations.

More than half of Central America’s population live below the poverty line and more than one-third work in the agriculture sector. Hundreds of thousands more have been lured to the U.S. by prospects of a living wage. Like President Bush, the CAFTA presidents vow that the agreement will bolster their economies’ growth and reduce poverty. However, Central Amer\ican leaders historically have been unsuccessful in addressing their citizens’ poverty plights, with some of them resorting to death squad murders and massacres to resist an equable distribution of their countries’ wealth to the poorer sectors of their population.

Not only will CAFTA fail to ease the hardship experienced by impoverished local farmers, but it will most likely compound it by forcing them to compete against U.S. subsidized goods, further exacerbating the already dire economic disparity and menacing levels of common crime to be found today throughout Central America.

The China Factor

CAFTA’s proponents claim that income shortfalls to Central American farmers will be relatively modest because subsistence farmers will continue to provide for themselves and that surplus agriculture workers will be able to find jobs in other sectors—namely apparel production—if Washington gets its way. In a recent interview with the Associated Press, U.S. Secretary of Commerce Carlos Gutierrez emphasized that CAFTA could help prevent China from taking over the U.S. textile market, stating that “[u]nless we do something to keep the textile industry healthy and vibrant, it could well go to China.”

Although China offers much cheaper labor, supporters of CAFTA claim that the U.S. and Central America’s close proximity to each other will achieve economies in transportation and furnish incentives for businesses to remain in the region. By eliminating trade barriers, CAFTA would provide a major incentive for U.S. textile manufacturers to expand their export market, allowing them to become more competitive in the global market.

CAFTA Could Be Doomed to Follow in NAFTA’s Footsteps

There is also concern in Washington that either the EU and China are threatening to replace North America as the world’s leading trading bloc. For others, CAFTA is seen as an intermediate step between the North American Free Trade Agreement (NAFTA) which brings together the U.S., Canada and Mexico, and the proposed Free Trade Area of the Americas (FTAA), which would create a hemisphere-wide trade bloc.

If indeed CAFTA is to be modeled after NAFTA, the future could appear dim for impoverished Central American farmers and working-class U.S. residents. At its inception in 1994, NAFTA promised to create high-paying jobs in the U.S. and improve living standards in Mexico. However, after more than 10 years, Mexico has seen relatively little such prosperity, and distinctly has not produced a win-win situation.

Although investments and exports have somewhat risen, NAFTA has, predictably, increased inequality and poverty in a number of sectors while reducing buying power for large numbers of Mexican workers and agriculturalists. More than one million Mexican farmers have lost their land, including tens of thousands of subsistence farmers, because they were unable to compete with the lower prices offered by U.S.-subsidized agriculture exports.

Ironically, Mexico, where corn originated as maize, saw even its subsistence farmers unable to compete against subsidized U.S. agro-industry. Under CAFTA, Central American small-scale farmers could face a similar depressing fate. In the U.S. alone, NAFTA has prompted the loss of nearly 900,000 jobs—many of them high-paying—because U.S. and Canadian businesses have continued migrating south in search of cheap labor.

Labor Rights: a Blatant Omission

While U.S. and Central American leaders continue to promise that CAFTA will provide a magnitude of new jobs, a shift in industry could represent a profound turn for the worse for workers. Unlike current regional trade agreements such as the CBI and the GSP, CAFTA does not require signatory nations to uphold universal workers rights, including the prohibition of child labor, which is a pervasive problem in Central America.

In its current form, CAFTA encourages countries to abide by their existing labor codes. Ironically, the U.S. State Department, the International Labor Organization and scores of human rights groups have consistently criticized Central American nations like Guatemala and El Salvador, for their either ineffective or unfair labor regulations, poor work standards and government-sanctioned union-busting tactics. Almost every affected labor group in both the U.S. and Central America adamantly opposes the pact, and Guatemala witnessed thousands of protestors rallying against CAFTA, only to be met by repressive police tactics.

Ultimately, both CAFTA and NAFTA are based on the logic that the end justifies the means, with the list of beneficiaries scheduled to be very modest and one-sided. The Bush administration would be wise to give serious consideration to the consequences of its narrow trade rationale, which essentially puts revenue and short-term profit ahead of basic workers’ rights and decent living standards, and which could endanger Washington’s already shaky reputation as a dependable champion of personal rights in the hemisphere.

Larry Birns is Director of the Council on Hemispheric Affairs (COHA) and Sarah E. Schaffer is a Research Fellow. The COHA, is an independent, non-profit, non-partisan, tax-exempt research and information organization, www.coha.org.

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