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Getting beyond the myths of CAFTA

ASK THIS | June 27, 2005

The debate over CAFTA is often framed as being one between the forces of free trade and the forces of protection. But that has little to do with the realities of CAFTA, a complex managed trade agreement that caters to the elites and would doom the workers of Central America to an unacceptable status quo.

By Harley Shaiken



Q. Which areas of the CAFTA agreement contain strong language and effective enforcement provisions – and which don’t?


Q.   What was our experience with NAFTA? And how might that inform our thoughts about CAFTA?


Q. No one is suggesting CAFTA should be perfect. But is it at least a step in the right direction? Or does this lock in an unacceptable status quo?


Q. What explains the rather remarkable contrast between the ratification (in some cases under unusual circumstances) of the agreement by Central American legislatures – and the broader popular opinion amongst Central Americans that tends to be very negative?


President Bush has submitted the Dominican Republic-Central American Free Trade Agreement to Congress for ratification. If approved, it would extend NAFTA-like trading preferences to El Salvador, Guatemala, Honduras, Nicaragua, Costa Rica and the Dominican Republic. The House and Senate must vote within 90 legislative days of receiving the measure.


The debate over CAFTA is most often framed as a debate between the forces of free trade and the forces of protection. That’s a fascinating 19th Century discussion; it has little to do with the realities of CAFTA. CAFTA is a complex managed trade agreement, providing tough enforcement in some areas and the softest of language in others.


When it comes to intellectual property rights, for instance, CAFTA’s rules are complex and onerous. For US drug companies, the agreement extends the time period during which brand-name pharmaceuticals have exclusive access to markets, postponing the entry of generic drugs and thus limiting competition. For Central Americans, that means the cost of drugs will soar, straining budgets and gutting healthcare. The result may be a death sentence for many.


By contrast, when it comes to labor rights and the environment, all CAFTA offers is a hope and prayer.


CAFTA supporters hold to a “field of dreams” notion:  expand trade and everything else will improve.   They argue that  jump-starting trade will cause worker rights to improve, environmental enforcement to become more effective, and illegal immigration to decline.


Is that in fact what’s happened since the passage of NAFTA, which held out the same promises? While cross-border trade between the U.S. and Mexico tripled under NAFTA, real wages have declined. There are almost no independent unions in Mexico. Environmental enforcement is negligible. And illegal immigration continues to rise. Now admittedly there are other factors involved, but more trade alone will not result in bad conditions becoming better.


Where are the incentives to change? This would be an incentive: Either you allow workers to unionize if they choose -- or you don’t get access to U.S. markets on favorable terms. But instead, this trade agreement essentially says that the status quo is acceptable -- that’s certainly how it will be interpreted in those countries. And for workers, the status quo in Central America includes everything from rampant discrimination against older people (those over 35) to physical abuse, lack of bathroom breaks, no overtime pay and poverty wages. The anemic labor standards enshrined in this agreement encourage firms to compete by taking the low road, a route that puts them on a collision course with China's rock-bottom wages.


How did these agreements pass in Central America? Well, in Honduras, for example, the legislature passed CAFTA in an unannounced early-morning session. The ratification vote in Guatemala prompted large protests in which two demonstrators died.


Political elites either stand to benefit from the agreement or – legitimately -- see themselves as having little choice but to accept it.  By contrast, the people of those countries have reservations over what it is that they’re accepting.


Who benefits? In Central America, one of the regions of the world with the highest income inequality, the elites benefit. In the United States, the winners are very large business interests, principally in the pharmaceutical, high-tech and agricultural areas.


The central drama of CAFTA is not the choice between the benefits of free trade and the perils of isolationism. It’s that rules that could have made this a more robust agreement were largely bypassed in favor of a very narrowly defined agreement that benefits a few at the expense of the many.

Yes, the 'giant sucking sound'
Posted by Regina Wilkinson - Entrepreneur and Doctoral student
10/24/2006, 08:11 PM

CAFTA, like its predecessor NAFTA, unfortunately will negatively impact US manufacturing as we see US companies pack up and move entire plants to the Central Americas, FDI.

I believe it will actually increase illegal immigration as it will create another 'race to the bottom'. Mexico's only advantage is a more highly skilled workforce as CAFTA once again 'levels the playing field'.

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