The Free Trade Agreement Between the United States and Central America: ECONOMIC AND SOCIAL IMPACT
Raúl Moreno*
San Salvador, May 2003
SINTI TECHAN NETWORK, EL SALVADOR HEMISPHERIC SOCIAL ALLIANCE AMERICAN FRIENDS SERVICE COMMITTEE
This study was made possible through the financial support of the Department for International Development of the United Kingdom.
The Free Trade Agreement between the United States and Central America: ECONOMIC AND SOCIAL IMPACTS
Raúl Moreno
The Free Trade Agreement Between the United States and Central America: ECONOMIC AND SOCIAL IMPACT
Raúl Moreno*
“I ask that we stop to think about the greatness to which we still can aspire if we dare to value life in a different way … We have time to reverse this abandonment and this massacre. This conviction must lead us to commitment.”
Ernesto Sábato, La resistencia, Seix Barral.
Research developed under the auspices of the American Friends Service CommitteeCentral America. Reproduction of the document is authorized when source is cited. *
Economist, professor in the College of Economic Sciences of the University of El Salvador, president of the Center for Consumer Defense (CDC), and member of the Network of Citizen Action on Trade and Investment in El Salvador, SINTI TECHAN.
[email protected] [email protected]
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LIST OF ACRONYMS AoA AORAES BIT CAFTA CAINCA CBI CCHFTA DFI ESCR ESP FECAGRO FEDEVICAC FTA FTAA GATS GATT GDP GSP HSA IADB ICSID ILO IMF MAI NAFTA NFPS NTFTA NGO OECD PPP SAP TRIMS TRIPS UNICITRAL USTR VAT WB WTO
Agreement on Agriculture Association of Operators of Access Networks of El Salvador Bilateral Investment Treaty Free Trade Agreement between the United States and Central America Central American Chamber of Sugar Processing Industries Caribbean Basin Initiative Free Trade Agreement between Central America and Chile Direct Foreign Investment Economic, Social and Cultural Rights Economic Stabilization Program Central American Federation of Agricultural and Agro-Industrial Chambers Federation of Poultry Chambers of Central America and the Caribbean Free Trade Agreement Free Trade Area of the Americas General Agreement on Trade in Services General Agreement on Tariffs and Trade Gross Domestic Product Generalized System of Preferences Hemispheric Social Alliance Inter-American Development Bank International Center for Settlement of Investment Disputes International Labor Organization International Monetary Fund Multilateral Agreement on Investment North American Free Trade Agreement Non-financial Public Sector Free Trade Agreement between Mexico and the Countries of the Northern Triangle of Central America Non-Governmental Organization Organization for Economic Cooperation and Development Plan Puebla Panamá Structural Adjustment Program Agreement on Trade Related Investment Measures Trade Related Intellectual Property Rights United Nations Commission on International Trade Law Office of the United States Trade Representative Value Added Tax World Bank World Trade Organization
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Index 1. Introduction ..................................................................................... 2. The context of the Free Trade Agreements .................................. 2.1. The World Trade Organization: the new framework for the accumulation of multinational capital............................................. 2.2 Investment and development policies.......................................... 2.3. Free Trade Agreements: instruments for the consolidation of the “adjustment”.............................................................................................. 2.4. The legal implications of the FTAs................................................. 3. Free Trade Agreements: much more than trade agreements..... 3.1. Objectives of the FTAs.................................................................... 3.2. Principles of the FTAs................................................................. 3.3. Content of the FTAs................................................................. a. Market access for goods....................................................... b. Investments................................................................................... c. Government purchases........................................................... d. Services......................................................................................... e. Intellectual property rights.................................................. f. Temporary Entry for Businesspeople...................................... g. Sanitary and phytosanitary norms..................................................... h. Administration............................................................................. 3.4. Labor and environmental clauses.................................................. 4. Myths and truths of CAFTA................................................................ 4.1. The CAFTA negotiation process.......................................... 4.2. Technical and impact studies...................................................... 4.3. The critical points of CAFTA: main repercussions ............ a. Addressing the asymmetries........................................................... b. Agriculture and subsidies.................................................................. c. Market access.......................................................................... d. Other relevant issues................................................................... 5. Potential social and economic impact of CAFTA........................... 5.1. Economic policies and the Central American economies.......... 5.2. Jobs and labor rights............................................................... 5.3. Public services ................................................................................ 5.4. Patents, medicines and access to health care ....................................... 5.5. Food sovereignty and the agricultural sector.........................................
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6. Civil society in the face of CAFTA............................................... 7. Appendices................................................................................................. 8. Bibliography............................................................................................
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1. Introduction “By irrevocable decree, the everlasting kingdom of justice and clarity is hereby established. And joy will be a generous flag forever raised In the soul of the people” Thiago de Mello, The Statutes of Man
In the actual “world economic disorder” a perverse logic prevails which places profit as the highest value of things, which scorns human rights and which responds to a universal vision of competition and consumption. This “upside down” order, which equalizes ideas and tastes which it imposes but is unequal in the opportunities it generates and the way it divides the pie, has been very efficient in simultaneously globalizing the privileges of the multinational enterprises while marginalizing billions of people. The “free trade” wave promoted by the World Trade Organization and by the Free Trade Agreements (FTA) on a bilateral basis, is a characteristic feature of the current phase through which capitalism reveals itself. There is no doubt that the new instruments created in the field of trade and investment, which complement neoliberal economic policies, also incarnate this atrophied logic and have proven their suitability for facilitating the global accumulation of capital.
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The FTAs are much more than trade agreements; their content incorporates a range of mechanisms which interrelate prohibitions to governments with rights for foreign enterprises on investment matters, non-discriminatory treatment, intellectual property rights, liberalization of services and access to public bidding processes; thus becoming an instrument which assures the transformation of privileges into rights for multinational corporations. This is because, with the ratification of the FTAs on the part of the legislative bodies in each country, these treaties become the Law of the Republic with greater legal precedence than all the secondary legislation. The structure and chapter content of the FTAs is based on a crosscutting logic which privileges profit over human rights and sustainability. Confirming the extensive list of rights granted to foreign enterprises, which contrasts with the complete omission of the rights of working people and consumers, or of mechanisms for the conservation of ecosystems, is overwhelming and all out of proportion. There is a broad spectrum of impacts of FTAs, because they transcend the strictly commercial plane to invade political, economic, social, cultural, labor and environmental areas, filtering into our daily experience to directly and indirectly affect our lives and the well-being of the population in general. In the Central American governments’ race to sign the FTA, they have recently achieved their “highest aspiration” which is to sit down at the table with the U.S. government to “negotiate” a FTA between the United States and Central America (CAFTA). This fact is presented as the best economic news since the arrival of the Spanish conquistadors, key to the growth of our small economies and as the ideal instrument for massive job creation. To the intense official media campaigns which present us with the well-being which will overflow into our economies with the possibility of exporting “pupusas” and “iguana soup” to the large U.S. market, or the blessings of having a job in some sweatshop, it would be important to throw in a dose of reality, based on scientifically and technically rigorous studies which demystify the underlying rhetoric that supports a good part of the official arguments. In that sense, current research can contribute to an understanding of the phenomenon of the FTAs in general and CAFTA in particular, decoding its logic and content to identify their potential economic and social impact. The primary limitation to this effort has been the lack of official information on the positions and status of the negotiations, although attempts have been made to replace this with news coverage of the negotiation process. As the governments have scheduled the end of the CAFTA negotiations for December 2003, this agreement is still in proposal form, making it impossible to examine its repercussions. In this work, the potential effects of CAFTA are identified based on the analysis of its content and including the experience of other countries, such as Mexico which has suffered the consequences and negative effects of NAFTA with the United States over the last eight years.
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This document is structured into five chapters. The first chapter examines the context in which the FTAs are inscribed, the framework established by the WTO, the role played by investments and the adjustment programs as complementary instruments in the process of capital accumulation; and the legal implications of the FTAs. The second chapter presents a review of the objectives and principles of the FTAs, as well as an analysis of its main content, highlighting the important omission of labor and environmental aspects. This presents the answer to the question, “what are the FTAs?” In the third chapter, the analysis focuses on CAFTA, the negotiation process, the technical studies and impact studies, and outlines the principal repercussions based on the critical points which have emerged. In the following chapter, CAFTA’s potential social and economic impacts are addressed from a perspective which transcends the strictly commercial focus, and so analyzes those effects on the economic policies, the labor market, public services, medicines, food sovereignty and the agricultural sector. The fifth chapter refers to the role which civil society should play in the face of CAFTA, some continental and regional efforts are addressed that make it clear that, with proposals and resistance, it is possible to build another Central America. Finally, the appendices and principal bibliographic sources used for this investigation are provided.
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2. The Context of the Free Trade Agreements We live in a world in which it is more serious to violate the rules of trade than it is to violate human rights.
W. Allman
One of the predominant characteristics of the international scene is the prevalence of a “unipolar political order”, which has been consolidating its militaristic character and unilateral emphasis on international relations, in a multipolar economic context based on the articulation of economic blocks controlled by a hegemonic triad formed by the European Union – under the leadership of Germany, the economies of Southeast Asia – with Japan and China leading, and the United States, accompanied by the other two countries who signed the North America Free Trade Agreement (NAFTA), and now with the intention of including 34 economies in the project of the Free Trade Agreement of the Americas (FTAA). The recent invasion of Iraq only reaffirms the shift experienced in neoliberal corporate globalization toward a neoliberalism of war. In this context, not only is it clear that the military industry1 is becoming increasingly important, with the world’s economic reactivation heavily dependent upon arms production, but also unilateral decisions have been applied which end up breaking multilateral agreements signed by the community of
1
In 2002 military spending increased for the fourth consecutive year by 6%, equal to US $ 794 million. The United Status continues to be the greatest arms producer in the world, their production is estimated at US $ 335.7 billion, which is 43% of world supply. See: SIPRI, The 15 major spender countries in 2002.
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nations and which constitute the basis for peaceful understanding and co-existence among peoples. The connections between the neoliberalism of war and the topic of trade and investment are made evident in the United States national security document itself which states that “free markets and free trade are the key priorities of our national security strategy.”2 Also proposed as part of the national security strategy of the United States are negotiations of the World Trade Organization (WTO), the construction of the Free Trade Area of the Americas, the Free Trade Agreements3 and the Bilateral Investment Treaties. The U.S. Secretary of State Colin Powell has explicitly stated that their “objective is to ensure control by U.S. businesses over a territory that ranges from the North Pole to Antarctica, with free access, without any obstacle or difficulty for our products, services, technology and capital throughout the hemisphere"4. The process for deregulation of capital has been promoted from the agreements on which the WTO is based and the broad range of bilateral-regional trade and investment agreements. However, parallel to this process is the growth and strengthening of a global resistance movement, expressed in the massive world mobilizations which have been occurring since the Seattle Round in 1999, and which constitute hope for the construction of an international force for the building of another world. The intention of the government of the elder Bush to push for the construction of a Free Trade Area of the Americas (FTAA) was made public in the Presidents’ Summit in Miami in 1994, the year in which the North American Free Trade Agreement – signed between the United States, Canada and Mexico – (NAFTA) became effective, with principles and content that noticeably coincide with the FTAA, to the extent that some specialists are calling it a NAFTA+.5 This being so, there is no doubt that the FTAA is much more than a commercial project, which attempts to form a hemispheric block in the Americas to function as a counterweight to the European Union block and the economies of Southeast Asia, through the imposition of the agenda of the U.S. corporations in their desire to achieve the deregulation of investments and improve their position in the thirty-four economies of the Americas.6
2
U.S. State Department (2002): National Security Strategy of the United States, September, p. 23. Ibid, p. 18-19. 4 Quoted in: León, Osvaldo León (2002): Movilización continental contra el ALCA, en ALAI, January 24, http://alainet.org/docs/1698.html. 5 The term NAFTA+ refers to the fact that FTAA includes scope and privileges for multinational capital which goes beyond the limits contained in NAFTA. 6 The thirty-four economies of the hemisphere are participating in the FTAA Project with the exception of Cuba. They represent a potential market of 800 million people, a third of the worlds GDP, and more than a fifth of global trade. 3
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After a number of presidential meetings and the meetings of the FTAA teams7 the negotiations have advanced considerably, to the extent of announcing that the agreement will take effect in 2005. Nevertheless, in the different versions of the known drafts there is still a lot of text in brackets, which shows the lack of agreement among the governments on different issues included therein. However, the position of some “heterodox governments” in this process especially stands out, such as that of Venezuela, Brazil and Ecuador. They have important reservations concerning the negotiation agenda and they predict the imminent difficulty for the FTAA to take effect not only within the established time period, but definitively. Although in matters of national security the FTAA constitutes a strategic objective for the U.S. administration, the risk that it will not happen does not limit the achievement of the interests and privileges sought for its multinationals, since the path adopted for this purpose continues unabated through the signing of the Free Trade Agreements (FTAs). The FTAs represent the tactical move of the U.S. government for the construction of the FTAA, since through this bilateral approach the path is opened by transforming the legal frameworks of the governments, deregulating and liberalizing the spaces for the intervention of foreign capital. This is the context for the giddy race promoted by the Central American governments for the massive ratification of the FTAs, which the Mexican governments have worked very diligently to foster8, and which now are being advanced directly by the governments of the United States and Canada. As a complement to the FTA negotiations, a series of investment megaprojects is also being started in Central America, combined together into the Puebla Panama Plan (PPP), which through public financing – loans or national budgets – seek to build the infrastructure necessary for the operation of international capital, mainly through a complex weave of electrical interconnection works, telecommunications, and transportation.9. Thus, the WTO and, more specifically, the FTAA, the FTAs and the PPP have fostered the twinning of the words trade and investment in the region as part of the rules, which are proposed as a complement to the Structural Adjustment Programs (SAPs) and the Economic Stabilization Programs (ESPs), in order to create the optimal framework for the functioning of capital, and to facilitate the maximization of its benefits and the minimization of its costs.
2.1. The World Trade Organization: the New Framework for the
Accumulation of Multinational Capital. 7
After the Miami Meeting (1994) the Santiago Summit (1998) and the Quebec Meeting (2001) occurred. The government of Mexico has signed a FTA with Costa Rica, Nicaragua, the countries of the northern triangle of Central America (El Salvador, Guatemala & Honduras), and they are preparing a FTA with Panama and Belize. 9 Moreno, Raúl (2002): Desmitificando el Plan Puebla Panamá: los impactos económicos y sociales, Oikos Solidaridad, unpublished, San Salvador. 8
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The international financial organizations like the World Bank (WB) and the International Monetary Fund (IMF) have played an important role in the creation of conditions to ensure a worldwide capital accumulation process. This is achieved through the homogenization of economic policy, using mechanisms like the SAPs and the ESPs. In 1994, in a clear complementary action to the WB and the IMF, and in order to contribute to the deregulation of capital, the World Trade Organization (WTO)10 emerged as a new player. This is a multilateral body concerned with the norms which regulate commerce between countries11 and which represents the legal-institutional basis of the multilateral trade system. The highest body of the WTO is the Conference of Ministers, which is convened biannually, and within this body the General Council is the most important entity. For each agreement there are consultative and decision making bodies called Council for Trade in Goods, the Council for Trade in Services and the Council for the Trade-Related Aspects of Intellectual Property Rights12. The principal source of power for the WTO is the Dispute Settlement Body which is an entity with judicial and executive attributes that has the power to decree sanctions. The only way that implementation of these sanctions can be avoided is if all the members, including the accusing party, agree to not apply them13. The WTO integrates a series of agreements in the area of trade in goods; the first of these is the General Agreement on Trade and Tariffs (GATT), based on the GATT of 1947, which later was reformed in 1994. In this area there are other agreements on agricultural, sanitary and phytosanitary measures, textiles, technical trade barriers, measures on trade related investments, anti-dumping measures, customs assessments, pre-shipment inspections, rules of origin, import licensing, subsidies and safeguards. The General Agreement on Trade in Services (GATS) seeks the liberalization of services in general and of public services in particular. It encompasses 160 sectors and subsectors, among them education, health care and the environment. There is also the Agreement on Trade Related Aspects of Intellectual Property Rights (TRIPS), the Review Mechanisms for Trade Policy, the Rules for the Resolution of Disputes and the Multilateral Sector Agreements (civil aviation, government purchases, milk products and beef). The WTO is composed of 135 member countries, of which 101 are underdeveloped. Although they form the majority, in practice they have little or no capacity to influence 10
The WTO was established in Marrakech, Morocco on April 15, 1994. See: Moreno, Raúl (2002): Visibilizando los impactos del comercio e inversión en los consumidores y consumidoras, Consumers International-Centro para la Defensa del Consumidor, Santiago de Chile. 12 Kreissl-Dörfler, Wolfang and Quandt, Melanie (2000): La Organización Mundial de Comercio, cinco años después de su fundación: un balance provisional, in Libre Comercio: Promesas versus Realidades, Ediciones Henrich Böll, El Salvador. 13 Ibid. 11
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the resolutions decreed by this entity. This is because the WTO is characterized by an important democratic deficit. It would seem that according to its rules of operation “those who can’t pay can’t play.” The poorest countries face not only the limitation of maintaining their offices in the headquarters of the negotiations – Geneva – but also the difficulty of putting together proper teams to enable them to take positions in accord with their national interests. The objectives of the WTO are aimed at the achievement of the “liberalization of the greatest number of sectors possible”; “the elimination of tariffs, as well as non-tariff trade barriers”. In cases where there are opposing interests in trade relations they would promote “the resolution of disputes through impartial procedures”, and with the supposed purpose of removing the obstacles to trade, “seek to harmonize the norms which rule aspects related to consumer protection, public health and the environment,” through agreements on the technical barriers to trade and sanitary and phytosanitary measures. The fundamental principles of the WTO are associated with the trade system, and advocate a non-discriminatory system, free from obstacles, predictable, competitive and more beneficial to the least developed countries. Nevertheless, in practice, this system is highly discriminatory and unfavorable to small economies. The National Treatment principle, which demands that governments grant foreign investments the same treatment that national businesses receive, implies giving the same treatment to unequal parties, to the detriment of the national investors, who generally have less capacity to compete than the foreign investors. On the other hand, despite claiming to be an advantageous system for small economies, its operation is ruled by a “double standard” which demands openness and deregulation from the countries of the south, while the northern countries maintain protectionist frameworks with tariff and non-tariff practices which allow them to protect their strategic industries and/or more underdeveloped sectors. Experience shows that, regardless of the stated principles, it is not realistic to believe that the economic powers would unilaterally eliminate obstacles to trade, and even les that they would discard their “unfair” practices, such as subsidies for domestic production and exports. The principle of granting greater advantages to the least developed countries (in terms of more time to adapt, greater flexibility and special privileges) ends up being simply a rhetorical claim. For example, the application of the principle of national treatment which prohibits any discrimination against investment and products of foreign origin, clearly works to the detriment of national enterprises, and within them, against the micro, small and medium enterprises, which operate under conditions of important technological and productive asymmetry in respect to multinational enterprises. The WTO not only includes the trade of goods and services, but also the “trade of ideas” or intellectual property. Its essential functions are administering and applying the multilateral trade agreements which together make up the WTO, serving as a forum for conducting multilateral trade negotiations; attempting to resolve trade differences; supervising national trade policies, and cooperating with the rest of the international
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institutions that participate in the adoption of economic policies at the world wide level.14. The scope of the WTO transcends the area of trade liberalization, because through the numerous additional treaties is becomes involved in aspects of agrarian trade, education, health and the environment, intellectual property rights and investment. Therefore we are referring to a multilateral body which sets the guidelines for the accumulation processes of the multinational enterprises. The existing regulations of the WTO on investment matters, established in the GATS and the TRIPS, are directed toward the elimination of regulations and liberalization. A similar situation is underway with the Trade Related Investment Measures Agreement (TRIMS), which limits the government regulations which would affect the profits of investors. After the WTO Round in Doha, Qatar, the need to make progress on four topics was proposed. These topics are called the New Singapore Issues: investments, competition policies, transparency in government purchases and the facilitation of trade, and they must be addressed in the WTO Round in September 2003 in Cancun, Mexico. This decision strengthens the thesis that the WTO seeks to become a forum for discussing a series of topics beyond the strictly commercial and its jurisdictions. In addition, it seeks to apply the treatment which it intends to give to investments multilaterally, for example, which would have significant negative implications for small economies15.
2.2 Investment and Development Policies For underdeveloped economies – principally the countries which do not export oil, the net entry of financial resources is an important component in the definition of their longterm development strategies, to the extent that it can become a means for these economies to compensate for the permanent deficit in their current accounts and their low level of national savings. Direct foreign investment (DFI) which, along with financial investment (portfolio and short term investment) comprises foreign investment, is still recognized for its potential contribution to development, while facilitating access to capital, technology and markets; in contrast to financial investment which, given its speculative and erratic nature, is associated with processes of macro-financial destabilization. DFI is controlled by multinational enterprises, entities with enormous economic and political power which allows them to apply pressure on governments and on the 14
See: Moreno, Raúl (1999): La Ronda de la Organización Mundial de Comercio en Seattle: un caos que evidencia la necesidad de la participación ciudadana, Revista Eslabón, MS Denmark, Managua. 15 See: Khor, Martin (2003): WTO: The new threats to developing countries and sustainability, Third World Network, Geneva.
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monopolistic or oligopolistic markets on which they act, through their capacity to manipulate prices and benefits, to collude as businesses to divide areas of control, limit the entrance of potential competitors, and shape the tastes and preferences of consumers. The main players in the trade-investment process are these enterprises, whose gross sales are considerably larger than the GDP of most of underdeveloped countries. There is some agreement about the contribution that DFI makes to the macroeconomic aggregate figures, but the economic and social significance of development in its relationship to the activities of the multinational corporations is strongly questioned. The arguments developed by the neoclassical approach, which identifies DFI as the motor of development, states that this is the path for closing the trade gaps, raising fiscal income, facilitating technology transfer, “know-how” and the training of national human resources. Nevertheless, in practice, the DFI operates in contrast to these theoretical proposals. It becomes evident that concessions are granted to multinational enterprises through agreements with governments in order to exercise control and dominion over local markets. This, then, limits the expansion of national enterprises while suppressing competition. In addition, the deregulation of DFI can cause serious economic and financial problems, such as: the decrease in foreign exchange income over the long term, which would result from the repatriation of profits, or the high import component in the trade flows; and the low levels of tax collection, the result of the unrestricted tax exemptions which are granted to foreign investment. The empirical evidence shows that the benefits of DFI “depend on the use of different political strategies”16, “there is no mechanical relationship between the presence of DFI and technology transfer”17; thus, investment is an instrument and not an end in itself. The DFI proposal only makes sense to the extent that it is connected to national development projects. The historical experience of the developed countries in handling investment shows the importance of maintaining controls and regulations on DFI, so that they are compatible with the objectives of development18. Investment is not a new issue, as the WTO suggests with the proposal of the New Singapore Themes, but an old issue with a historical tendency toward the global deregulation of capital, a process that has been moving forward in four lanes. The first lane was built with the SAPs and the ESPs, instruments which have brought about the liberalization and deregulation of the economies, as well as the establishment of incentives for foreign investment. Currently 95% of all countries have deregulated 16
See: UNCTAD (2002): Report on Trade and Development. Note from the WTO Secretariat, Report on the Meeting of March 7-8, 2001, WGTI/M/14, p.6. 18 In spite of the fact that currently many developed countries argue that “free trade” and “free investment” have been the principal path through which they have reached their current status, and that the underdeveloped countries should promote these policies, a historic study of the experiences of the United States, Great Britain, France, Germany, Finland, Ireland, Japan, Korea and Taiwan shows that these countries have maintained strong regulations on foreign investment when this has been in their national interest. See: Chang, Ha-Joon (2002): Kicking Away the Ladder, Anthem Press, London. 17
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investment through changes in their legal frameworks19, which have become more permissive regarding the performance of foreign enterprises, and offer ideal conditions for their operation: exemptions from payment of taxes, public services at preferential rates, low labor costs, and lax and flexible labor and environmental norms which benefit companies that are betting on a competitiveness based on low prices. Over the past decade, the governments of Central America strengthened their efforts in the promotion of the Free Trade Zones and Tax Havens as the means for consolidating a growth scheme based on maquila activity. Currently, maquila activity – principally textiles and clothing – represents one of the most dynamic areas and carries the greatest weight in terms of the region’s exports, in spite of the small contribution it makes to the generation of added value and its notorious disconnectedness from the rest of the national industries. DFI in Central America takes the form of maquila enterprises which, in general, base their competitiveness on low labor costs. In the second lane, the Bilateral Investment Treaties (BITs) represent an important incentive for DFI and in recent years they have experienced extraordinary growth. In 1950 there was only one BIT; in the year 2000 there were 1,857 treaties, of which 1,472 had been ratified during the 1990s. In addition, currently 28 of the 34 FTAA countries are signatories to the International Center for the Resolution of Investment Related Disputes [ICRIRD]. However, only seven have BITs in effect with the United States, four have signed but still have not been ratified, and two countries – Mexico and Canada – are already subject to regulations that are similar to BITs through the North American Free Trade Agreement (NAFTA). The ICRIRD is an international tribunal dependent on the World Bank which provides international arbitration for investors that want to enforce their “rights or privileges” stipulated in signed agreements and that operate under the laws of the receptor country. This Center hears cases regarding paradigmatic controversies such as the case brought by the U.S. multinational known as Bechtel against the state of Bolivia, after it had been expelled from Cochabamba, Bolivia following the “water war” which returned control over their water resources to the population of Cochabamba. This instrument has enormous importance in the investment deregulation processes because, apart from an operative FTA, it activates a mechanism for dispute resolution between investors and the government which operates with the same logic and mechanisms as the Tribunals established by the FTAs and the WTO. Thus, the signing of the BIT opens a flank through which many damages and disadvantages can be funneled into the small economies that have not ratified FTAs with the countries in which the foreign investors are headquartered. The third lane through which DFI moves is made up of the FTAs, with strategic objectives – which will be analyzed in the following chapter – that focus on investment and related themes: intellectual property rights, access to government purchasing, and the 19
Stay, Jaime (2002): ALCA, el Paraiso de los Inversionistas, Universidad Autónoma de Puebla, unpublished, Mexico.
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liberalization of services. The FTAs represent a “bill of rights” for the multinationals, granting capital broad privileges in the face combined with no obligations and containing effective mechanisms for compliance. The fourth lane is the FTAA, a project defined by and for the interests of U.S. capital, an initiative made public by the elder Bush during the Presidents’ Summit in Miami in 1994, with the intention that it would become effective starting in 2005. A series of rules applicable to the hemisphere are promoted along with the FTAA, based on the chapter content of the FTAs. Thus, the proposals of the FTAA seek to extend the “rights and privileges” established in the FTAs. A central aspect of the FTAA is investments, with an approach that coincides to an extraordinary extent with the logic of deregulation, the content, and the mechanisms already defined in the FTA. In the last draft of the FTAA, eight definitions of investment are presented, all broad and inclusive as shown in these two examples: investment is understood as “all types of activities and rights of any nature”, or “all directly or indirectly controlled property”. Consequently, investment includes practically everything: real estate or other property, tangible or intangible, acquired or used to obtain economic benefit or for other business purposes. This concept of investments coincides with the proposal contained in the extinct Multilateral Agreement on Investments (MAI), and its breadth makes sense from the perspective of the multinationals’ interests which, with such a broad definition, are proposing the deregulation of any activity or operation carried out by these corporations. The FTAA also reexamines the prohibition placed on governments for establishing performance requirements on foreign investments. Among the eight restrictions which cannot be imposed or made obligatory and which were introduced by the FTAA and the FTA are: fulfillment of a percentage of national content of local goods and services; granting preferences to local goods and services; quotas or types of goods and services to export; the use of a certain type of technology; any relation of imports, exports and profits; technology transfer, productive process or other reserved knowledge; or acting as an exclusive provider of goods which are produced or services which are offered. This logic eliminates any possibility of linking investment policies to a national development strategy. The mechanisms for dispute resolution, like the FTAs, reveal their anti-democratic character and present “special laws” for international arbitration which replace the national legislation and courts of the countries receiving foreign investment. In North America alone, there have been 25 cases and suits by multinational enterprises against governments, including both those that have been decided and those which have been dismissed: 11 against Mexico, 6 against Canada and 8 against the United States. The definition of expropriations is also broadened in the FTAA. In addition to the traditional concept of direct expropriation – linked to its corresponding compensation – indirect expropriations are also included. Any public policy or government decision
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which, in the judgment of the enterprise, could affect its interests and potential profits is considered, for the content of this category, to be an expropriation, and therefore can be denounced by the enterprises in the dispute tribunals like the ICRIRD. The FTAA warns governments not to use mechanisms for the control of the movement of capital, a fact which contrasts with the growing consensus among specialists who recognize the need to establish regulations on the functioning of capital. The chapter on investments includes contributions to capital, subsidies, honoraria, and intellectual property rights payments, as well as subsidies derived from the exploitation of the natural resources. A thorough interpretation of the chapter on investments requires a complementary analysis of Government Purchases, Liberalization of Services and Intellectual Property Rights. This provides a deeper understanding of the deregulation of capital. In this sense the FTAA, like the FTAs, seeks to cede powers and control over basic aspects of economic and social life to the multinationals, inasmuch as they guarantee the access of foreign investment to public services such as education, health, social security, water and energy resources – what is left to privatize. In their desire to move ahead with the deregulation of investments on a global scale, the European Union, Japan, Canada, South Korea and Switzerland20 are leading an initiative in the heart of the WTO which seeks the establishment of a multilateral framework for investment, reconsidering high standards of protection for the investor and strong disciplinary measures against restrictions on the free flow of DFI among the members of the WTO, such as those which are currently in force in the FTAs and are incorporated in the FTAA. With this they seek to create a fifth lane for the deregulation of DFI while attempting to turn the WTO into a forum for negotiating a multilateral framework for investment. The attempt revisit the New Singapore Themes in the next WTO Round in Cancun faces important opposition from India, Malaysia, Zimbabwe, Tanzania, Zambia, Kenya, Belize, Uganda and Sri Lanka, whose position is that the WTO is not the proper forum to address investment, since this is outside of its purely commercial jurisdiction. With the “multilateralization” of investment, the European Union group would be attempting to achieve the privileges which U.S. investors already enjoy, the result of bilateral negotiations – like the FTAs and the BITs – and regional negotiations, such as the FTAA – carried out in the Americas. In contrast, the group of countries led by India is questioning the ideas brought forth in the WTO proposal on investment matters, regarding the right to establish investments and the application of the principle of national treatment. In addition, they feel that the DFI model has been unsatisfactory for the interests of the receptor economies. 20
Political Map of the Positions of Countries in the Discussion on Investment in the WTO prepared by WWF International and Oxfam, April 22, 2003, Geneva.
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2.3. Free Trade Agreements: Instruments for the Consolidation of the “Adjustment” The inexhaustible race of the Central American governments to sign the “Free Trade” Agreements truly began during the nineties with the signing of the first FTA between Mexico and Costa Rica (1996), an event which coincided with the height of the implementation phase for the economic and institutional reforms promoted by the WB and the IMF through the SAPs and the ESPs. This “curious” and timely coincidence between the FTA and the SAP-ESP strengthened and consolidated the adjustment process started in the late 80s, because it allowed two different policy measures with converging purposes to run simultaneously. Both were directed toward the shared objective of ensuring the deregulation of the economy and the assurance of a basis for accumulation for multinational corporations, and for that reason their activities overlapped and they operated as a relay race, providing continuity through the FTA to what was already begun by the SAP-ESP. The economic and institutional reforms contained in the SAP-ESP became requirements for the debtor countries through the cross-conditionality contained in the stabilization loans – granted by the IMF – and the adjustment loans - from the WB. These complemented one another and were augmented by the signing of the FTAs, to the extent that the content of these treaties transformed the legal frameworks of the countries, legally sealing the reforms which they promoted. The theoretical basis for the SAP-ESPs was found in a series of “recommendations” which made up the Washington Consensus21, and which have been structured according to various theoretical approaches22 in an authentic “tossed salad” of weakly structured proposals. Such theoretical inconsistency has been questioned and exposed by its very promoters23, revealing its purely ideological basis. This means that the Consensus only makes sense once its critique, centered on the nature and participation of the State in the economy, is accepted.
21
The Washington Consensus is a series of economic policy recommendations on which neoliberalism is based, a “consensus” among the U.S. political, economic, military and academic complex. The Consensus is structured on the basis of the work of John Williamson (1990): “What Washington wants to say when it refers to economic policy reforms”. It includes ten policy approaches, put together into four packages: fiscal, financial, external and reform of the State. The “recommendations” include measures such as: fiscal discipline, focusing public spending, tax reform, financial liberalization, competitive exchange rates, liberalized trade policies, promotion of direct foreign investment, privatization of public enterprises, deregulation of the economy and intellectual property rights. 22 Monetarist Balance of Payments Approach, Absorption Theory, Quantitative Theory of Money, Supply side approaches, among others. See: Rosales, Osvaldo (1979): El debate del Ajuste Estructural en América Latina, ILPES, CEPAL, Santiago de Chile. 23 Joseph Stiglitz challenges the assumptions of perfect competition and symmetry of information on which the proposals of the Washington Consensus are based. James Wolfenson expresses his criticism of the pertinence of the adjustment promoted by the World Bank given its social and political consequences.
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This nucleus of measures bring together the substantive points of the “neoliberal” agenda, defined expressly as instruments at the service of the developed countries, so that they can face and take advantage of the opportunities which are proposed for the new competition in the world capitalist system. The neoliberal discourse identifies the State as the source and factor of macroeconomic instability and the real obstacle for achieving the “free play of the market.” The rationale for these arguments is that government intervention presumably creates interference in the markets (in prices and quantities), limiting competition and discouraging private initiative. At the root of the SAP-ESPs is the prevailing myth that there is an irreconcilable contradiction between the State and the market, and the belief that the private allocation of resources “is always more efficient” than the public allocation of resources. With these framework ideas, the supreme purpose of the SAP-ESPs makes sense – even implicitly: that it is aimed at limiting the functions of the State itself in the economy24 and with that, suppressing the “source of instability and distortions”, ensuring optimal conditions for private enterprise to obtain maximum profits. In practice, this is expressed in fiscal proposals for reducing public spending, involving the public external debt; in the restriction on government intervention in the economy through institutional reforms; the sale of public assets and enterprises; and, finally, the opening and deregulation of the economy. The reforms promoted by the WB and the IMF in the region have led to important changes in the definition of economic policy25. This opening and deregulation were implemented with the so-called “modernization of the public sector”, which in practice led to the reduction of the competencies of the State and the weakening of its ability to direct economic activity. This provides a context suitable for the accumulation processes of capital and is promoted by the multinational corporations. Privatization processes were simultaneously implemented and, through these, multinational corporations and large national companies acquired important public enterprises allowing them to assemble private monopolies in public services, such as the distribution and generation of electricity, telecommunications or the administration of pension funds. Unilateral processes of external opening and tariff reduction were undertaken – many tariffs dropped to 0% rates. Supply-side policies were applied which sought to stimulate private investment, principally foreign investment, through incentives for free trade zones and tax shelters for maquila enterprises as well as liberalization of the labor market resulting in more precarious labor conditions in order to reduce the cost of production, and a regime of favorable fiscal incentives for private businesses. These 24
For the neostructuralist approach, the role of the State in development enters into the economic functions of the regulation and promotion of development, classic and basic functions. See: Salazar Xirinachs, José Manuel (1991): El Papel del Estado y del Mercado en el Desarrollo Económico, El Trimestre Económico, Compiled by Osvaldo Sunkel 25 See: Moreno, Raúl (2000): Los impactos de los Programas de Ajuste Estructural en la niñez salvadoreña, Save the Children.
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measures reveal the progress made in the configuration of a favorable and permissive context for investment and trade. In terms of fiscal matters, the reform of the Non-Financial Public Sector (NFPS) which emphasized efficiency more than equity, sought to achieve fiscal discipline by focusing on spending and making the tax structure efficient26. Nevertheless, not only has this purpose not been achieved while continuing to be a goal, but the aggravating factor persists as the levels of public indebtedness have become a risk factor for the very stability of the macroeconomic policy itself. The fiscal reform modified the system’s tax base, which was transferred from capital to labor, removing some direct taxes27 and increasing indirect taxes –like the Value Added Tax, VAT—the principal source of public revenue. In the process of the reforms a great deal of progress was made in matters of deregulation and opening. The privatization processes transferred a good part of the public enterprises and assets into private hands; nevertheless, important public services remain to be privatized. These are in the sights of the multinational corporations which are directing the agenda of the FTAs toward the privatization of services such as health, social security, education, the generation of hydroelectric and geothermal energy, and the transmission of electricity.
2.4. The Legal Implications of the FTAs The FTAs, like the international agreements and conventions signed by governments and ratified by the Central American legislative bodies, are laws of the republic28, legally they are subject to the Constitution but they take precedence over all secondary legislation, as in the case of El Salvador. International treaties are signed by the executive and legislative bodies in accordance with the attributes granted by the Constitution; nevertheless, these attributes are not absolute or unlimited as the Constitution itself establishes that treaties are under the framework of the Constitution, especially regarding offenses to or diminishment of a person’s fundamental rights and guarantees.29 As the Salvadoran Constitution states, “no body can sign or ratify treaties in which the form of government, or the territorial integrity, sovereignty and independence of the Republic is restricted or affected in any manner or the fundamental rights and guarantees 26
Moreno, Raúl (1999): La Reforma Fiscal en El Salvador: una exigencia impostergable, Fundación Ebert, Imprenta Criterio, San Salvador. 27 The fiscal reform carried out in El Salvador led to the elimination of the tax on patrimony and the tax on exports, leaving practically only one direct tax, the tax on income. 28 The “international treaties signed by El Salvador with other States or with international bodies constitute laws of the Republic when they take effect, according to the provisions of the treaty and this Constitution”. See: Constitución de la República de El Salvador, Art. 144. 29 Abrego, Abraham (2002): Consideraciones jurídicas sobre los Tratados de Libre Comercio, p.1. unpublished, FESPAD, San Salvador.
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of human persons are violated or lessened.”30 Therefore, it would be contradictory to approve and ratify an FTA which would put people’s fundamental rights at risk. Generally, trade relations between countries have been kept at the margin of any human rights consideration despite the fact that, at the basis of these trade agreements, there is an underlying “development model” which is not always consistent with respect for and enforcement of human rights. It would be a serious error, with unconstitutional implications, to maintain a foreign relations policy based on the signing of FTA while ignoring its human rights implications. Prior to the FTA negotiations, the Salvadoran government had ratified a number of human rights treaties: The International Pact on Civil and Political Rights, the International Pact of Economic, Social and Cultural Rights; the American Convention on Human Rights; the Additional Protocol to the American Convention on Human Rights, among others.31 These treaties require the government to declare the measures necessary to put into effect the rights recognized by the various treaties, and also require that it respect and ensure the rights and liberties recognized in those treaties. On the other hand, given that the FTAs and the Conventions of the International Labor Organization (ILO) or the Universal Declaration on Human Rights share the same legal hierarchy, it would be expected that there would be no contradictions among them or no superiority of one over the other. Nevertheless, it can be shown that, in practice, the FTAs, using a mercantile logic, in effect supercede all other the international agreements and conventions. This situation is not exclusive to Central America, because such subordination is also observed in the order issued by the ICRIRD which ordered the Mexican government to pay the U.S. multinational Metalclad US $15.5 million as compensation for “indirect expropriation” for the closing of its toxic waste dump located – illegally – in Guadalcázar, San Luis Potosí32. The dump’s operation was having a harsh impact on the health of the population. Cases like that of Metalclad set a precedent that is provoking great concern, because it reveals how, in practice, a logic prevails which makes profit the highest value, subjugating the enforcement and fulfillment of the rights of people and the community to the commercial interests of the multinationals. Considering the enormous importance of the ratification of the FTAs for national legal frameworks, and the implications for Central American countries of their impact on and/or modification of the legal and normative order, given the real subordination of these frameworks to the logic and principles of the FTAs, there is good reason to pause and review the potential unconstitutional character of these agreements in order to ensure that there are no negative consequences for the rights of the citizens. 30
Constitución de la República de El Salvador, Art. 146. Abrego, Abraham, Op cit. p.2. 32 See: Salazar, Hilda y otros (2001): Impactos Socio Ambientales del TLCAN, RMALC, México. 31
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Taking into account the pro-foreign investment bias of the FTAs, their ratification functions as the mechanism through which a series of reforms, initiated under the structural adjustment processes, are “legally bound”. These infringe upon the national interest and exclusively benefit multinational enterprises. The subordination of labor rights to the content of the FTAs or the transformation of public services into marketable objects– such as education, health or water – access to which amounts to social rights according to the Constitution and ratified international conventions which; represent two focal points of the privatizing reforms which are being discreetly consolidated with the signing of the FTAs. Consequently, the FTAs not only lead toward the marketing of public services, but they also erode public authority, limiting the ability to affect the behavior of foreign enterprises, and with no countervailing force to assure that these enterprises fulfill their obligations to workers. This is aggravated by the fact that it is legally authorized.
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3. Free Trade Agreements: Much More than Trade Agreements The “free market” is the only merchandise which they make without subsidies, but only for the purpose of export. They sell it, we buy it. The free market is sold as something new, but it has a long history. And that history has a lot to do with the origins of injustice, which reigns in our time as if it had sprouted from a cabbage, or from the ear of a goat. Eduardo Galeano, Upside Down: A Primer for the Looking Glass World
In spite of the fact that the FTAs are designated by the term “free trade”, these agreements incorporate aspects that transcend strictly trade matters, with incursions into such diverse areas as public policies, investors’ rights, patents, and intellectual property rights, government purchases, liberalization of public services, energy, telecommunications, the financial sector, and others. The purpose of this chapter is to understand the content and scope of the FTAs, and in order to accomplish this, the objectives and principles of the FTAs will be explored and the principal content of the agreement will be analyzed. This will allow us to respond to the question, “What are the FTAs”?
3.1. Objectives of the FTAs The main purpose of the FTA is the establishment of a “free trade zone” among the signatory countries, using the GATT (Art.24) and the General Agreement on Trade and Services (Art. 5) as the operational framework. In the strict sense this purpose of the
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FTAs alludes to the most simple and primitive status of the economic integration process, which is the establishment of a free trade zone.33 Thus, it would be quite inadequate and even erroneous to refer to the FTA as a synonym for economic integration, because a free trade zone is reduced exclusively to the abolition of tariffs – and the quantitative restrictions – between the participating countries.34 This leaves at least four higher forms of integration to be developed, until the unification of monetary, fiscal, social and anti-cyclical policies is reached, in a framework in which the decisions come from a supranational entity. Although elements of a strictly commercial nature obviously enter into the objectives stated in the FTAs, such as the promotion of trade in goods and services, the elimination of trade barriers and the facilitation of the circulation of goods and services; other objectives are also presented which are not any less important and which allude principally to the area of investment. The FTAs attempt “to promote the conditions for free competition”, however, in practice, there are no mechanisms which would ensure the suppression of protectionist practices of the developed countries – subsidies and non tariff barriers. In addition, far from regulating the monopolistic practices of the investors of the parties, these practices are promoted by the very content of the Agreement itself. The elimination of barriers to trade and to the movement of capital, as well as measures that allow the temporary entry of business people, also stand out among the objectives of the FTAs. These objectives reveal the commitment of the agreement to suppress obstacles which would limit the circulation of merchandise and of capital, but not the circulation of the labor force, despite the enormous relevance of the migratory flows toward the United States. Consequently, not only is the mobility of working people limited, but also there is no guarantee that their labor and social rights will be respected. In addition, the FTAs propose an increase in opportunities for investment and the protection of intellectual property rights through their content and the mechanisms which seek the deregulation of investment flows. This reveals the preferential slant for investments, putting the scope of the FTAs in question and exposing their true nature as Free Investment Agreements.
3.2. Principles of the FTAs The FTAs are inspired by the Agreements and guiding principles of the WTO, which seek the liberalization of trade and investment and which are based on the assumption
33
The different degrees which integration has are: free trade zone or area, customs union, common market, economic union and total economic integration. See: Balassa, Bella (1964): Teoría de la Integración Económica, p. 2, Editorial Uteha, México. 34 Ibid.
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that the trade system would be freer, more predictable, less discriminatory, more competitive and more advantageous for the least developed economies. The principle of National Treatment is based on the premise of non-discrimination, which means that governments are required to grant the foreign investor at least the same treatment conferred upon national enterprises. The foreign enterprises are thus assured that they will operate under the same conditions as domestic enterprises. This implies granting equal treatment to unequal parties, which in practice means worsening the inherent asymmetries between the enterprises of the signatory parties, and so this principle, which sought non-discrimination, becomes an instrument of discrimination against national interests. The Most Favored Nation Treatment principle means that the government signatories of the FTA are required to grant a treatment which is no less favorable than what is granted – under similar circumstances – to investors of one signatory party or even of another country which is not a signatory party. This closes off the possibility that businesses of one country which did not sign the Agreement can exclusively enjoy preferential treatment, since that treatment must be extended to the businesses of the signatory parties of the agreement. In any sense, the Most Favored Nation Treatment results in advantages for countries outside the Central American region, with which there is no Central American Economic Integration Treaty, since the preferential treatment which is granted to the economies which do form part of the Treaty is automatically transferred to the economies which sign the FTA. However, that advantage does not operate in the opposite direction, so that the Central American economies can only enjoy the conditions which the FTA has already set for other economies.35 The principle of freer and more competitive trade means that the reduction of the obstacles to trade is the most appropriate means to promote and increase trade. In addition, it means that the unfair practices of trade competition like dumping and subsidies – which many developed economies use, independently of these treaties, to protect their least developed sectors – discourage fair and equitable competition. For this reason, the gradual reduction of the obstacles to trade is proposed and countries are encouraged to take anti-dumping measures. It is worth pointing out that trade openness is not synonymous with competitive markets or with markets in equilibrium, because open yet concentrated markets and/or unbalanced markets emit erroneous signals which do not promote competition36, and tend to generate more concentrated structures. If we look at the unconnected nature of the productive structures which characterize the small Central American economies, their low levels of competitiveness and the enormous distortions in their markets, it becomes clear that processes of commercial openness which are not accompanied by policies aimed at 35
Moreno, Raúl (2003): Los derechos laborales y los Tratados de Libre Comercio, p. 14, AFL CIO-Centro de Solidaridad, Costa Rica. 36 Rosales, Osvaldo, Op cit. p. 8.
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strengthening the national productive network, result in the displacement of domestic enterprises with foreign ones and cause processes of runaway unemployment.
3.3. Content of the FTAs The FTAs are composed of more than twenty chapters which include a range of aspects, including general provisions, national treatment and access of goods to markets, agricultural sector, sanitary measures, rules of origin, investments, dispute resolution and the administration of the Agreement.
Table 1
Chapter Structure of the FTAs Chapters Objectives General Definitions National Treatment and Access to Markets Rules of Origin Customs Procedures Energy and Petrochemicals Agricultural Sector Sanitary and Phytosanitary Measures Emergency Measures (Safeguards) Measures Related to Normalization Public Sector Purchases Investment Cross-border Trade in Services Telecommunications Financial Services Air Transport Policies on Competition, Monopolies and State Enterprises Unfair Practices Temporary Entry of Business People Intellectual Property Publication, Notification and Administration of Laws Dispute Review and Resolution (Anti-dumping and Compensation Quotas) Dispute Resolution Exceptions Final Provisions Environmental Cooperation Agreement Labor Cooperation Agreement
NAFTA I II III IV V VI VII VII VIII IX X XI XII XIII XIV .. XV .. XVI XVII VXIII XIX XX XXI XXII 9 9
NTFTA FTADR FTACH I I I II II II III III III VI IV IV VII V V .. .. .. IV .. .. V VI VIII VIII VIII VI XV XIII IX .. XII XVI XIV IX X X X XI XII .. XIII XI .. .. .. .. XII .. XV XV IX VII VII XIII XI XIV XVI XIV XVII & XVIII XVIII & XIX XVII & XVIII .. XIX XX XXI No No
.. XVI XVII XX No No
.. XIX XX XXI No No
Source: Moreno, Raúl (2003): Los derechos laborales y los Tratados de Libre Comercio, p. 14, AFLCIO-Centro de Solidaridad, Costa Rica. Based on the North American Free Trade Agreement (NAFTA), Free Trade Agreement Between Mexico and the Northern Triangle Countries of Central America (NTFTA), Free Trade Agreement with the Dominican Republic (DRFTA), Free Trade Agreement between Chile and Central America (CCHFTA).
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All of the known FTAs respond to the same template, they are almost a faithful copy of NAFTA; there are no substantial variations in their chapter content and the fundamental difference is in the list of products and services negotiated bilaterally and, obviously, in their respective scheduling of tariff reduction. The FTA, insofar as it is a trade agreement, includes the framework which governs access to markets for goods and services, establishing criteria for determining the origin of goods which are traded, customs procedures, sanitary measures and the norms which govern commercial flows. It establishes the exceptional measures or emergency measures – called safeguards – which ensure the protection of national industry in the face of fortuitous risks, defines unfair practices, and establishes mechanisms for the resolution of disputes or controversies. Nevertheless, as can be seen in Table 1, the chapter structure of the FTAs also includes sections on investments, public sector purchases, energy and petrochemicals, telecommunications, financial services, air transport and intellectual property. These are all aspects which transcend the strictly commercial topics appropriate to an agreement of this nature. The inclusion of this content grants a broad scope to the FTAs, far beyond pure trade implications. This dimension of the agreements, generally hidden or given little publicity in official speeches, is one of the central points in the discussion about the implications of the FTAs, particularly because of its orientation toward the deregulation of foreign capital. The absence of regulations on the performance of enterprises which would ensure their consistency with national development objectives and with the effective enforcement of Economic, Social and Cultural Rights (ESCR), transforms the FTAs into true “charters of corporate rights”. Out of these, optimal conditions are created for corporate operations, as if they were the panacea for the structural problems of the countries, in exchange for nothing. With this “extra-commercial” content, the FTAs invade the sovereign powers of the State, such as the definition of national economic policies – the chapter on investments – and the control over strategic services – the chapter on energy and petrochemicals. They affect compliance with and enforcement of the ESCR of the population through the norms established in the chapters on government purchases, intellectual property rights, and investments, which promote the privatization processes of public services. Considering the breadth which the FTAs have achieved in matters of rights for businesses, its omission of mechanisms to ensure ESCR compliance as well as respect for the environment and natural resources is quite striking. It is obvious that labor and environmental issues have been absent from the FTAs, except in the case of NAFTA which formally included two Cooperation Agreements, one environmental and the other labor. However, it has been demonstrated that, after more than 9 years of experience,
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these cooperation agreements have been completely disregarded37, leading to the conclusion that there would be no difference between the inclusion and exclusion of these annexed agreements. The gravity of the situation does not lie in the lack of a labor or environmental clause which could be attached to the FTA, but rather in the fact that its entire content – from the objectives and principles to the administration of the agreement – include mechanisms which are contradictory to a logic of human rights and the environment. Hence, the discussion to ensure the fulfillment of labor rights or respect for the environment does not fill the void by including a labor or environmental clause in the agreement, because the nature of the FTAs violates these rights in a crosscutting and holistic way, and is found in the essential part of the agreement. So what is required is another instrument which is not a FTA, an instrument of a different nature, with a logic that transcends the acquisition of profit, and moves toward sustainable and equitable development.
a. Market Access for Goods38 The regulations on the access of goods to the market establish the framework governing the treatment which the signatories must grant to the flows of traded goods and their access, the content of the goods produced and the procedures for determining it, exceptional measures for the temporary protection for national producers affected by substantial increases of imports, and measures aimed at the protection of the health and lives of people and animals. These regulations pertain to aspects related to “trade” which should be the exclusive jurisdiction of a Trade Agreement. There are aspects within this framework that are linked to the exchange of goods and services between the agreement’s signatories, and its content is found in at least five of the chapters of the FTA, including: national treatment and access of goods to the market, rules of origin, agricultural sector, sanitary and phytosanitary measures, customs procedures for the management of the rules of origin, and safeguard measures. The treatment granted for the access of goods to the market is generally disadvantageous for small economies, as it ignores and excludes the treatment of the enormous existing asymmetries between the signatory countries. The principles which guided these chapters – national treatment and most-favored nation treatment – limit the possibility of defining economic policies which would encourage domestic sectors, since they consider protection measures for national production plants discriminatory. The establishment of
37
See: Arroyo, Alberto y otros (2001): Resultados del El Tratado de Libre Comercio de América del Norte en México, y Red Mexicana de Acción frente al Libre Comercio (1997): Espejismo y Realidad: El TLCAN tres años después. Análisis y Propuesta desde la Sociedad Civil, México. 38 This chapter has been taken in its entirety from Moreno, Raúl (2003): Los Derechos Laborales y los Tratados de Libre Comercio, Op cit.
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homogeneous treatment between signatories with unequal levels of development undoubtedly contributes to widening the inequality gap between the parties. Accordingly, the regulations governing the access of goods to the market is reduced to a schedule for tariff reduction, a series of technical instructions on content, quality and norms for products, long lists with tariff categories and subcategories representing merchandise – included in and/or excluded from the schedule, according to the advocacy capacity of the countries participating in the negotiations – and their enterprises for obtaining benefits. Access of goods to the market is addressed through a tariff reduction program in which the signatories consent to gradually eliminate tariffs on imports according to an agreed upon calendar. This process ranges from the immediate elimination of a tariff to the elimination in five, ten and up to fifteen years from when the agreement takes effect. If there is anything to negotiate in the FTAs it is the access of goods to the market. The negotiations between the parties do not challenge, or even offer modifications to, the text and principles of the agreement. Negotiations are limited exclusively to the struggle over a program for tariff reduction which would favor the parties and, within these, certain goods generally corresponding to those produced by the companies from the hegemonic nuclei whose interests are defended by the negotiating teams. In the FTA negotiations between Mexico and the countries of the Northern Triangle, it became clear that, after six years of negotiations, the government of El Salvador obtained preferential treatment in tariff matters for the production of cement, beer, sugar, importing vehicles and air lines, activities controlled by monopolies or oligopolies owned by the hegemonic block of Salvadoran businesses. The rest of the productive activities have little or no relevance in the negotiations by the Salvadoran government. The FTA opens the possibilities for modifying the tariff reduction program through the agreed-upon mechanisms and in accordance with the legislation of each party. The body responsible for the administration of the agreement, and consequently for the modification of the schedule for tariff reduction in the case of El Salvador, is the Ministry of the Economy. This leaves a flank uncovered which would allow for the discretional and arbitrary management of the tariff policy by the officials serving at the time in the administration of the Ministry of the Economy’s portfolio. Studies done in El Salvador show how the use of the tariff policy in the framework of Central American integration39 has become a personal management tool for the benefit and advantage of the officials themselves, and a small group of enterprises which are able to position themselves advantageously in the market through this practice of unfair competition.
39
Góchez , Roberto (2001), La discrecionalidad de la política arancelaria, Working document, FUNDE, Unpublished, pp. 35-37.
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If we consider that some small economies, like the Central American ones, have unilaterally started processes of opening and tariff reduction long before the FTAs were conceived, it is obvious that these economies are starting the negotiations of the tariff reduction program with a net disadvantage. In addition, it is clear that the negotiating capacity and power is slanted in favor of the more developed economy. In NTFTA, Mexico immediately freed up 8,394 tariff categories for El Salvador, and excluded 236, while El Salvador freed up 2,973 and excluded 207. The impression given by the official discourse was that El Salvador had prevailed in the negotiations by having freed up only 55% of imports, while Mexico granted that to 73.2% of Salvadoran production, but it is worth pointing out that many of the liberalized goods are not produced in El Salvador, such as airplanes, natural pearls and a long list of products included in that list. These provisions work against national production for export and promote the importing of goods, creating a disadvantageous environment for local industry. Given the internal limitations in terms of financing, infrastructure, technology, skilled labor, information, concentrated markets and low level of competition, this translates into the displacement of national enterprises by foreign ones, the failure of some and the resulting negative impact in terms of jobs. It is not true that the new jobs created by foreign investment are enough to compensate for the jobs destroyed by the failure of the national enterprises, and much less to cover the chronic deficit of jobs which the economy has been accumulating over time. In addition precarious employment conditions are created by the foreign investments, predominantly textile and clothing maquilas. In terms of access to markets, the negotiation with developed economies such as with the U.S. economy, acquires special relevance in the case of agricultural goods. These goods, because of the nature of the Central American export apparatus, represent an important category in the flow of tradable goods toward the United States and a high level of protection – in terms of tariff, non-tariff and subsidies – is maintained by that economy over this sector. An interesting precedent is set by NTFTA in terms of the tariff negotiation on agricultural goods. El Salvador was able to exclude40 a significant number of products from this Agreement – especially those sensitive to trade opening: coffee, corn, millet and sugar, among others. Nevertheless, their exclusion does not guarantee absolute protection and does even less to assure the development of the branches, because they require the definition of sector policies for rural development and reactivation to allow them to improve their competitiveness.
40
“Product exclusion” supposes that these products will not undergo tariff elimination according to the tariff reduction program, and in terms of the access of these goods, the Most Favored Nation tariff corresponding to the countries which are not parties to the Agreement will be applied to the signatory parties.
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The possibility that the Central American economies would be able to exclude agricultural products in CAFTA is remote given the existing precedent in NAFTA in which Mexico was not able to exclude corn, among other products. This has led to the massive importation of U.S. corn into Mexico and the resulting failure of more than two million small scale Mexican producers. Consequently, “free trade” is not possible within a context where a country such as the United States can impose protectionist measures for its economy, particularly for its importation of agricultural products, while, on the other hand, imposing an indiscriminate openness to their exports of products and capital. In spite of the fact that the FTAs include a chapter on sanitary and phytosanitary measures41, the experiences of importing genetically modified corn, meat treated with hormones and other tradable products between signatory countries shows that in practice these norms are not intended for the protection of human health and in fact that they work as non-tariff protectionist instruments for the developed countries. These experiences confirm the inapplicability of the precautionary principle, and the scarcity of consumer rights, as – in fact – there is a subordination of human rights to the logic of profit. Access of goods to the market is also governed by rules of origin, which determine the content and origin of the merchandise included in the tariff reduction programs, and are applied to the regional content of the goods. With these rules the origin is established of the inputs used in the production process, as well as the place where they have been produced. Both are key aspects for determining the goods which can enjoy the “advantages" of the tariff reduction. Given the impossibility of demanding that foreign investors use local inputs, and the strong dependence on inputs imported from outside the Central America region, it could be argued that the rules of origin, rather than being an instrument for local productive linkages, represent true non-tariff barriers for national production. In summary, the regulations which govern the issue of access of goods to the market do not include mechanisms which could be used to assure the development of local industry and promote job creation. Thus, according to the principle of regional content of inputs, production would be done with raw materials imported from the countries of the region, affecting national production and propels the country toward a loss of jobs.
41
Sanitary and phytosanitary norms are defined as the series of norms intended for the protection of human health and the lives of people and animals, or that seeks to preserve vegetables life.
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b. Investments The definition of investments assumed in the FTAs is sufficiently broad that almost any activity carried out by foreign and/or national capital may be included in this category. It is a concept taken from the extinct MAI and is also reproduced in the drafts of the FTAA. To judge by the content and emphasis of the FTA, investments – more than trade aspects – represent the nucleus of the agreement. The chapter on investments defines the strategic lines which would permit the configuration of a new framework for the accumulation of transnational capital, complemented by the framework which the WTO provides. The investment matters stipulated in the FTA are applied despite the fact that they include measures which are incompatible with national legislation42, as explicitly planned, very clearly subsuming the national legal framework to the provisions of the agreement. An example of the logic of the FTA which identifies profit as the highest value, subordinating any other order based on human rights, is that the agreement states that the suspension of investment practices is based on the effects which it might have on trade flows, and not on the lack of compliance with and observance of social, environmental or human rights. Although the FTAs recognize that it is inappropriate to promote investment through the relaxing of internal measures applicable to health, safety, and the environment, they omit any mechanism or procedure which could ensure obligatory compliance with this explicitly recognized situation. Likewise, the agreement remains on the level of exhortations to the investors on matters of geographical location of investments, job creation, training of labor force and investments in research and development (R&D). These suggestions, left to the “free will” of the business owners, contrasts with the explicit prohibitions on governments in matters of regulations on investors, including the definition of mechanisms for sanctioning any violations of these through private international tribunals. In environmental matters, the chapter on investments is no impediment for one party to adopt, maintain, or implement appropriate measures for ensuring that investments observe the legislation on environmental matters, as long as they are compatible with this chapter43. This consideration reveals the fact that only in cases where the environmental framework does not breach the letter of the FTA can the investor be required to comply with the national legislation.
42 43
Chapter XIV, Art. 14-02, 3 NTFTA. Ibid.
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As presented in the section on Investment and Development Policies in the previous chapter, there is complete coincidence in the treatment which the FTA and the FTAA give to investments. Both develop prohibitions on performance requirements, the application of “non-discriminatory treatment” for foreign capital, the introduction of direct and indirect expropriations, and investor-government disputes. The performance requirements should be instruments which would permit the corporations and the receptor countries to share benefits of the investment. However, the prohibition on performance requirements expressed in the FTAs remove from the governments important policy tools which are indispensable for the definition and promotion of national development programs. Table 2
Prohibition on States for Establishing Performance Requirements on Foreign Investors Performance Requirements 1.
2.
3. 4.
5.
6.
Percentage of national content for local goods and services Granting preference to local goods and services. Quotas or types of goods and services to export. Any relationship between imports, exports and profits. Transferring technology, productive process or other reserved knowledge. Acting as exclusive provider of the goods which are produced or services provided.
National Implications Favors importation of products (inputs and capital goods) affecting domestic and job creation. The possibility of encouraging domestic production and the connection between foreign investment and the domestic productive network is lost. Limits the possibility of including the “contribution” of foreign investment in the definition of industrial policies. It is not possible to influence the definition of the flows of tradable goods by foreign investors, so that a favorable relationship could be prioritized in the national trade terms. Local investment of the earnings obtained by foreign investors is limited. Makes it impossible to strengthen national capacity through technology transfer (“know how”), one of the technical advantages of DFI. Opens the door for monopoly management of the market, in spite of the tenet of “promoting free competition”. This contributes to greater concentration of domestic markets, with the aggravating factor that the foreign investment tends to move into the area of public services.
Source: Taken from Moreno, Raúl (2003): Los derechos laborales y los Tratados de Libre Comercio, Op cit. Prepared on the basis of the Chapter on Investments, Art. 14-07, NTFTA.
The list of the prohibitions imposed on governments makes it impossible to impose or obligate an investor to comply with any of the following requirements: –
Percentage of national content for local goods and services. This prohibition restricts enterprises to buying inputs locally and with this prohibition; it makes it impossible to prevent foreign enterprises from becoming authentic enclaves, affecting not only national production, but also the Current Account in the Balance of Payments.
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–
Granting preference to local goods and services. With this prohibition the possibility of connecting foreign investment to the productive network and of establishing productive chains which could contribute to the structuring of a national productive basis is lost.
–
Quotas or types of goods and services to export. With this prohibition it becomes impossible to prioritize strategic branches of domestic industry or services by the definition of sector policies.
–
Any relationship between imports, exports and earnings. It is not possible to influence the management of net exports in order to establish a favorable relationship in the terms of trade of the country.
–
Transferring technology, productive process or other reserved knowledge. Limitation for strengthening the national capacity through the transfer of technology and “know how”, which foreign investors should do, one of the pillars of success in the experience of the Asian industrial economies.
–
Acting as the exclusive provider of the goods which are produced or services which are provided. The door is left open for the monopoly management of the market, in spite of the stated objective of “promoting free competition.”
In addition to preventing the regulation of investments, every measure which falls within the regulatory sphere, suitable for governmental action, especially in the area of protection of the environment and health, is considered to be a measure which is “equivalent to the expropriation” of its assets, because it would reduce its anticipated earnings.44 The cases of the Ethyl, S.D. Myers Inc. and Methanex Corporations illustrate how foreign investors successfully utilized NAFTA to challenge the regulatory power of governments, and even to reverse the results of internal legal procedures. Ethyl was able to revoke the prohibition of the Canadian government on the gasoline additive MMT, which is a known nerve toxin; S.D. Myers, which deals with wastes which contain PBC toxins or “askarels” have a case of US$ 30 million dollars against the Canadian government for losses caused by the prohibition on exporting contaminated waste; the Canadian Methanex company is about to sue the U.S. government for US$ 970 million dollars because the State of California ordered the termination of the chemical product MTBE in order to prevent contamination.45 In addition to these three examples there are at least seven cases of suits against the United States, four against Canada and eleven against the State of Mexico46, which demonstrate the rights granted by the FTA to investors to challenge laws or policies of the receptor government, using the system for the solution of investor-State 44
Hemispheric Social Alliance (2002): Alternatives for the Americas, p. 79, December. www.asc-hsa.org Ibid. 46 See: Public Citizen (2001):NAFTA Chapter 11 Investor to State Cases: Bankrupting Democracy, Table of NAFTA Chapter 11 Cases, Washington. 45
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controversies, and allowing them to take to court any government signatory of the agreement for not granting the privileges provided for investors.
The cases heard before special tribunals for the agreement and not before the judicial system of the countries. Most of the cases presented challenge environmental norms, regulations and governmental decisions, presented as expropriation measures. This is why the definition of indirect expropriation is one of the points which merits greater discussion in the FTAs and in the FTAA project. The criteria of the MAI prevailed in the founding of the arbitration tribunals. These courts are limited to “groups of experts” who deliberate behind closed doors, without the mechanism of discussion and deliberation to guarantee adherence to the interests of society over those of the investors. A suit by an investor can be submitted to arbitration by one of the parties, when this person or their investment has suffered losses or damages in virtue of the violation or as a consequence of it. Nevertheless, the procedures are not clear and the possibility that an individual could present a case for damages received from an investment is even less clear. The restriction which is imposed on governments requiring foreign investors to reinvest their earnings in the country in which they were obtained, or to exercise control over speculative capital, has special relevance, even if the multilateral organizations dedicated to trade themselves – like the OCDE – set forth the need to make progress in the establishment of controls on this type of capital, as a precautionary measure to avoid imminent financial crises. This system is invasive from every perspective, has implications that go beyond strictly commercial aspects, and obliges governments to compensate all foreign investors located in a member country of the agreement who consider themselves to be marginally affected by the most elemental regulatory functions of the State.
c. Government Purchases Considering the impact that government purchasing and public works have on specific sectors of the national productive structure, and given that they are financed with public resources which come from the taxes paid by the population, it is expected that government purchasing would become an instrument of economic policy for national development. The express purpose of incorporating government purchasing in the FTAs is “to create and maintain one market only for public contracting with the purpose of maximizing the business opportunities of providers and reducing the commercial costs of the public and
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private sectors of the signing parties47. Even if it is true that public administration has the obligation of ensuring the efficient operation of its enterprises, we cannot ignore the fact that its purpose is the good development of the economic process as an instrument of equitable and sustainable growth, and not the acquisition of individual profit, much less becoming the guarantor of businesses for the business sector, as the FTA proposes. Public contracting should be done in open and transparent bidding processes to avoid corruption in their adjudication. The criteria for contracting should not be exclusively commercial, as established in the FTAs48, but they can include aspects such as: the national content of a good or service which would be integrated into the domestic productive chains, type of technology used – because of its environmental effects, technology transfer, jobs generated in the country and their corresponding salaries and special guarantees of support to micro, small and medium scale national enterprises.49. In opening access to public contracting to foreign enterprises, conditions are being created for transnational capital to become the provider of public services which are the exclusive responsibility of the State. This translates into a clear promotion of the privatizing processes started in the region with the SAP-ESPs. The FTA is explicit in proposing that, in matters of government purchasing, “a party cannot be prevented from privatizing an entity covered in this Chapter”50, and no compensation can be demanded for the privatization. In addition, important public services are left off the lists of institutions which are exempted from the application of this norm. Some of these represent ESCR, such as water resources, and hold the imminent risk of the incursion by transnational enterprises in the provision of such services. These elements are in complete agreement with those contained in the FTAA draft. This project also attempts to guarantee access by multinational companies to government contracts in areas such as health, hospital care and social security, primary and secondary education, museums and libraries, water resources, insurance and tourism, postal services, transportation, highways, ports and airports, and others. On the other hand, on issues of public contracts, the FTA guarantees the application of the National Treatment principle, which confers the same conditions on the foreign enterprises that participate in the bidding processes as national enterprises receive. This proposal to not discriminate against foreign investment works in practice as a factor which discriminates against national enterprises, since by their nature and their inferior 47
Tratado de Libre Comercio entre Chile y Centroamérica, Capítulo 16, Art. 16.02 Art. 16.03 of the CCHFTA establishes that “business opportunities will be promoted so that providers may compete in public bidding with preference based on the quality-price relationship, to the extent that the application of this principle is compatible with the nature of the contract in question. The application of this principle is directed at obtaining the most efficient result with the financial resources allocated to the entities undertaking the contract, considering the public need for these”. 49 Alternative for the Americas, Op cit, p. 63 50 TLC Chile-CA, Op cit, Artícle 16.10. 48
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competitive abilities, they are hardly able to compete in the negotiation of contracts with foreign enterprises that have more technology and capacities, allowing them to bid with lower costs and possibly higher quality. The “non discrimination” principle of national treatment works as a mechanism for the exclusion of national enterprises, which face the threat of being displaced from their public market niche in which they were developing until the implementation of the agreement. There is some evidence that shows the consequences of these mechanisms on national enterprises. An illustrative case is the adjudication that the Ministry of Education of El Salvador granted in 2002 to the Chilean company INDUMAC to build 50,000 desks, alleging that the national producers did not have the capacity to ensure the provision of such a quantity of desks. Once INDUMAC had won the contract, they subcontracted with a Salvadoran company called OFFIMET for the manufacturing of a significant portion of the contracted amount. The Chilean company is now preparing for a new contract of 35,000 desks and another bidding process that will be held in the remainder of the year for 100,000 desks.51 The management of public bidding processes for personal or political party interests is a generalized practice in the public enterprises which define a framework of privileges that is favorable to a small nucleus of companies and disadvantageous for the rest who take on these conditions of unfair competition. Thus, the fight against institutionalized corruption in public administration is a fundamental condition for a transparent public bidding system. This obviously transcends the competence and scope of the FTA, although a Public Bidding Committee is established in this chapter.
d. Services Services first appeared in a multilateral trade agreement in 1994 with the General Agreement on Trade in Services (GATS). Since then, through the bilateral or regional negotiations – such as FTAA – progress has been made in the liberalization of this sector. The WTO has identified a list of 160 services which are traded internationally, among these are: transportation and distribution (such as airlines and wholesale trade), consumer services (such as hotels and fast food chains), public services (such as education, health care, and sewage treatment), repair services (such as mechanic shops for vehicles), financial services (such as those offered by banks and insurance companies), and public utility services (such as electricity, telecommunications, water and gas).52 In the processes for liberalization of services, the multinational public service companies have taken advantage of privatization measures to acquire public enterprises and thus bring the provision of public services under a market logic which is driven exclusively by profit criteria. Accordingly, throughout the continent, we find foreign investments
51 52
El Diario de Hoy, www.elsalvador.com/especiales/tlc/tlcchile3.htlm. Alternative for the Americas, Op Cit, p. 101.
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controlling such sensitive sectors as energy, telecommunications and garbage collection.
transportation,
water,
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tourism,
In Latin America, the service sector contributes nearly 60% of the GDP. Its importance is undeniable, not simply because it serves as input for production, but because it deals with goods which satisfy the needs of the population, many of which are basic needs and vital for the existence of the population. The purpose of the chapter on trade in services is to gradually move toward the liberalization of the sector, through the application of national treatment and most favored nation treatment to foreign enterprises which are service providers. In addition, within the reservations and exceptions, the FTA states that foreign companies “are not obligated to abide by municipal measures”53. This discriminates against national enterprises which must observe the regulations issued by the Central and municipal governments. If there was any doubt about the commercial perspective on services which the FTAs seek to consolidate, one need only refer to the connection established between these agreements and the General Agreement on Trade in Services (GATS), as the FTAs state that the parties “will apply to each other the provisions contained in the multilateral agreements on services of which they are members.”54 On the matter of services it is essential for the States to be able to guarantee the right of the population to have access to basic services, while the FTAs and the multilateral agreements operate on the assumption that there can be exclusion. Governments have the right to leave vital services out of the negotiations in order to allow universal access to essential services and consumer protection. Further, it is important to keep in mind that most public services are natural monopolies or public goods, in addition to the fact that many services are related to the cultural identity of a country or to its political and social cohesion – such as education, health care or social security – which means that rules cannot be established which indistinctively govern trade of goods and these types of services. It is worth noting that the international anti-monopoly regulations on the services area should be mindful that States are obligated to maintain public enterprises which are exclusive providers of services for the population. These considerations have special relevance, judging by the suits brought against States by multinational corporations, protected under the chapter on investments in the FTAs. The U.S. service company for the swift delivery of mail and packages, United Parcel Service of America Inc. (UPS), has brought suit against the Canadian government for US$160 million before the United Nations Commission on International Trade Law (UNICITRAL), making use of NAFTA. UPS alleges discriminatory treatment because 53 54
NTFTA, Cap. 10, Art. 10.06. Ibid, Art. 10-16.
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the Canadian postal service for package delivery enjoys subsidies, as it is a public service which operates as a monopoly, and according to the multinational company it should not be allowed to compete in the provision of integrated services of message and package delivery.55 The acceptance of the UPS case on the part of the UNICITRAL would have an enormous impact on countries like the United States and Canada, where health and education are offered as commercial services as well as subsidized public services. This could open the door for massive compensation from States to multinationals that feel they have been affected by competition from public enterprises, with the additional consequence that this could lead to the withdrawal of the State from the provision of such services, leaving them to be assumed by private enterprise.
e. Intellectual Property Rights The framework which governs intellectual property rights falls under the WTO agreement known as TRIPS. Its norms protect the rights of corporations to patent products, processes and organic material – such as medicines, seeds and biotechnology. A profound ethical, economic and social debate is occurring within this context with discussion centering on the relationship between the ownership of patents and the selfdetermination of peoples and their access to vital necessities such as health care. The FTAs become instruments which zealously oversee the “appropriate and effective protection and defense of the intellectual property rights”56. They stipulate that each signatory country of the agreement may grant broader protection to intellectual property rights in their legislation than what is required in the chapter, providing it does not infringe upon the terms of the agreement. Beyond the national regulations, cooperative relationships are established between the signatory countries of the agreement in order to eliminate the trade of goods which infringe upon intellectual property rights.57 The interest expressed in the FTA in establishing mechanisms which protect and defend intellectual property rights only coincides with the desire to ensure investors’ rights, in contrast with the lack of measures related to the rights of workers. This is another rationale for the position that asserts that the FTAs are true “bills of rights” for multinational enterprises. Intellectual property is addressed in sections with specific treatment for author and author-related rights, brands, patents, industrial designs, undisclosed information, and geographic indications and denomination of origin. Patents, which are property rights granted to inventions, whether products or procedures, in every field of technology58,
55
Public Citizen, Op Cit, pp. 14-16. Free Trade Agreement Mexico – Northern Triangle Countries of Central America, Chapter XVI, Art. 16.02. 57 Ibid, Art. 16.08. 58 Ibid, Art. 16.25. 56
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confer exclusive rights on their owner – which assumes monopoly control –of the patent during a period of no less than 20 years.59 The exclusive rights conferred by the FTAs prevent third parties from manufacturing – for products, or use for procedures - use, supply for sale, sale or importation related to the product which is the object of the patent, in the case of a product60. It is clear that, with the patent model, competition between companies is limited, and the generic production of products is prevented, ensuring the owner monopoly control over the production and sale of the product for a minimum of twenty years. This monopoly position allows the company owning the patent to fix the price of the product unilaterally and without restriction and, in addition, squash any potential competing enterprise, as it has the exclusive right to manufacture or sell the patented product. TRIPS requires compliance with and enforcement of the patent system for products and procedures by WTO member countries, authorizing anti-competitive behavior for the companies that own the patents. This logic has been progressively gaining more ground and is very dangerous for humanity, because it has moved from industrial patents – including medicines – toward patents on living beings – plants, animals, genes and human cells, in clear contradiction to what is stipulated in the Universal Declaration of Human Rights, where it is recognized that “every person has the right to the protection of the moral and material interests which they have by reason of scientific, literary or artistic productions which they have authored.”61
f. Temporary Entry for Business People Although the elimination of barriers to trade and the movement of capital are promoted in the context of neoliberal globalization, the FTAs extend the framework to suppress the impediments which limit the movement of business people. This situation contrasts with the absolute omission in these treaties of the migratory problem faced by working people. Business people are defined as those who are visitors from a business, merchants, and investors, and personnel transfers within a company62; executives and technical specialists also qualify in this category. Although one of the principles of the FTA is non-discriminatory treatment, the terms that facilitate only the temporary entry of business people has a clear discriminatory content against workers, plainly infringing on their interests and rights.
59
Ibid, Art. 16.32. Ibid, Art. 16.26. 61 Universal Human Rights Charter, Art. 27. 62 NTFTA, Chapter XIII, Art. 13-01. 60
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The relevance of the migration phenomenon in Central America is demonstrated by the permanent displacement of the labor force which is expelled by the economic structures of the countries of the region toward the United States through Mexico. Therefore, it is inconceivable that such a relevant aspect would be excluded in the text of the FTA. This fact reveals the emphasis of the agreement, where those aspects related to the fulfillment of and compliance with the ESCRs do not enter into play. While the fact that the FTA does not address migration and labor rights does not remove the need to put together a joint position on these themes, it is obvious that their treatment cannot be reduced to the simple inclusion of a clause attached to the content of the agreement, given that the very logic and essence of the agreement works against human rights, and particularly the rights of migrants.
g. Sanitary and Phytosanitary Norms The framework of this chapter is established in the Agreement on the Application of Sanitary and Phytosanitary Measures (SPS Agreement) which is part of the WTO agreement. Its purpose is the regulation of sanitary and phytosanitary measures which can directly or indirectly affect the trade of goods between the parties.63 Each signatory country of the FTA can “establish, adopt, maintain or apply any sanitary or phytosanitary measures which regulates the protection of life, human health or animal and vegetable health, including the safety of foods and the importation of any good from the territory of the parties, when they do not fulfill the applicable requirements, or do not satisfy the approval procedures defined in these measures”64. Although the FTA establishes that these measures should not form a hidden restriction to trade, nor should they become an obstacle to trade, in practice some countries make use of these measures as non-tariff barriers, which generally operate to the detriment of the least developed economy. It is clear that the compliance with the sanitary and phytosanitary standards creates a favorable and desirable situation for consumers, as it opens the possibility of acquiring better quality animal and vegetable products. Nevertheless, it is worth assessing this negative implication – in principle – on national producers, which derives from the asymmetric development of the enterprises of the parties in the areas of quality control, technologies and standardization, as well as the implications involved in the arbitrary management of the norms for purely protectionist purposes. It would be expected that technical cooperation in matters of sanitary and phytosanitary norms would be accompanied by preferential treatment for the least developed economies, so that they would be granted more flexible times and conditions for the application of the norms. In general terms, Central America is far behind in terms of 63 64
Ibid, Art. 5.02. Ibid, Art. 5.03.
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standardization, thus progress needs to be made in the regulation and harmonization of quality standards to be able to situate ourselves in a less asymmetrical position in respect to the United States. Meanwhile, this situation is becoming an additional non-tariff barrier.
h. Administration The administration of the FTAs has important effects on the accounts of the non-financial public sector, not simply because of the reduction in tax income as a consequence of the tariff reduction, which creates strong pressure on the growing fiscal deficit; but also because of the expense incurred in maintaining the “agreement bureaucracy”, with more than 10 commissions and another set of sub-commissions as well as the astronomical costs which are involved in the administration of the controversies and trade disputes, some taken to Geneva, the headquarters of the WTO. One of the central aspects in the analysis of the FTAs is the lack of a legal framework which would define the procedures for implementing the measures proposed in the text of the agreements. Given the current national conditions, in El Salvador the ratification of CAFTA on the part of the Legislative Assembly would represent a blank check for the executive branch and the groups in power, because there are important legal and institutional gaps which would led to a discretionary and arbitrary management of the tariff measures, the use of safeguards, and other provisions. The decision to include or exclude goods or services from the tariff framework of the Agreement is in the hands of one of the commissions, and not in the hands of the Legislative Assembly, which is the only body empowered by the Constitution of the Republic of El Salvador to fix or modify rates or taxes. This not only weakens the constitutional framework but also leaves the door open to the arbitrary and discretionary management of benefits or sanctions for producers.
3.4. Labor65 and Environmental Clauses. The FTAs suffer from important omissions. Two of the most relevant are regarding labor rights and the environment. In view of their incomplete nature, it would be very easy to get a more “presentable” text of the FTA, and there is no doubt that attaching to the treaty labor and environmental clauses would contribute to a better image for the agreement. Nevertheless, this would not overcome the gaps indicated or supply it with a “human face”, given that the content, principles and the logic itself of the agreement contradict and deny labor rights and sustainability. Thus, appendices on labor or the environment are not enough, because in practice they would be subsumed – as evident in the NAFTA – to the rest of the agreement. 65
Some elements of this section have been taken from Moreno, Raúl (2003): Los Derechos Laborales y los TLC, Op cit. Chapter IV, pp. 41-44.
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Assuring the fostering of labor rights and sustainability would require modifying the principles upon which the FTAs rest, changing the chapter content and modifying the mercantile logic. In other words, it would mean creating something which would not be a FTA, with a different logic, to ensure that there is no crosscutting contradiction with labor and environmental clauses. Also, it is evident that the inclusion of clauses in the FTA, or their simple recognition does not in itself ensure the fulfillment of labor rights or respect for the environment, when the legal, institutional and internal public policy frameworks are not necessarily characterized for promoting this rights approach, also absent in the FTA. If the labor clause in a FTA does not ensure the fulfillment of labor rights and sustainability, the benefits and implications of their inclusion should be questioned. Reforming the FTA represents an effort without meaning, because the inclusion of clauses would end up being useless, if they are not enmeshed in a different framework. The FTAs should be confined to issues appropriate for trade agreements: tariff aspects, the movement of goods through borders, and the administration of trade disputes. They should also leave aside regulations on investments, intellectual property rights, governmental purchasing, liberalization of services and other aspects which transform the FTA into a bill of rights for large enterprises. The FTAs, far from ensuring compliance with Fundamental Rights and Principles of Labor – written in the Declaration of the ILO – are predisposed toward their violation and non-compliance. Basic rights to association, to collective bargaining and nondiscrimination are not and cannot be respected in an agreement which is defined by a very different crosscutting logic. The demand for social security for all, the employed and the unemployed, is even farther away with the FTAs because, in validating the framework of the WTO, they reaffirm what the GATS stipulates on social security issues. The FTA is not alone in terms of violation of labor rights; its logic responds to and reproduces the neoliberal pattern, inspired by the Washington Consensus, which aims toward the weakening of labor as the way to promote investment and exports. In spite of the fact that most of the FTAs lack labor clauses, the Office of the United States Trade Representative (USTR), responsible for the trade negotiations, suggests the need to incorporate the topic of labor into CAFTA. This position is an obvious response to U.S. protectionist interests, rather than a conviction to the value of respect for labor rights in underdeveloped countries. The search for the standardization of labor conditions responds, on the one hand, to the attempt to prevent U.S. investment from heading south to take advantage of the comparative advantage of low labor costs, and with this lessen the creation of unemployment in the north; and on the other hand, to keep exports from the south,
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cheaper because of less social responsibility (social dumping), from creating competition for their domestic production. Governments from the south are opposed to the proposal for labor standardization, pointing out the disadvantage this would cause in their countries’ exports, in seeing their “source of competitiveness” suppressed. Obviously, this suggestion represents the vision of governments, which contrasts with the interests of workers, for whom the prevalence of their labor rights, as well as the improvement of their salaries and benefits would be wonderful news. It is worth questioning why, with an Agreement for Labor Cooperation included in NAFTA, eight years after its signing, there is an obvious deterioration in labor conditions and there are clear violations of Mexican workers rights.66 This situation is one more piece of evidence that shows the inoperability and insufficiency of a labor clause in the FTA framework as a condition for ensuring labor rights. In contrast to NAFTA, the integration experience of the European Union – while it has significant deficiencies – includes the creation of regional development funds to promote jobs and increase the income of the least developed countries, in order to eliminate competition based on low salaries. This situation is far from being considered in agreements which are defined using a strictly market logic.
66
See: Arroyo, Alberto (2001): Resultados del Tratado de Libre Comercio de América del Norte en México. Lecciones para la negociación del ALCA, RMALC, México
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4. Myths and truths of CAFTA “A treaty between the United States and the Central American countries is like a party between a hungry tiger and five tied up donkeys” Phase heard in an economic literacy workshop in San José las Flores, Chalatenango, El Salvador
The negotiations for the signing of a Free Trade Agreement between the United States and Central America started in January of 2003. The governments of the region and the business leaders have received this fact with great optimism. CAFTA appears in their speeches as a panacea to the problems which the small Central American economies are facing, the key for job creation and the path for accessing a market of more than 270 million people. The apology for CAFTA has ignored the profound economic, technological, social and institutional asymmetries between the country signers, and above all the overwhelming capacity of the United States to impose its interests on the negotiations and to determine the results. In addition, it is paradoxical to talk about CAFTA as an alternative for economic growth and job creation, given that it reproduces the same measures of economic opening and deregulation on which the failed neoliberal policies of the WB and the IMF are based, which in the last two decades have exacerbated the structural problems of the Central American economies.
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The signing of the Free Trade Agreements has been on the doorstep of the Central American countries for more than five years now. During that period, a number of treaties have been ratified, although none of them have been signed with a power such as the United States, which could then serve as a point of reference. Nevertheless, the Mexican experience in NAFTA provides us with a “mirror” which allows us to learn from its negotiating experience, the content of the treaty and the general impact it has had. This opens the possibility for us to sketch the potential economic and social effects of CAFTA in the region.
4.1. The CAFTA Negotiation Process In the Central American countries there is a long tradition of the application of public policies which are anti-democratic in nature, not just because of their perverse impact on the population, but also because of the exclusive mechanisms used for their preparation and implementation. Few are surprised by the fact that economic decisions are made by a few people, without the least possibility that in the future they would assume their share of responsibility for the costs and damages that their decisions have caused. The negotiations for trade and investment agreements and treaties are no exception. In spite of the importance of FTAs to national life due to their social and economic impact, the negotiation and decision-making processes have been characterized by a lack of transparency, the absence of consultation of the sectors affected, and the absolute absence of participation by the different economic and social sectors. The secret and anti-democratic character of the negotiation processes contrasts with the official rhetoric which highlights the need to “establish processes for broad social participation.” According to the logic of the governments, civil society is little more than the business sector, proof of that is the very composition of the negotiating teams for the FTA, which are composed of the public officials from the ministries of the economy or of commerce and industry, and by representatives of business leaders. This practice is observed in the multilateral WTO negotiations as well as in the regional negotiations on the FTAA. Both suffer from lack of information and citizen participation. In spite of the fact that the agreements allude to democratic and participatory principles, their texts and collateral information are handled with a high degree of confidentiality and circulate with enormous restrictions, as if they were State secrets. In the discussion on transparency held in the recent FTAA meeting in March 2003 in Puebla, Mexico, the decision was made to launch a “governmental offensive” in order to promote a democratic image of the process, which would provide a counterweight to the growing citizen denouncements of the exclusive nature of the negotiations. There, the importance of granting greater access of information to civil society was recognized, including the organization of seminars with leaders of non-governmental organizations (NGOs) – considered to be representatives of civil society – and even the establishment of a Civil Society Committee.
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The desire to put a “democratic face” on the negotiations reaches even the bilateral treaties like CAFTA and is strongly determined by the growing mobilizations and demonstrations of rejection, which trade and investment projects are facing on the national, continental and global levels. In addition, the decision for a greater dissemination of information on the FTAA is not disconnected from the fact that the governments of Brazil and Venezuela provide a path of access for civil society to the information which was previously managed with obvious secrecy In contrast with the previous FTAs, a space for “citizen participation”67 is being promoted within the framework of the current CAFTA negotiations. This included inviting interested people to present their comments on the treaty, framed within the topics which the negotiation addresses. The process includes two modalities: the written comments – a maximum of 10 pages per document and due to be presented before May 16, 2003 – and a public audience scheduled for two days (May 22 - 23, 2003) in which those interested in presenting their testimony in oral form would participate, for a 10minute period, requiring prior registration by May 16, 2003.68 In addition, the “side room” or “adjoining room”69 mechanism has been publicized as an area reserved for the private sector to be close to the negotiators who will provide information about the progress of the discussions and consult their opinion on any topic. For the purpose of giving it a democratic and participatory face, this business initiative has been extended – with many reservations – for some NGOs to be in the room adjoining the “negotiation room”, to hear the voice of the government officials on the 67
The objective of the “citizen participation process” promoted by the government of El Salvador include: knowing the concerns, fears and expectations of the Salvadorans concerning the objectives of CAFTA, opening spaces to civil society to state their position on the topic, have real elements and constructive proposals which would contribute to the decision making in the negotiations on specific topics, and channel in a correct fashion the dissemination efforts on the benefits and challenges of the FTA for the country and the population. See: Publicación del Ministerio de Economía: Proceso de Participación Ciudadana. TLC C.A.-USA, San Salvador, Mayo de 2003. 68 Ibid. 69 For the business sector the “side room” should be used as a consultation mechanism, more than as a channel of information, so that a true dialogue is established between the private sector and the negotiators. The business leadership determined that in the “side room” only the representatives of the sectors of the topics which are discussed in the different rounds would be present at that time. The objective in addition is not to saturate the designated space. For the Central America business people they think that this is a “model” for negotiation which the countries of the area are accustomed to, except for Costa Rica, whose negotiators are uncomfortable with a “side room” in the conversations, because they are not accustomed to pressure from the business sector in decision making. Last December 13th the principal associations of Central America urged the Presidents of the region to negotiate the Free Trade Agreement (FTA) with the United States, in full consensus with the private sector of the five countries. The message made public in the last presidential summit of last year by the leaders of the Federation of the Business Chambers of Central America (FEDEPRICAP) was: “we should avoid a situation where the most difficult negotiation happens internally in the region, and not what we are negotiating with the United States.” The business leaders emphasized the need to assure their participation in the side room, but “with the assurance of not being an additional actor who receives information, but rather a fundamental party to be consulted throughout all of the negotiation of the FTA with the United States.” Source: El Diario de Hoy, 02/05/03 and 02/06/03.
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progress of those aspects of the negotiations which are not restricted or classified. In the words of the Minister of the Economy of El Salvador, there will be limited access to the documents and that will only be for specific sectors: “it cannot be open to everyone for reasons of security. We cannot reveal our strategy to the other side”70. Nevertheless, the negotiator for the private sector in this regard said, “that it is hard for us to accept this topic of confidentiality because the documents have to be available for the consideration of all the sectors”71. In order to establish the validity and pertinence of these “participatory” mechanisms, we could focus on the established bureaucratic mechanisms which make participation difficult, or on the lack of real access by the citizenry to even the hotel where the negotiating round is being held, and later to the real possibility of moving into the “side room”; or we could also allude to the generalized lack of knowledge on the part of the population about the issue of CAFTA, whose complexity and the technicalities involved – in addition to the profuse disinformation campaigns of the government – make it very difficult for the citizenry to be involved in the technical discussions and to voice their opinion. Nevertheless, the central element of the “participation” is found in the real capacity of influencing the posture of the Central American governments and later in the negotiations with the United States. From all angles this ends up being either not very probable or even impossible, if we consider that the logic of the negotiations basically responds to the interests of the business leaders and the multinational corporations. In addition, it is sufficient to recall that the CAFTA agenda was previously defined, that the principles and the substantive content are not being negotiated, because they come from a template which is reproduced for every occasion. It is here that the limited space for influence becomes insignificant, except for the governments which assign it some importance out of the need to “socially legitimize” an anti-democratic process directed at ratifying a treaty which is detrimental to the interests of the citizens. In the FTA negotiations between Chile and the United States, the “side room” mechanism allowed some sectors to have the possibility of seeing and hearing what was addressed in the negotiating room and to make their comments. Nevertheless, to judge by the declarations of the Chilean Alliance for Fair and Responsible Trade (ACJR for its Spanish acronym) and the Alliance for Responsible Trade (ART) of the United States72, which expressed their profound concern and disillusionment with the results of the negotiations, it is obvious that the “side room” worked in Chile as a “blackout room” which did not allow for the inclusion of the interests of the civil society organizations who participated there73. 70
La Prensa Gráfica, 03/27/03, San Salvador. Ibid. 72 Joint declaration on the proposed Free Trade Agreement between the United Stateand Chile, ART and ACJR. 73 See: “CUARTO ADJUNTO” en las negociaciones del TLC: unas estrategia gubernamental para legitimar los privilegios del capital en contra de los derechos de los pueblos de Centroamérica. Evaluación 71
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The issues that are subject to negotiation in CAFTA are fairly limited and can be reduced almost exclusively to the aspects related to access to market goods. This is the list of products which must be included in the tariff reduction process, the scheduling, the sanitary and phytosanitary norms, the customs regulations and exceptions. National business people will focus on these issues in order to obtain some benefit derived from their exclusion, from some preferential treatment or from a tariff schedule which would favor them. It is hoped that the apparent “citizen participation” will be focused on these points, leaving aside the substantive aspects which the FTAs are silently pushing forward. There is no discussion, and even less negotiation, in CAFTA on the principles of national treatment and most-favored nation treatment, the prohibitions on the Central American governments to impose performance requirements on foreign investments, the suppression of indirect expropriation, the investor-State clause, the monopolistic control on patents exercised by the chemical-pharmaceutical multinationals, the liberalization and consequent privatization of public services, the access of the multinationals to government purchases, the U.S. subsidies for agriculture; all of which represent the hard core of the FTAs. On the other hand, it is worth pointing out that, as a result of the process of economic and institutional reforms promoted by the WB and the IMF, a considerable weakening of the Central American states can be observed, along with the redefinition of their role in the economy, and the consolidation of the hegemonic business nuclei who control the public administrations.74. These facts have a notable repercussion on the negotiation processes of the FTAs, because the negotiating teams themselves guarantee that the interests of the business nuclei will prevail through preferential treatment received for their enterprises, while the interests of the people are left aside. New rounds are planned for the CAFTA negotiating process with their respective preparatory meetings with the end of the negotiations projected for December of 2003.75.
4.2. Technical and impact studies The basis for the proposals held up by the governments and business elites in defense of CAFTA lack scientific and technical support, and rest on the “blind faith” that the processes of opening the economy will automatically pour out jobs and well-being for the entire population, without taking into account the structural bottlenecks which small economies suffer – and which make us not very competitive, if competitive at all – and crítica de las rondas de San José y San Salvador. Declaración de la Red de Acción Ciudadana frente al Comercio e Inversión, SINTI TECHAN. 74 Moreno, Raúl and others (2003): Cumplimiento y Vigencia de los Derechos Económicos, Sociales y Culturales en El Salvador, pp. 28-29, FESPAD Ediciones, San Salvador. 75 The schedule for the rounds of negotiation include the following dates: January 27-31: Costa Rica; February 24-28: Cincinnati, United States; March 31-2 Abril: El Salvador; May 12-16: Guatemala; June 16-20: Nicaragua; July 28 – August 1: United States; September 8-12: Honduras; October 20-24: Costa Rica; and December 8-12: United States.
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especially the power relationships which determine that the concentration of the benefits from growth will go to a hegemonic business group. An interesting aspect of this situation is that the FTA negotiations held thus far by the governments of the region have lacked technical studies and impact studies which would make it possible to visualize the consequences derived from the application of the trade agreements, to assess the benefits and/or damages generated by these agreements and, especially, to identify the sectors who will win and lose as a result of the agreements. The non-existent or limited importance conferred on the technical and impact studies can only be interpreted in their exclusive aim of assuring negotiations which preserve the interests of a small number of national enterprises, generally monopolies or oligopolies who belong to the hegemonic business nuclei, and who tend to make up the “exclusive” club of FTA winners. The lack of technical studies on the economic, social, cultural and environmental impact greatly limits the negotiating position of the governments. In the negotiation process for NTFTA, the Salvadoran Foundation for Economic and Social Development (FUSADES) warned the Salvadoran government that the lack of technical studies would leave us in a situation of clear disadvantage in relation to Mexico. The trade negotiations are held at such a level of detail that the tariff fractions are considered one by one76; it is here that the lack of technical and impact studies ends up being inconceivable, not simply because it leaves governments that do not have them at a clear disadvantage, but because it makes it impossible to estimate the repercussions in matters of jobs, business failures, impact on productive chains, and the benefits and/or damages caused by the negotiation in general. In this sense, declarations like those of the Minister of the Economy of El Salvador77, who proposed that CAFTA would triple exports in the next five years, in which term investments in the country would increase by more than $5 billion and 250 thousand new jobs would be created, lack any basis of technical support and represent simple rhetorical arguments.
4.3. The Critical Points of CAFTA: Main Repercussions The CAFTA negotiations are moving forward parallel to a complementary “agenda” funded by the international financial organizations to support the signing of these treaties. 76
Detailed trade negotiations are held at the level of tariff fractions and sub-fractions. They represent codes of tariff classification at the level of eight, ten or six digits, which correspond to products with specific characteristics and particularities. So the tariff fraction 0207.13.91 corresponds to chicken breast, fresh or refrigerated, except for breasts deboned mechanically. Such level of detail in the negotiation cannot be done without specific knowledge at the level of industrial areas, businesses, trade margins, costs, technologies, among other things. 77 Declaration made on January 16, 2002 on the occasion of President Bush’s announcement that he would negotiate a FTA with Central America. El Diario de Hoy, www.elsalvador.com.
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The legal frameworks of the countries are being adapted to the requirements which propose the deregulation of capital: liberalization of services and investments, intellectual property rights, unrestricted access to government purchasing and the – selective – opening of markets. Huge steps have been taken along the path set forth by CAFTA in Central America. In general, progress has been made in the privatization processes and in government reform, in the deregulation of the economy, in the regressive fiscal reforms and especially in the precariousness of labor conditions, as the key for the attraction of foreign investment – principally sweatshops. Nevertheless, nearly everything remains to be done to create the factoral conditions which would allow for competitive capacities to be developed in the region, to make progress on the reduction in the gaps of inequality, and in the fight against the high levels of poverty. For the economies to grow, deliberate actions are required. However, achieving positive rates of GDP growth78 is not enough; the threshold at which it becomes possible to reduce unemployment – with rates higher than 6% - must be reached and sustained over a considerable period of time. This type of growth is the first condition, both necessary yet not sufficient, in aiming to solve the problems of poverty and marginalization that suffocate us. Also required is growth that is redistributed on the basis of justice and equity criteria, which would permit a harmonious relationship with nature and the environment. Preparation of the economies for development must include confronting the scourge of inequality, which is expressed through the high levels of concentration of wealth and assets measured through the Gini Co-efficient – which for the entire Central America region, except for Costa Rica, is above 0.5%. The unequal distribution of domestic production must also be confronted, as the average proportion allocated to worker remuneration is not even one third of what the business owners appropriate in the form of profits – or their gross earnings from exploitation. Apart from CAFTA, Central America has the challenge of putting its house in order, of setting down the foundations to allow it to overcome those enormous asymmetries that plunge it to the lowest levels of human development. Regional integration is, in contrast to the FTA, a road which could move us purposefully toward a just and sustainable form of development.
78
In the words of the Vice President of the Republic of El Salvador, “There are serious studies which show that CAFTA will increase by 50 percent in a 10 year period the per capita GDP of the Salvadorans; this has a scientific basis which shows that this is the great opportunity for Central America to be able to fight and reduce the indices of poverty”, the fragility of the arguments with which they try to support CAFTA are laid bare. In addition, he said, “We are going to sell appropriately to the largest consumer in the world, and it is the market where precisely 2 million Salvadorans live”, as if it were a magic act. Source: La Prensa Gráfica, 090503
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a. Addressing the Asymmetries The supposed benefits to be derived from opening up to the outside and the liberalization of investment are not automatic, and they are certainly not distributed in an equitable manner between countries and within them. The unequal sharing of growth is determined by the property structures of the means of production, by the imperfections in concentrated internal markets with asymmetrical information, by the protectionist practices – tariff and non-tariff; but primarily by the enormous existing asymmetries between countries, which become tangible in their dissimilar levels of development. The FTAs are not applied to homogenous economies, but rather to unequal economies, with significant disproportions and differences in terms of development, production, territory, poverty, competitiveness, population, resources, power, legal and institutional frameworks and culture. Therefore the asymmetries cannot be ignored when evaluating the impact from the implementation of these agreements. The application of treaties like CAFTA contributes very little to the development of small economies if we consider that these treaties operate out of and in order to favor the processes of multinational capital accumulation. This not only barely contributes to the strengthening of national capacities, but also, in fact, subtracts from this process. Thus, the FTAs do these countries little good, while exposing them through trade and investment to unjust and unbalanced relationships, which are detrimental to low income populations. Although the FTAA process recognizes the asymmetries, in practice the treatment proposed for the small economies is limited to the concession of temporary exceptions and technical assistance. In the words of the President of the IDB: “special attention will be given to the problems of the smaller economies, through – at least – the extension of the terms for the progressive adoption of the disciplinary norms of the FTAA”79. Addressing the asymmetries in CAFTA has been limited principally to the management of the time periods for application of the tariff reduction schedule, leaving out important elements like the per capita GDP, technological gaps, the management of the rules of origin, the adaptation processes for Central American businesses, the agreements for technical cooperation, the compensation funds for asymmetries, and legal and institutional frameworks. When the tariff levels of an economy are very low in comparison with those of its competitor, as is the case of Central America after the prolonged process of unilateral tariff reduction, it does not always gain with a staggered tariff reduction, because the starting level for this process must be considered (average tariffs are much greater in the case of developed countries).
79
Enrique Iglesias, keynote address, Business Forum of Belo Horizonte, May 14, 1997.
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The prescription for tariff reduction as the key for market access by goods is then disconnected from reality because, while the tariff on the U.S. product is progressively reduced for a period of time until it is equal to that of the Central American product, the latter remains at a fixed level. However, throughout the gradual process in which the U.S. tariff is being reduced, it always remains higher than the regional tariff, making it clear that the U.S. product enjoys an absolute advantage. All the FTAs have been negotiated based on the norms of NAFTA. Its application to small economies in itself is asymmetrical treatment, thus the asymmetries should have been negotiated on the basis of a special treatment and not national treatment or mostfavored nation treatment. The fact that the United States would not grant special treatment to small Central American economies in CAFTA presumes non-recognition of the abysmal asymmetries that exist and assumes the option of deepening them with its implementation. According to the trade representative of the United States, Robert Zoellick, the differences which separate the United States from Central America in terms of their levels of economic and social development will not be worsened due to the complementary natures of the economies.80. In this respect it is worth remembering that Mexico, an economy which is not complementary to the productive and commercial structure of Central America, has been “enjoying” access to the U.S. market for more than eight years, “granted” to it by NAFTA – to which Central American governments and business people now aspire. This raises the additional difficulty for the region that the productive and competitive capacities of the Mexican enterprises are, in general, much higher than those of Central America. The U.S. solution to the problem of asymmetries is very simple: promote aid and training programs which have been approved by the region for the World Bank, the IDB, the Agency for International Development (US-AID), and other financial organizations, to prepare the area for the application of the rights and obligations which the free trade agreement will give them. These solutions overlook the structural determinants of the asymmetries, and focus on training about issues of rights and obligations of CAFTA in response to these situations, with the consequent pressure on the Non-Financial Public Sector Accounts, which are in a deplorable state. The enormous contrast in the size of the U.S. economy and the Central American economies is not only expressed in the population: the United States has more than 8.5 times the population of the region; but also in the Gross Domestic Product per person, which is four times greater in the United States81, and in the exchange relationship which is dramatically unfavorable for Central America with the region’s deficit in the trade balance with the United States at over 4.3 billion dollars82.
80
El Diario de Hoy, 05/15/03. The World Factbook, CIA, USA. 82 The data includes maquila, SIECA, Central Banks of Central America. 81
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The Human Development Index allows us to do a more extensive comparison of the asymmetries between the countries that are negotiating CAFTA. It should be noted that there is a considerable contrast in the development level of the countries within the region: Guatemala (ranking 120), Nicaragua (118), Honduras (116) and El Salvador (104) rank lowest in Central American development, while Costa Rica is far above all the rest in 43rd place. These inter-regional differences are overwhelming when compared with the rival in the treaty negotiations as, according to the Human Development Index, there are only 5 countries in the world with a higher level of development than the United States.83 There continues to be an unfavorable exchange relationship in the commercial exchanges between Central America and the United States. In 2001, 38.9% of total exports (US$10,185 billion) went toward the United States, while 40.3% of all imports (US$20,518 billion) were acquired from that country. In the structure of Central American exports to the United States, Costa Rica is the country which contributes most (55.2%), followed by Honduras (19.4%), Guatemala (16.2%), El Salvador (5.6%) and Nicaragua (3.5%); while in the structure of imports the participation of the countries changes: Costa Rica (39.5%), Guatemala (23.8%), El Salvador (15.8%), Honduras (15.3%) and Nicaragua (5.8%)84. Given the unilateral U.S. concession in the Caribbean Basin Initiative (CBI), which reduces tariffs on Central American exports as long as U.S. inputs are used, it is evident that, from a purely commercial perspective, CAFTA is practically unnecessary. This strengthens the thesis that CAFTA, more than a trade treaty, represents a treaty which seeks the promotion of investment through the liberalization of its conditions. CAFTA represents an important vehicle to facilitate the conditions for the establishment and operation of U.S. investors in the region, with the assurance of not confronting any requirements for their performance. Consequently, far beyond exporting or importing of merchandise, this treaty is designed around the interests of the multinational enterprises (water resources, financial institutions, telephone companies, construction, industrial products, among others) located or to be located in Central America. The treaty does not grant appropriate treatment of the existing asymmetries between our economies and enterprises, particularly the micro, small and medium sized ones, in terms of their low level of efficiency and competition conditioned by the absence of an effective policy of incentives, innovation, training and access to financial resources, clearly deteriorated infrastructure, and telephone and electricity rates – provided by multinational monopolies – which continually undergo substantial increases. This important asymmetry has not been taken into consideration in the FTAs and its relevance is not trivial, especially given the complexity of the presentation and handling of safeguards and anti-dumping practices, the latter being one of the most difficult situations to prove. 83 84
See appendices, Comparative Profile Central America – United States. SIECA. See Appendices: Commercial Structure CA-USA: Summary of the Trade Balance CA-USA.
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In another area, the United States has teams of career specialists who have followed up on the different FTAs signed with much more developed economies than those of Central America, while the region has makeshift teams with no experience in the field. More than a CAFTA, Central America needs to sign an aid agreement built on a logic which would promote the sustainable and equitable development of each country of the region. This can only be built by strengthening the integration of peoples, before the markets are integrated. Nevertheless, the Central American private sector hopes that the U.S. negotiators take into account the differences in the levels of economic and social development which exist in the region, so that the agreement is “fair.”
b. Agriculture and Subsidies One of the more critical points in the CAFTA negotiations is the issue of agriculture, which is evidenced by the important participation of this sector in the generation of added value85, as well as in its contribution to Central American exports to the United States. In addition, there is an implied difficulty for the exporters of the region to compete with the U.S. agricultural products and access that market, due to the sanitary and customs barriers which limit their entrance and the subsidy policies which that country has in favor of its own agricultural sector. The structure of the agricultural products traded with the United States is fairly homogeneous, including mainly coffee, fruit and fruit products (bananas, plantains, cauliflower, broccoli, cantaloupe, watermelon, and tropical pineapple), shrimp, lobster and fish. Nevertheless, it must be pointed out that the participation of the agricultural products in the structure of total exports to the United States shows notable differences between countries; so while for Nicaragua they are 84% of exports to the U.S., for Guatemala 56.1%, for Honduras 46%, for El Salvador and Costa Rica they are barely 11.5% and 11.0% respectively86. For countries with a predominantly agricultural export structure –toward the United States – like Nicaragua, Guatemala and Honduras, the results of the CAFTA negotiations entail greater risks, given their considerable dependency on products which could face tariff barriers or other covert restrictions which would limit their access to the U.S. market, such as sanitary and phytosanitary measures that are impossible to fulfill. One of the central and most difficult topics in the CAFTA negotiations is that of subsidies. In this respect the United States has accepted the Central American proposal to negotiate agricultural subsidies, but never internal production, since these will only be 85
The relative participation of the agricultural sector in total GDP is not homogenous among the Central American countries. Countries like Nicaragua and Guatemala have a larger agricultural structure, they represent 32.6% and 22.6% of GDP, respectively, while for Honduras, El Salvador and Costa Rica the sector contributes less to GDP: 13.7%, 9.5% y 9.1% respectively. See: Appendices: Comparative Profile CA-USA. 86 Data taken from SIECA and Hemispheric Data Base (FTAA).
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analyzed in the WTO87. This heavily conditions the countries of the region which, in a disproportionate negotiation already favoring the country to the north, will seek some relief from the harsh impact of competing with subsidized products – in the ideal case that the United States would accept eliminating customs and sanitary barriers which it maintains on Central American products. As a sign of CAFTA’s lack of consistency in “eliminating the barriers to trade and facilitating the circulation of goods,” the United States unilaterally decided that the internal subsidies are not subject to negotiation: “There is no way of discussing them in this or in any other trade negotiation.”88. It is obvious that the extension of the terms for tariff reduction and the establishment of contingencies or agricultural safeguards to deal with the U.S. decision to not suppress the internal subsidies are not realistic, nor do these measures solve the problem of unfair competition. On the other hand, there is no expectation that other non-tariff barriers can be negotiated, such as sanitary and phytosanitary measures: “no one believes that matters of food security and food safety are going to be negotiated. This is important to countries.”89 In spite of the fact that the sanitary and phytosanitary norms constitute instruments which could contribute to assuring the quality and safety of food for the benefit of consumers, in practice they operate as true protectionist measures. This is illustrated by the case of the Mexican poultry sector, which in the framework of NAFTA obtained “apparent” access to their market, without connecting it to the application of sanitary and phytosanitary measures. As a result, the Mexican poultry exporters have not been able to comply with the sanitary requirements in order to access the U.S. market, thus annulling the concession granted by that country in the framework of the treaty; and in counterpoint, the United States has had unrestricted access to the Mexican poultry market90. In this context, the Central American Federation of Agricultural and Agroindustrial Chambers (FECAGRO) proposed that “it is essential to guarantee fair and equitable negotiations which result in tangible benefits and under which there is real and effective access for the agricultural and agroindustrial products of the region, which represent 30% of the GDP of Central America and 50% of the jobs.”91 FECAGRO’s proposal recommended “special treatment” for the Central American agricultural sector in CAFTA. They argued that it has to do with protecting sensitive agricultural products, considered thus because their counterparts in the United States enjoy internal support and subsidies for export. Among the agricultural goods affected by
87
Declaration of the U.S. spokesperson Bowie-Whitman, El Diario de Hoy, 05/14/03 Ibid. 89 Declaration of Regina Vargo, US negotiator. El Diario de Hoy, 05/14//03. 90 La Prensa Gráfica, 04/30//03. 91 Declarations of Mario Salaverría, president FECAGRO. El Diario de Hoy, 04/28/03. 88
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such subsidies are dairy products, poultry, sugar, pork, cattle, basic grains, oils, oilbearing seeds, and the vegetable sector92. The Federation does not discard the possibility of excluding the list of subsidized products from the CAFTA’s tariff reduction program or, failing that, including mechanisms which “compensate for or equalize the levels of aid granted” in the United States. In addition, there is an assessment that, in the application of the treaty, the Central America tariff reduction can be tied to the dismantling of agricultural subsidies and nontariff barriers. Even the Bioterrorism Law itself which the United States is applying becomes a barrier for the entry of their products, out of “national security” considerations.93 Government discourse sets out their decision “to protect all those that form part of the chain of production in the agricultural sector”, in virtue of the social impact that CAFTA could bring, to the extent that they will ask the negotiators to take the highest tariff allowed by the World Trade Organization (WTO).94 According to the analysis of the Central America ministers, in the region, there is a tariff disparity in 179 different products, which is why uniformity in the tariffs must be sought which would respond to the productive reality of each country.95 A number of sectors of the region have asked for exclusion from CAFTA because they feel that it will be damaging to the interests of Central American producers, others propose the negotiation of high tariffs for “sensitive products” which would allow them to protect themselves from the unfair competition caused by the maintenance of subsidies for U.S. agricultural products. The despicable consequences that the Mexican agricultural sector suffers, eight years after the approval of NAFTA, provides a basis for the fears of this sector, without even mentioning the small scale producers, who would be exposed to a number of negative effects not only in terms of increasing poverty, but also because of the breaking of production chains, the enormous food dependency on U.S. imports, and progressive environmental deterioration. However, for the U.S. government, the failure of millions of Mexican small scale producers of basic grains and the chaos caused in Mexican agriculture was due to the fact that “the tariff reduction was not gradual, but precipitated, which is why the farmers felt a harsh impact, and therefore rejected the Agreement”96; and as such it recognizes that “the difficult experience of the Mexican farmers could serve as a model for the negotiations
92
Agricultural Proposal. El Diario de Hoy, 03/20/03. Ibid. 94 This decision was made during a meeting of ministers and representatives of FECAGRO, held on March 14, 2004 in San Salvador. 95 Agricultural Ministers will ask for high tariffs. La Prensa Gráfica, 15/03/03. 96 Interview with Robert Zoellick. http://www.elsalvador.com/ 09/01/03 93
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with the region”, applying the same framework developed in the recently concluded negotiations with Chile.97 Four countries of the region - El Salvador, Guatemala, Nicaragua and Honduras – are asking that basic grains be protected with tariffs ranging from 15 to 40 percent, depending on the sensitivity of the different crops, with a common tariff reduction term of 15 years. For sorghum, yellow corn and white corn the proposal is to raise the tariff to 40 percent at the regional level. For black beans, white beans, and other classes of beans it will be 30 percent. For flour and corn starch, other derivatives and grits they have asked for 25 percent. Finally, a rate of 15 percent is proposed for soy beans, soy flour and for cattle and poultry feed.98 The Central American governments believe that this mechanism protects the jobs which the sector creates, without closing the market to areas where the region has a deficit. Considering the presence of some 5.5 million producers of these basic grains in the region, creating more than one million direct jobs, any impact on this sector would contribute to disaster in the rural areas of Central American, rapidly worsening the already high levels of poverty and social exclusion. For coffee, the CAFTA proposal advocates entry into the U.S. market under the same conditions provided by the Caribbean Basin Initiative (CBI) and the Generalized System of Preferences (GSP), which establish a zero tariff on Central American exports of the bean (roasted coffee beans, roasted and ground coffee), and includes sub-categories which do not enjoy this status, “being products which contain sugar, ideally they should also enjoy the same preferential treatment for access”99 . In terms of livestock products, the Central American business sector agrees on toughening their position on the liberalization of trade of pork, milk products and poultry products, as well as their respective production chains as they feel that the United States has refused to modify the treatment which these sectors receive. “If they do not discuss the subsidies for these products (pork, milk products and poultry), we are not going to discuss access to markets.”100 As happens with other agricultural products, the pork industry in the United States receives a level of assistance from the government which subsidizes animal feed and is also covered under a clause which authorizes the federal government to reimburse the farmer’s investment in the event that the business fails. In addition, the U.S. industry in this area receives reconversion support, which is why it can have greater access to technology, helping them once again to be more competitive.
97
Ibid. La Prensa Gráfica, 03/15/03. 99 La Prensa Gráfica, 03/17/03. 100 Declaration of the Coordinator of the Business Commission of International Trade Negotiators (CENCINT). La Prensa Gráfica, 03/18/03. 98
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The position on poultry matters takes into account the higher tariff of the region, which could also adopt the higher tariff established by the World Trade Organization (WTO). Members of this sector also ask to remain excluded from the FTA, because they feel that there are no assurances that the trade obstacles which they face to enter the U.S. market would disappear with this agreement, and because their competitors receive strong government protection. According to the Federation of Poultry Chambers of Central America and the Caribbean [FEDEVICAC], the region should press in the CAFTA negotiations for a tariff of no less than 100% in order to even out their posture regarding the entry of poultry products, given the asymmetrical conditions for production and prices. “It costs between 44 and 48 cents of a U.S. dollar to produce a pound of meat, but they – the United States – sell the dark meat for between 17 and 20 cents. We cannot compete against that.”101 In the face of the CAFTA negotiations, the sugar sector is fighting with the candy industry. While the former wants complete openness, even for those who work with sugar – sweets, chocolates and food, the latter is asking for exclusion out of fear of being saturated with foreign products. Through the negotiations they will seek to unify both sectors and achieve total access without quotas and without the payment of specific tariffs. The Central America Chamber of Sugar Converting Industries [CAINCA] points out the existence of an important bottleneck in the sector: the lack of access to “competitive prices” for domestic raw materials102. “If the local sugar producers don’t offer better prices, CAINCA will want to buy sugar on the international market, which is not pleasant news for the sector.”103 The evolution and status of the agricultural sector negotiations reveal the clear disadvantages which the CAFTA negotiation holds in store for the Central American economies, given the profound asymmetries between the productive structures of the countries of the isthmus and the United States. This is particularly clear in the protectionist practices arising from the manipulation of the sanitary and phytosanitary norms, and the “internal sector support” policies which the economy of the north unilaterally assigns itself. This makes for a complex scenario in which each association of the agricultural productive sector attempts to “negotiate” some possible advantages for its side, subject to the will of the United States. As can be seen in this whirlwind of business interests which move around CAFTA, nowhere do farm workers appear, nor do small scale producers, much less ecological organizations and women, in spite of the priority role they play.
101
Interview of the President of FEDEVICAC. Source: La Prensa Gráfica, 03/15/03. While a pound of sugar costs close to $0.20 in the country, the price in the international market is $0.09 per pound, according to the Ministry of Agriculture. El Diario de Hoy, 05/02/03 103 El Diario de Hoy, Op cít. 102
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As has been previously stated, the course and end result of the CAFTA negotiations – particularly the agricultural negotiations – are determined by the interests and will of the most powerful member. This member imposes whether there will be exclusion or not, whether there are subsidies or not, who defines the lists, the tariff rates and the terms. What is left for the negotiators is the possibility that the heart of the chief USTR be softened so that the effects of CAFTA in the rural area of Central America do not repeat the Mexican experience.
c. Market Access The market access of goods is the key to issues of free movement of merchandise, and therefore is the fundamental piece of any FTA. And while it might seem paradoxical, it is a principle which is transgressed frequently, and to judge by the direction of the CAFTA negotiations, this agreement will not be an exception. On this issue of market access for goods, a series of technicalities and measures are included which relate to tariff reduction, restrictions on imports and exports, registration of importers, customs measures, custom processing rights, and others; along with a vast number of exceptional measures and calendars for products, which makes this a very complex topic. The United States is using a strategy of incomplete offers to handle the CAFTA negotiations. In the fourth round of negotiations in Guatemala, the U.S. government presented a first offer which, instead of granting greater openness, restricted trade that already exists between Central America and that country. The agricultural sectors and clothing sectors were considered to be the most affected by the initial U.S. offer, because it did not recognize the benefits they already had under the CBI and the GSP. The first general proposal presented by the United States offered the region free trade for 75% of the goods which it is already exporting. It kept a five-year term for tariff reduction for 2.5% of current trade, but it is not known which products are protected in this “basket”. At the same time, it protects 9% of some of its products with a 10-year term for tariff reduction, and excludes 11% of its goods from free trade and tariff reductions.104 Among the sectors protected by the United States are the U.S. agricultural sectors which have the benefit of internal subsidies: milk, tuna, sardines, shoes, rubber, packing material, sugar, pork and beef, etc. The list includes the goods that Central America wants to be able to trade freely, in order to enter the U.S. market without having to pay tariffs. This news was a fiasco for the region, because currently 90% of Central American exports are tariff free, including those which already enjoy tariff exemptions with the Caribbean Basin Initiative (CBI) and the Generalized System of Preferences (GSP). 104
El Diario de Hoy, 05/19/03.
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Thus, it was hoped that the United States would have offered free trade for more than 75% of the products which are currently being exported to that market. In addition, differential treatment was proposed for each Central American country: Nicaragua was offered the elimination of tariffs on only 45% of its products; tariffs on 80.9% of Costa Rica’s exports were eliminated; 69% of El Salvador’s products were freed from tariffs; 59% for Honduras, while Guatemala received an offer which exceeded that of El Salvador and Honduras. Guatemala offered to open 93% of its market the United States, and Nicaragua offered to open everything, on the condition that five products be excluded from CAFTA: black beans, rum, pork, beef and milk products.105 Currently the average Central American tariffs vary between 7.3% and 7.5%. The tariff universe is composed of 6,194 products, of which 4,801 are harmonized and 1,393 are left to be done. Some 60% of this last figure has to do with the textile, clothing and shoe industries, and the remaining 40% of that figure is agriculture. During the same round of CAFTA negotiations, the United States modified its first offer, completing it overnight – electronically- creating a second offer which included agriculture and textiles, dividing the tariff reduction percentages in the agricultural and industrial sectors. The first impression of the Central American negotiators is that the second offer did not completely fulfill the expectations of the region either. The United States offered immediate access to the U.S. market for nearly 90% of current trade, although “a high percentage of what is currently being proposed is in the A Basket”106. The A Basket includes all the products which are not a problem for any country and which have immediate free access. The remainder will be distributed in the B Basket to be reduced in five years, the C Basket in ten years, and a minimal percentage in the Sensitive Basket. While in terms of percentages the U.S. proposal has been improved, the fear prevails that products of interest to the region are being excluded from this openness. Honduras was direct and recognized that there are categories in which the isthmus is interested and which have been left out of the proposal, which is why it is “not that attractive.”107 The Honduran government calculates that in industrial good, the United States is offering between 80% and 90% openness. The uncertainty is in the agricultural categories, where the counterpart has not responded to the real trade which already exists through the CBI and the GSP. “That is where our greatest concerns lie, because in some items the concession of the CBI is respected, but not in all.”108
105
Ibid. Declaration of the negotiator from El Salvador..El Diario de Hoy, 05/19/03. 107 Source: El Diario de Hoy, Op cit. 108 Declaration of Melvin Redondo, negotiator from Honduras. Op Cit. 106
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Extraofficially it is known that the second U.S. proposal included a list of “products of interest” which are agricultural in origin, with their respective percentages of tariff reduction, which still have not been revealed. Nevertheless, it is known that the United States asked Central America to eliminate tariffs on a groups of products, which form part of the conversations of FTAA as well: poultry, milk products, grains, rice, cereals, drinks, various soups, various juices, chicken, beef, pork, honey, eggs, corn flour, soybean flour and wheat flour, oils, vegetable fat, candy, baby food, canned sweet corn, breakfast cereals, beer, baked goods, cotton and refried potatoes. In contrast to the objectives of CAFTA and the rhetoric of “free trade”, in these negotiations, the Central American attempt to open the hermetically sealed markets of the United States is laid bare. If the United States were to decide to grant total openness to the situation that the Central American business people propose as ideal109, it should be pointed out that this would not guarantee access to U.S. markets, much less provide an advantageous position for the enterprises of the region. It has been demonstrated that what is gained in market access of goods can be lost in the legal or de facto application of other non-tariff protection measures, such as rules of origin, or sanitary or phytosanitary norms, since they are not subject to negotiation. Without transforming the national conditions which limit the productive and competitive capacities of Central American enterprises, their insertion in those markets will continue to be fragmentary and dependent. With what has been seen of the U.S. negotiation strategy through the Fourth Round in Guatemala, which sought to cause divisions within the Central American countries, it would not be strange for the joint positioning of the five countries of the region to end, with some countries inclined to unilaterally offer all the conditions demanded by the United States in exchange for special concessions for their sensitive products. This imminent situation would lead to a weakening of the already-limited regional capacity to obtain some small advantages in matters of market access. In addition, it faithfully represents the lack of a logic of regional integration in the CAFTA negotiations.
d. Other Relevant Issues Very little has been done on labor and environmental matters in the CAFTA negotiations, which reflects that they are largely irrelevant and of secondary importance to the interests of the governments and business people, in spite of the rhetorical significance bestowed by the governments in their desire to present an agreement with a “human face.”
109
The framework for the negotiations is so overwhelming that is obvious that to actually get the situation requested by the Central American enterprises it would be through a unilateral decision on the part of the U.S. government, after determining that this would not be damaging to the US, or after determining that it could be tied to other concessions yet to be gained, and not because of the negotiating or persuasive capacity of the Central American teams.
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The only achievement on these issues is that the “negotiators of the isthmus were assured of getting a commitment from the United States to not use labor or environmental issues as trade sanctions that would impede the application of CAFTA”110. Meanwhile the negotiations continue on course, reiterating the principles and logic which are incompatible with labor rights. It is not surprising that the proposal to establish sanctions for violations of labor law focuses on the country in which the violations occur and not on the companies that commit the violations111. Therefore, not only is the “privilege” of continued noncompliance with labor rights granted to the companies by exempting them from sanctions, but this also directly affects the citizenry as they must finance, through their taxes, the payment required of the governments. Thus, it is clear that the privileges for multinational corporations in CAFTA will not only be defined in the areas of investments, government purchases, property rights and liberalization of services, but also in this labor clause. There is no doubt that, in the end, although the negotiating teams will perhaps write a few lines about this issue, the CAFTA content is closed, without any concern that labor rights are denied throughout the main chapters of the agreement. While little has been said about labor issues in the CAFTA negotiations, the environmental issues have been even less developed. It is clear that the business position is to reach a model similar to the NAFTA environmental agreement which guarantees that the trade aspects do not clash with the environment. The lack of “a multilateral trade standard that establishes the differences between the sale of a product and the fulfillment of an internal environmental obligation” is considered a risk. This is why there is recognition that the treatment of this issue is not commercial112. On the other hand, as it has been proposed, CAFTA is an element that fosters and consolidates the sweatshop model adopted by the governments of the region. The Central American clothing industry emerges as one of the sectors receiving the most benefits from the United States in the negotiations for the agreement. The U.S. proposal accepts that products from the free trade zones (clothing) would benefit from CAFTA, in exchange for being able to maintain the tax exemptions which they currently enjoy for the five years remaining as approved by the WTO for Central America – until 2008. The Central American maquilas are one of the few sectors which appear to be encouraged in these negotiations, in comparison with the rest of the productive sectors of the isthmus.
110
http://www.elsalvador.com/ 09/01/03 La Prensa Gráfica, 05/14/03. 112 Declaration of the negotiator from Salvadoran private enterprise. La Prensa Gráfica, 05/09/03. 111
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They are encouraged by the fact that the U.S. offer of the free trade zones’ entry into FTA has not expired, as has happened in the conversations with Canada113. The textile industry in Central America has access to the duty-free export of a minimum quota of clothing produced in the region under the CBI, but with U.S. cloth and thread. Regional thread cannot be used nor can the cloth be dyed in the region. In the proposal which the United States is taking to the CAFTA negotiations, the door is opened to the use of regional inputs and to have totally free trade in textiles, but only within the next five years. However, Central America wants to be allowed to use inputs from third countries and to have duty free access immediately114. The region’s textile and clothing industry hopes to have completely free access for its exports to the U.S. market and, in the best of cases, to receive the concessions which the United States granted to Mexico eight years ago, eliminating tariffs on clothing sewn with Mexican inputs, among other benefits. The textile and manufacturing sector of the United States has told the USTR that they are willing to negotiate CAFTA with the area, but that this should begin with the same concessions agreed upon with Mexico in NAFTA.115 The U.S. government, through President Bush, has applied pressure to promote an agreement between the textile and clothing industries of the United States and the region, arguing the urgency for U.S. industrialists to secure their investments in the region and in the United States, before China invades the U.S. market in 2005, when the WTOimposed export quotas on clothing goods are eliminated. Currently, of the regional clothing trade exported to the United States, 30% is clothing sewn using Asian, Brazilian, Hindu and Pakistani cloth. CAFTA attempts to increase that percentage under the Tariff Preference Level (TPL) mechanism, or duty-free restrictive quotas. The region’s textile industry hopes to increase trade in this type of clothing by more than 142%, which is more than Mexico received under NAFTA.116 The textile producers estimate that CAFTA could be approved by the U.S. Congress in May 2004. Therefore, there would be less than a year of advantage left for the region to gain a market share before the clothing from People’s Republic of China enters the U.S. market without restrictive quotas. The Multifiber Agreement ends in January of 2005, when the export quotas disappear. These had been imposed to prevent clothing made with Asian fabric from entering the U.S. market.” In less than a year, the Central American textile industry will not be able to increase its production capacity, which is why our clothing manufacturing shops need TPL which secures our entry into the market with clothing sewn using non-regional cloth.”117
113
El Diario de Hoy, 05/18/03 Ibid. 115 El Diario de Hoy, 04/28/03. 116 El Diario de Hoy, 04/30/03 117 Interview with a Honduran leader from the textile industry, Op cit. 114
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The banking sector presents its interest in obtaining the complete opening of the U.S. market, planning to accompany Central American investors in that country as well as to take advantage of the market possibility of transforming family remittances into projects. Central American banks are demanding that the CAFTA negotiations consider the number of conditions which have blocked their entry into the U.S. market for decades. “The U.S. financial system has twelve Federal Reserve banks and each one has different supervisory characteristics, which is why it is difficult to comply with all the requirements at the same time.”118 In the area of telecommunications, the United States has stated its desire for free access to the public and local networks of the five countries. The Association of Access Networks of El Salvador, known by its Spanish acronym AORAES119 expressed its fear that CAFTA will open access to the networks for U.S. companies and that they will lose the monopolistic or oligopolistic control which they currently exercise over the Salvadoran market. Guatemala, which also has a privatized sector, concurs with the position of AORAES in rejecting the United States’ CAFTA proposal to reduce the cost for interconnection services – which currently are agreed upon between companies – because of the impact this could have on payments which the U.S. companies would make to the local businesses for international calls, and vice versa.120 The telephone companies of the region hope that CAFTA does not causes “distortion” in the trade relations which exist in Central America in this matter, given that Costa Rica, whose telecommunications are government-controlled, has a different position, which “could cause a fairly significant distortion.”121. It should be mentioned that the Costa Rican government has excluded the area of telecommunications from the CAFTA negotiations. It is worth noting the paradox in the fact that three multinational corporations that have benefited from the privatization of the Salvadoran telecommunications enterprises and that represent private monopolies are organized in AOARES to pressure the Salvadoran government to protect them in the CAFTA negotiations from the invasion of the U.S. multinationals. This is why they are proposing to exclude the sector from the negotiations and to obtain a commitment that there will be no modifications of the national regulations. It should be highlighted that the litany about “holy competition” and “sacred free trade” become empty principles in this situation, when three European multinationals call on the 118
Declaration of the President of the Association of Salvadoran Bankers. La Prensa Gráfica, 03/20/03. AOARES includes multinational enterprises –Telecom, Telefónica y Telemóvil—that control the sector after having taken it from the public telecommunications enterprise in El Salvador, and emerged to defend the interests of the sector in the CAFTA negotiations. 120 La Prensa Gráfica, 04/28/03. 121 Declaration of an executive from Telecom El Salvador, Op Cit. 119
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Salvadoran State to protect them from competition. It makes all the sense in the world to propose the need to protect the micro, small and medium scale enterprises. These businesses, without the resources and technology of these multinationals, contribute so much to the creation of jobs and have a history of abandonment by various administrations, and now, with CAFTA, face their impending disappearance. Very little progress has been made on the issue of labor, and there is not even a minimal allusion in the CAFTA negotiations to migration matters, despite the enormous relevance of the migratory flows from Central America to the United States. However, a much more concrete agreement was achieved on the issue of the temporary entry of “businessmen”, although the list of professions which would be considered within the agreement is yet to be defined. “At least we have obtained an agreement which can be considered firm for the fourth round and which opens the market to professionals”122. The inclusion of a chapter in CAFTA which would favor the flow of “businessmen” ends up being absolutely discriminatory for workers, and represents one more sign of the pro-business logic prevalent in these agreements. The United States proposes the use of CAFTA to fight piracy and contraband in the region. One of the difficult points will be the prohibition on parallel imports in the region123. This is protected in the Registered Trademark Law which recognizes exclusive rights to a trademark when the investor has paid for the license to exploit a particular commercial logo. In the area of government purchases, as expected there are no significant changes to the template of the rest of the FTAs. In the CAFTA negotiations, the United States has offered access to regional businesses to participate in government purchases only when they are greater than US$50,000, the “threshold” which the U.S. agreed upon in NAFTA124. According to U.S. regulations, federal, state and municipal purchases must be from U.S. companies, except when the product or service needed is only provided by foreign firms. This consideration of the U.S. regulations violates the principle of national treatment, because access to public bidding is conditioned on the service being offered only by foreigners. On the other hand, if we consider the real possibilities which Central American companies have for competing with their U.S. colleagues in the public bidding processes, we find that they are, in practice, very remote. The fact that the government purchases of the United States are not free and open, while their enterprises can freely access the bidding processes of the public enterprises in the region, is grossly imbalanced.
122
Declaration of the Vice Minister of the Economy of El Salvador. La Prensa Gráfica, 09/04/03. Parallel imports occur when a country allows any person or company to import and do business with a brand or a product while another entity has exclusive rights to it. 124 El Diario de Hoy, 09/04/03. 123
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Access to low cost medications such as generic brands may become more limited than it currently is, with the U.S. proposal in the CAFTA negotiations. That proposal includes a number of mechanisms: the first seeks to extend the term allowed by the WTO for protecting original products – be they pharmaceutical or agrochemical – from 20 to 25 years, during which time the enterprises maintain monopoly control of the patented product or process. This means that the medicines can only be sold by the laboratories which created them.125 The second mechanism alludes to the protection of undisclosed information for five years for medicines, and for ten years for agrochemicals. The third mechanism establishes an automatic extension if other uses are identified for an innovative or original product, or if new information is discovered about it. These terms would range from three to ten years.126 The CAFTA proposal on intellectual property rights extends beyond the monopoly privileges which the WTO grants to chemical-pharmaceutical and agrochemical multinationals. Not only does it not modify the principles of the chapter to favor the interests of the users of medicines, but it furthers the prejudice against them by reasserting the market logic of these agreements. The results will not be long in coming. The excessive increase in the price of medicines, which limits access by low income people, violates the basic right of access to health care and is a consequence of the application of the TRIPS. The scope of the TRIPS would now be broadened with the extension of the term for the “protection” of the patent, thus expanding the impact of this violation. In the words of the Pharmaceutical Industry of Costa Rica: “We are doing the analysis, and in Costa Rica alone it has been determined that these measures would mean that the cost of a medicine could increase as much as 800 percent.”127
125
La Prensa Gráfica, 02/28/03. Ibid. 127 Declaration of Gerardo Siba. La Prensa Gráfica, 02/28/03. 126
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5. Potential social and economic impact of CAFTA “We are sitting here, watching how dreams are killing us” Phrase written on a wall of Barrio Brazo Oriental, Montevideo
The interests of the United States in the CAFTA negotiation128 do not only focus on the liberalization of the market in terms of access to goods, but also on services and electronic trade, the strengthening of intellectual property rights, investments, and increasing transparency in governmental procedures and regulations129; while the Central American governments are interested in obtaining “free trade” in the U.S. market for most of the region’s products, many of which are agricultural. These disproportionate aspirations among those who are negotiating CAFTA are a result of the constraints imposed by the enormous asymmetries between Central America and the United States. The overriding capacity of the economy of the north to define the agenda and the results of the negotiation is particularly to blame for this. In this context the Central America governments “are resigned” to ratify, in CAFTA, the advantages already granted by the U.S. government under the Caribbean Basin Initiative (CBI) and the Generalized System of Preferences (GSP): the arrival of more maquila enterprises - contributing some jobs in the face of the inability of the Central American economies to create jobs and a potential market among Central Americans living in the United States, with the possibility that the U.S. market would open for the importation of rosquillas, pupusas, cheese with loroco, iguana soup, quesadillas and other “ethnic” 128
Taken from the document of the U.S. Trade Representative which outlines the interests recommended to the negotiators by the Bush Administration. See: http://www.elsalvador.com/ 01/09/03 129 Ibid.
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products. This is the reason why the negotiation of sanitary and phytosanitary norms is important now, as they constitute a non-tariff barrier to trade of these goods. Meanwhile, the U.S. government proposes an agreement which, in addition to allowing free access of its goods to the Central American market, would ensure the optimal conditions for its investments in the region – without regulation and with “non discrimination” agreements, would ensure that its businesses benefit from the liberalization of services to have access to the control of public services like water, education, and health, and to consolidate their control in electricity, telecommunications, ports and airports; would ensure that its companies’ patents would be protected and that those companies would have unrestricted access to the natural resources and the biodiversity of the region; as well as be able to control the bidding and government purchasing opened by the governments of the region. These considerations more than justify a CAFTA for the United States, more than the “concern for the development” of the Central American countries, repeatedly expressed by U.S. officials. For the U.S. multinational corporations, such as AES Co., Enron, Coastal Power, Duke Energy, Constellation130, already located in the region and for others interested in establishing themselves in the areas of garbage treatment, water resources, health and social security, education and direct investments in general, CAFTA represents an excellent opportunity. Its content, logic and principles represent effective instruments, which as the Law of the Republic, have the capacity to transform its privileges into rights. The FTAs, like any economic policy, are not and cannot be neutral instruments. Their implementation creates differentiated effects within the signatory countries and among them: on the one hand, a select group of winners is formed, generally a small number of monopolic or oligopolic national companies and some few multinational corporations which operate or seek to operate in the region, who receive benefits from the negotiations and from the framework fostered by the agreement; and on the other side are extensive economic and social sectors of the country that suffer the negative consequences of the FTA, the same sectors who historically have been affected by the application of the neoliberal reforms. While it is true that the interests of most enterprises – micro, small, medium and even large national enterprises - do not figure within the content of CAFTA, the rights of workers, consumers and the population in general are even less a part of it. However, the interests of the hegemonic business nuclei do appear, as they have had the possibility of participating in and, to some degree, influencing the negotiations through their representation on the negotiating team. An example of this is the pressure applied by Salvadoran power groups to remain excluded from the tariff regulations or to obtain special treatment in the FTA between 130
After the privatization process in the electricity sector, multinational corporations with U.S. capital controlled a good part of the generation and distribution of electricity in Central America, with the exception of Costa Rica, where the electricity sector continues to be government owned.
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Mexico and the Northern Triangle Countries, which specified the exclusion of the agricultural products demanded by the Salvadoran Chamber of Agricultural Exporters known by its Spanish acronym CAMAGRO, the attainment of a special treatment for “La Constancia” beer, for sugar from privatized refineries, CESSA cement, imported vehicles, TACA airlines, most of which are monopoly enterprises owned by the Salvadoran hegemonic business nucleus.131 Stating the advantages of CAFTA for the social sectors ends up being very difficult, when the content of these treaties not only lacks a logic of human rights, but in fact defies and contradicts them. These agreements have not been inspired by or developed for citizens’ interests, or for the interests of small enterprises, or out of respect for the environment. There fundamental omission of a crosscutting logic of labor, social migratory and environmental rights provides clear evidence of the deficiency and bias of these agreements. Thus, CAFTA is at odds with the labor rights of workers, with the rights of consumers, with the development of micro, small and medium enterprises, with the aim of rural development and the sustainability of the region, and in general, clashes with the fulfillment of the economic, social and cultural rights of the population. There is no doubt that the implications of CAFTA cover a broad spectrum which transcends the strictly commercial arena to have an impact on the economic, labor, social, political, cultural and environmental spheres. The repercussions of this treaty will affect the population directly and indirectly, making the family living conditions even more precarious. Its scourge will be transmitted through multiple means: the unemployment caused by the failure of national businesses, the commoditization of public services, the increases in rates and the rise in the price of medicines, the deterioration of the environment, the consumption of genetically modified foods, the failure of agricultural production with the ensuing food insecurity, and the increase in migration and cultural displacement of peoples. In order to evaluate the social and economic impact, CAFTA’s primary repercussions on the various sectors and spheres of Central America life will be analyzed.
5.1. Economic Policies and the Central American Economies From the ideological justification of neoliberalism which condemns the State as the cause and source of the evils of the economy, not only because of its inherent inefficiency but because of the distortions which its intervention produces in the economy132, the application of the SAP-ESP has strengthened the tendency toward the reduction and weakening of the State. 131
See: Moreno, Raúl (2002): El Tratado de Libre Comercio México-Triángulo Norte de Centroamérica. Mitos y Realidades, p. 197, in the compilation Libre Comercio: Promesas versus Realidades. 132 Moreno Raúl (2003): Cumplimiento y Vigencia de los DESC en El Salvador, Op Cit, p. 28.
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CAFTA also “contributes” to a reduction of the competencies of the State, through its norms that restrict the performance of some of its classic, basic and auxiliary economic functions; forcing it to cede some of its powers, and encouraging the sale of public enterprises and some government assets through privatization. The lack of national development projects in nearly all of the Central American countries, and the “abandonment” of our small economies to the fate of the international market, refusing to define the direction and process for the development of our countries, are consistent with the framework of neoliberal globalization which sets homogenous and standard rules, created in the service of capital accumulation. With the establishment of prohibitions on governments regarding performance requirements for investments included in CAFTA, governments are deprived of valuable instruments for the definition of sector policies, which could contribute to articulating foreign investment with the domestic productive structure in a manner consistent with development purposes. In addition, it suppresses the right to establish regulations on investments which affect the environment or which cause damaging effects on the health of the population. The mechanisms for dispute resolution, based on the investor-State clause, also constitute an obstacle to the inherent regulatory and normative function of governments for the operation of businesses in the service of the national interests. This is aggravated by the fact that complaints are settled by international tribunals, according to the CAFTA proposal. The obligation to grant non-discriminatory treatment to the foreign investor also limits the possibility of encouraging those domestic branches of industry or businesses considered to be strategic, with growth that could be linked to employment generation, the dynamism of the sector or the branch, the generation of exports, or with national development in general. The privatization of public services, promoted by CAFTA with the liberalization of services and national treatment granted to U.S. enterprises in government purchasing, works against the basic function of the State to ensure the provision of public services, and to ensure compliance with and enforcement of the ESCR. These rights are considered public goods and, as such, the government is firmly connected to their ongoing provision. An important macroeconomic implication of CAFTA can be identified in the modification of the tax structure, as a consequence of the tax reduction which comes with the agreement. For most of the countries of the region, the opening to imports with the consequent lowering of the tariffs represents an important source of tax income, given
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that the income from taxes on imports tends to rise to become a significant proportion of total tax income.133 On average the participation of taxes on trade and international transactions for Central American countries is around 15%,134 not an insignificant amount if we take into account that fiscal imbalances form one of the critical elements in the fragile macroeconomic “stability” of the region; in addition to the demonstrated incapacity of the governments to significantly raise tax income. The mirage of “free trade” dissipates in a context in which a country like the United States imposes protectionist measures for its economy through subsidies to its agricultural products and through tariff and non-tariff barriers on imports; while it forces the rest of the countries to establish an indiscriminate opening for its products and capital, as well as to the deregulation of foreign investment. The non-recognition of suitable mechanisms for reducing the enormous asymmetries between the Central American economies and enterprises strongly slants the benefits toward the stronger and more competitive economy. In the framework of neoliberal globalization, the race for the markets began with a notable delay for the Central American economies, who seek to enter the CAFTA competitive track with an outmoded vehicle in terrible shape, with the aggravating factor that the urgency of the race does not allow time to repair it, and with an opponent that not only restricts their possibility of repairing it, but also adds to the deterioration of their vehicle. This Central American vehicle is characterized by its level of inefficiency and competitive incapacity with, for good measure, the absence of an incentive policy, a lack of innovation, low levels of training and skills among the human resources, restrictions on access to financial resources, a clearly deteriorated infrastructure, and low quality factor services with high tariffs. The opening and deregulation of the external sector within a context of low national competitive capacity becomes indisputably a perverse vector for the functioning and development of the national productive apparatus which, from every perspective, is incapable of dealing with the competition from foreign investment. This is aggravated by the Central American companies’ lack of factor conditions135 which would allow them to develop their competitiveness. Reviewing the Mexican experience in NAFTA, it can be shown how this prediction for Central America became reality. The evaluation of the Mexican Action Network on Free Trade, known by its Spanish acronym RMALC, eight years after the treaty took effect,136 shows that NAFTA did not solve the Mexican economic problems, and how it 133
ECLAC (1998): The Fiscal Covenant: Strengths, Weaknesses, Challenges, p. 70, Santiago, Chile. The data registered for 1994 indicate that the percentages of total income for Costa Rica were 14.9%, El Salvador 14.7%, Guatemala 21.2%, Honduras 23.4% and Nicaragua 20.9%. Ibid. 135 Moreno, Raúl (1997): La Competitividad en el desarrollo sustentable, No. 45, April-May , Alternativas para el Desarrollo, San Salvador. 134
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contributed to worsening the polarization between enterprises and regions. Although Mexico registered a higher level of foreign investment during this period, it was investment made within the firms themselves, which resulted in a rupture in the productive chains, the failure of national enterprises and the formation of “enclaves” in some exporting branches. The Mexican result identifies no more than 300 enterprises as winners. These are large exporters, principally in the areas of machinery and equipment, including maquilas, which contribute 68.4% of all exports and during the analysis period they grew by 43%. But the most significant fact about the productive displacement and the loss of the domestic productive network as a result of NAFTA is the Mexican content in nonmaquila manufacturing exports which, over these eight years, has plummeted from 91% to 37%. In this context it is worth asking, “what benefits will the micro, small and medium enterprise obtain from CAFTA?”. This is particularly significant if our point of departure is the situation prior to CAFTA which shows how large domestic businesses – supposedly the most competitive sector of the economy – have to seek the support of the State to protect them from international competition. In the light of the Mexican experience we find that NAFTA led to the failure of entire branches of this sector and the extinction of many production units which were not capable of dealing with the competition created by the invasion of foreign products. What makes anyone think that the situation in Central America can be any different, especially if we take into account that productive displacement and the low levels of competitiveness of the Central American enterprises in general, and of this sector in particular. In general, CAFTA consolidates the neoliberal framework that has been implemented in recent decades, reinforcing the institutional reforms and the economic policies which have assembled an exclusive and concentrating model in the region. This model is based on services and energized by the maquila activity, which is kept afloat thanks to the systematic expulsion of thousands of men and women who sustain economies through their family remittances, and which has led to the collapse of the agricultural sector.
5.2. Jobs and Labor Rights Behind the arguments which identify CAFTA as the key for the creation of jobs in the Central American economies, there is an important theoretical simplification and the absence of technical studies which would serve as support to these proposals. From this “simplified perspective”, the creation of jobs and of well being for the population is as simple as favoring the processes of external opening and deregulation of 136
See: Arroyo, Alberto (2001): Resultados del Tratado de Libre Comercio de América del Norte en México. Lecciones para la negociación del ALCA, various chapters, RMALC, México.
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the economies, with which domestic businesses will automatically enjoy greater competitive capacities and be able to raise their levels of productivity. This, in turn, will allow them to project their exports into the international market and maintain their production and sales in a sustained manner over time, so that finally jobs and well-being can flow out to all. Beyond the apologetic speeches alluding to onyrical statements which only become tangible in “never never land”, CAFTA is an instrument which has direct and indirect repercussions on the labor market and labor rights. It would be expected that new jobs would be created with this agreement – principally in the maquilas – although there is no doubt that it will also bring with it the failure of many domestic businesses and, with that, not insignificant quantities of unemployed people. Thus, the impact of CAFTA in the labor market works on two fronts: the creation and the destruction of jobs. This is why it is important to reflect upon the net contribution to jobs which could be derived from the implementation of the agreement. It is evident that the only “magnet” which is available in most of the Central American countries for attracting foreign investment will continue to be, at least in the medium term, the ever more precarious conditions of employment. This situation works against labor rights because it pressures governments to further liberalize the labor market in order to bring about a greater reduction in labor costs – through the reduction of salaries, benefits and severance pay, and the breakup of the organization of labor – as the path for assuring the installation of new foreign companies. The growth plan based on maquila activity adopted by the countries of the region constitutes one of the keys points in the policy to promote exports and is a significant factor in the creation of jobs. This expansion of maquila activity has been encouraged by a marked process of labor liberalization, which through modifications in the legal framework or through de facto actions have allowed private investors to “enjoy” advantageous conditions, reducing their costs of production and raising their price competitiveness. However, this means that there is no hope of raising the buying power of salaries, a variable which has represented the escape valve for the recessive phase of the economy. On the domestic level it is not strange to encounter business people who continue to base their competitiveness on low prices derived from minimal labor costs and by not internalizing the costs of pollution. Measures that make labor conditions precarious are not seen as something serious, as a violation of human rights or as an affront to principles which is at odds with business logic. This vision facilitates a practice which is institutionalized in many maquila enterprises, consisting in the reduction of nominal salaries, the elimination of social benefits for workers, the lack of respect for collective bargaining agreements, the breakup of unions or the hiring of minors. In addition, it is believed that this is “patriotic” in so far as it attracts foreign investment. This type of investment, like textile or clothing maquilas, uses cheap unskilled labor as the source of their comparative advantage.
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If we consider that, in general, the region lacks national employment policies or economic measures which would encourage the domestic creation of new jobs, it is “understandable” that governments would see maquila investment as a blessing, regardless of the obvious violations of labor rights which occur in these enterprises. It would seem that the official argument that underlies this option has its basis in the popular saying that suggests that “little and bad is better than nothing at all.” The convergence of the projects pushed by the FTAs and the PPP also contribute toward consolidating a regional model based on maquila activity which, in addition to serving as a migratory retaining wall for the Mesoamerican population heading toward the United States, profiles the region as an assembly zone, with the attraction of fiscal incentives for business, low labor costs, and the near possibility of reducing transportation costs with the construction of dry canals and seaports which would favor the movement of products toward export markets. The case of El Salvador is presented as an example of the heavy dependence of the Central American economies on maquila production and of the strengthening of this scheme based on the ratification of CAFTA. In Salvadoran international commerce, trade flows toward the United States are very important. During 2001, 65.4% of exports – US$1.875 billion – went to that country and, that same year, 49% of its total imports – US$2.464 billion – came from the United States137, resulting in a trade deficit for El Salvador. It must be stated that the balance of trade between El Salvador and the United States is heavily determined by the maquila production. Some 88.1% of all Salvadoran exports to the United States are maquila goods and these are almost entirely clothing and clothing accessories (78%). On the import side clothing and clothing accessories (24.6%), cotton (10.6%), and – in accord with the CBI-GSP – the machinery and machine apparatus and pieces (8.8%) are the most outstanding. The FTAs’ lack of recognition of fundamental labor norms, in contrast with its evident concern for intellectual property rights and investors’ rights, have serious direct implications for the loss of jobs and violations of labor rights. Basic rights such as the right of association, collective bargaining, prohibition against forced labor, child labor and non-discrimination138, which are contained in international conventions recognized by the governments, are left subordinated – de facto – to the market logic imposed by the FTAs.
137 138
Central Reserve Bank of El Salvador, Revista Trimestral. October - December 2001. International Labor Organization: Declaration on Principles and Fundamental Rights of Labor.
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In addition, the FTAs override national regulations in the areas of job creation, job training, geographic location of enterprises and investment in research and development (R&D), giving foreign investors freedom in these areas. Constraining governments from the possibility of establishing percentages of national content or of granting preference to goods and services produced locally by foreign investors has a direct implication for the domestic productive structure and on the creation of jobs, to the extent that foreign production is unconnected to the national productive network. In the FTA framework, national labor legislation, made more and more precarious by the liberalization processes of the labor market, constitutes the reference point. However, if it contradicts the FTA, the Labor Code is subordinated to the text of the agreement. Also, the regulation of such aspects as the geographic location of the business to prevent the existence of concentrated population areas or training for the labor force is only possible to the extent that the national legislation requires it, or that the investor voluntarily desires it. In addition, the topic of social security is difficult from the perspective of the workers when placed in the framework of the GATS, as this agreement looks on it as a private service, subject to the market. Within this framework, the aspiration to universal social security which can be enjoyed by both employed and unemployed people is not achievable. In Mexico, NAFTA did not create more jobs or better jobs, as its promoters promised. It was not even able to do this in its advanced sectors such as the machinery and equipment sector. In the case of this sector, which is the most important and most dynamic of the manufacturing sectors, with high contributions to export totals and presumably receiving benefits under the agreement, the results in the labor market are pathetic: the real mean salary of the sector was reduced by 7.3% since the agreement took effect, and the cost of labor expressed in dollars fell by 44.6% during the same period.139 The Mexican analysis of jobs and salaries under NAFTA concludes that there is no direct correlation between investment, growth, and job creation. Growth and job creation depend on the characteristics and nature of the investment. If it deals with multinational enterprises aimed at export, whose production contains a high content of imported goods and inputs, not only is it not linked with the rest of the production chain but it does not create indirect employment.140
5.3. Public Services The privatization process has two characteristics which form two sides of the same coin. On one side, the reduction and weakening of government powers and the sale of public 139 140
Arroyo, Op cít, pp. 75-76. Ibíd.
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assets and enterprises, and on the other side, a few multinational corporations taking advantage of the process to make themselves into new monopolies – now private ones – of public services. The leap toward the “mercantilization” of public services finds its origin in these privatization processes, which have advanced at different intensities and with different specifics, depending on the country. Under GATS and with the signing of CAFTA, this privatizing tendency will be further strengthened, so that one of CAFTA’s potential impacts can be identified as the intensification of these processes, which threaten to culminate in the privatization of public utility services like electricity, water and gas, in areas yet uncovered by private enterprise, and to move into public services like education, health and public health. The assessment of CAFTA’s negative impact on public services is based on experiences of privatization, which demystify the arguments wielded in the apology for privatization, exposing the arguments for efficiency, quality and coverage which are merely fallacies constructed with the simple purpose of “selling public opinion” on a project which essentially would be damaging to consumers. The privatization process has been silently moving ahead in national corridors through the creation of new legal and regulatory frameworks which are consistent with the reforms. In addition the deterioration in the quality of public services provided by the government – such as health care, education, housing and public safety – have served as justification for undertaking partial and covert privatizations of these public services, that now appear as private services, and which in some cases are better and more expensive, for those who can pay for them. Likewise, the provision of public services tends to become elitist, which is unacceptable as it works against justice and the economic independence of the citizenry. Another argument is that the opening brings multiple benefits for consumers, who will be able to acquire more and better quality products at lower prices. It should be pointed out that not all consumers benefit equally by the opening of markets, but rather this is a function of their buying power and the type of goods and services which they demand. In most of the Central American countries, average salaries are below the minimum salary, and are clearly insufficient for covering even just food requirements, much less the material and spiritual regeneration of their families. On the other hand, the Central American region lacks the legal and institutional frameworks which would protect and oversee the rights of consumers. Thus, it is hardly believable that foreign enterprises would respect these rights, if there is no legal framework which would oblige them to do so. From consumer interests there is another side of privatization which is also damaging because, as the State rids itself of profitable assets, which are the privatized enterprises, it is deprived of important financial resources, for which it then tries to compensate by
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imposing or increasing indirect taxes, principally taxes on consumption (VAT) which are paid by all consumers at the same rate, regardless of one’s income level. In the case of the electricity sector, there is no doubt that the clear winners in the privatization of the areas still under government control would be reported as the few U.S. capital enterprises that acquired the public assets at very attractive prices and which, in a few years, have become private monopolies or duopolies, controlling the areas of thermal generation and distribution of electricity. The dominant position of these electric companies has a direct damaging effect on the users, who pay high rates and who receive excessive and, in many cases, illegal bills, while the government entities charged with protecting the interests and rights of public service users do not assume their responsibilities in these cases. The inclusion in the FTAA agenda of a liberalized energy policy, designed and controlled by multinational electric generation companies, represents the final high point in the privatization process of the electricity sector. Along the same lines, the electrical interconnection initiative of the PPP141 represents a strong regional thrust toward the effort proposed in the FTAA, which would lead to the privatization of the last remaining public assets that can be sold, which are the geo-thermal and hydroelectric plants, which would close the circle in the market transition of the electricity sector. One of the most controversial and important issues in recent years is the privatization of water, a resource which has become a highly valued and desired by the multinationals, who are fighting to bring it under their control with the support of the WB and the IMF, and more recently through the WTO and through the FTAs. With this, the privatization processes have reached shocking areas, threatening to make a commodity out of one of the last common good areas, which is water, an essential and indispensable element for life. As such, water should be considered a common good, and its access should be termed an inalienable right for people. Moving a good that is indispensable for life into the market sphere as if it were one more product will have serious implications on people’s lives, particularly for lower income families who would face great difficulties in getting this vital liquid at market prices. The privatization of water is an affront to life and only the logic of the maximization of profit can justify such an erroneous decision. Water, now called “blue gold”142 represents one of the most lucrative businesses, and appears in the list of products of the WTO and NAFTA as a tradable good. The chapters on investments, market access and government purchases are only some of the parts of these agreements and treaties which effectively cede the right to water to multinational corporations.
141
See: Moreno, Raúl (2002): Desmitificando el PPP, Op Cit. See: Barlow, Maude (2001): Blue Gold. The Global Water Crisis and the Comodification of the World’s Water Supply, The Council of Canadians.
142
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The PPP also has its own position on the privatization of water resources. The identification of state control over the exploitation of natural gas, oil, water channels, and biodiversity among the determining factors for the underdevelopment of the southeast of Mexico143 justifies the modification of the legal and institutional frameworks in this initiative. In this case, the constitutional restriction on the private exploitation of water channels is suppressed, so that private enterprises are allowed access to property rights over water resources. Progress on the issue of privatization of water resources also involves the possibility that it may become a trigger for a social and political explosion, which has been latent in our societies in recent years. The very nature of the resource to be privatized turns this measure into a potential vector for discontent, around which different actions of resistance and social mobilization can be channeled. This dangerous gamble has already been put into practice in various countries throughout the planet, with many exemplary actions on the part of the organized citizenry in Bolivia, the Philippines, Argentina, South Africa and Ghana. In some cases they have been able to reverse the measures. In Argentina, the privatization of water resources created an exponential increase in the rates, limiting access by thousands of families to the service. Many of these people chose to drill their own wells to obtain the vital liquid. This was immediately repressed using the legal framework, opening the door to the privatization of water resources, since underground water is also the property of the multinational company which “won” the concession. In this area, the consumer movement has made the historic commitment to put its efforts behind “fighting the privatization of water in the same way that it would fight the privatization of air”, 144or of the sea. A critical element for the population, disclosed by CAFTA, is the incursion of private companies into the provision of public health care and social security services. This represents the transfer of services which are people’s rights to the market sphere. Through the access by foreign companies to government purchasing and “thanks” to the norms which govern investments, basic social rights that were won by the people and were until now provided by governments – albeit with poor quality and low coverage – would be left in the hands of companies whose objective purpose is far from social welfare.
5.4. Patents, Medicines and Access to Health Care145 143
Moreno Raúl, (2002), Desmitificando el PPP, Op cit. Petrella, Ricardo, quoted in Herraiz, Iñigo: Contra la privatización del agua, Solidarios por el Desarrollo, Madrid. 145 This content has been taken from the document “Visibilizando los impactos del comercio e inversión en los consumidores y consumidoras”, pp. 22-28, Op cit. 144
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The specter of patents greatly limits competition between companies and prevents the generic production of products, assuring their owners monopoly power over the production and sale of the product for a minimum period of twenty years. This monopoly position allows the company which owns the patent to unilaterally and without restriction fix the price of the product, and in addition to smash any potential competing company, give the exclusive right to make or sell the patented product. This privilege of large corporations, converted into a right by the TRIPS Agreement and the FTAs, has a dramatic effect in the case of medicines, given the implications for the health of the population. This is especially true if we take into consideration that, according to the World Health Organization (WHO), a third of the planet’s population does not have access to essential medicines. The ratification of CAFTA would allow the U.S. pharmaceutical companies to increase the price of their patented medicines, much higher than their costs of production. This would limit access to these medicines for millions of people who need these products to fight the diseases they suffer. There is evidence that the prices for patented products are much higher than those for similar medicines produced from alternative or generic sources146. In some cases, such as Brazil, Thailand and India, the competition from generic products causes a reduction in the prices of the medicines.147 It has been demonstrated that the prices for certain medicines are much higher in many underdeveloped countries, so that the population which has less per capita income must pay higher prices than those in rich countries, with the resulting limitation in access to medicines. This perverse situation for the lower income population from smaller economies is ratified with the chapter on intellectual property introduced by CAFTA. Another element that justifies the production of alternative or generic medicines is the considerable reduction in prices that they undergo in those countries where competition from generic products does exist.148 There is no doubt that the pharmaceutical industry 146
A sign of this is the abysmal difference in price for one year’s treatment to fight HIV-AIDS, composed of the combination of three substances (Lamivudine, Stavudine and Nevirapine): the medicine made by Cipla Ltd. – an Indian company which produces generic medicines – is between 350 and 600 dollars, while the equivalent combination, in patented medicine, sells for between 10,000 and 15,000 dollars. See: Oh, Cecilia: La crisis de la salud. Patentes y monopolio aumentan los precios. Article taken from the Report from the Third World Network entitled: TRIPS, patentes y acceso a los medicamentos, propuesta para hacer aclaraciones y reformas. 147 Brazilian production of generic medicines against AIDS reduced prices by 79%, making universal and free treatment possible for the population; it is said that this program has been so successful that it has reduced the mortality rate by half because of this disease, saving $472 million in hospitalization costs. Another significant example of the positive aspects of competition is that of the Thailand production of fluconazol which sells for 0.29 cents in that country, while in Guatemala, where production of generics does not exist, the same medicine costs US$27.00 (93 times more). Ibid. 148 An illustrative case is Zantac, a medicine used in the treatment of ulcers made by the multinational Glaxo. Its price was reduced in India, where it is sold under the name of Zinetac, due to the competition.
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finds that patents provide them with the framework to fix prices on medicines, depending on the market possibilities, with the ultimate objective being the maximization of profits through the monopoly control which they exercise over the production and commercialization of the medicines. One of the principle arguments that the pharmaceutical industry uses to justify the patent system is the high cost of research and development (R&D) of medicines. According to its estimates, production of a new drug represents a cost of some $800 million dollars; nevertheless, some studies149 show that the real value of the development of each medicine and the R&D expenses are much less, because half of the costs referred to by the companies are attributed to financial costs, known as the opportunity costs of capital.150 However, in addition to the inflated costs, most new medicines put on the market are not new chemical compounds, but modified versions of already existing drugs, many of which have been developed with enormous government support using public monies. Thus, it is clear that the pharmaceutical multinationals use excesses and tricks obtain astronomical profits at the cost of millions of people in the world who are left without access to the medicines needed to fight their ailments. The establishment of the TRIPS Agreement in 1995 closed the possibility of excluding medicines from the granting of patents - as some 50 countries had previously been doing - because the WTO obliges all of its members to permit the patenting of all medicines. In this context, the United States is introducing a suit against Brazil in the WTO, complaining that their legislation grants obligatory licenses; and 39 pharmaceutical companies also sued the government of South Africa for approving a law which facilitates the granting of patents on medicines.151 In the TRIPS agreement there is an exceptional or safeguard measure which can be invoked in case of emergencies, in the interest of public health, among other reasons, allowing a government to grant an obligatory license to another company, or a governmental agency, to produce or import and sell the patented medicines.
100 tablets (150 mg) of Zantac sell for two dollars in India, for three dollars in Nepal, nine in Bangladesh, 30 dollars in Vietnam, 37 in Thailand, 41 in Indonesia, 55 in Malaysia, 61 in Sri Lanka, 63 in the Philippines, and 183 in Mongolia. It also sells in Australia for 23 dollars, in Canada for 77, in Chile for 196, in El Salvador for 132, in South Africa for 150 and in Tanzania for 97 dollars. Ibid. 149 Mokhiber, R and Weissman, R. (2002): Stripping Away the Big Pharma’s Figleaf, www.lainsignia.org. 150 The pharmaceutical companies incorporate the “opportunity cost of capital” into the cost of the medicine. This can be interpreted as the amount of imaginary income which the companies would have gotten from having made another alternative investment (such as Treasury bonds, purchase of real estate, etc.). 151
Khor, Martín: Debate en la OMC. Las patentes y el alto costo de los medicamentos, Third World Network.
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This provision opens the possibility of being able to access cheaper versions of patented medicines; although the government which grants the license is obliged to consult with the pharmaceutical company and to remunerate it something by way of compensation. Faced with the high price of medicines, which limits access to treatment for millions of people who suffer from diseases, such as AIDS, consumers from around the world and civil society groups mobilized and protested, pressuring the WTO to call for a special debate on the obligatory licensing of medicines. In the proposals that the NGOs made to the WTO, they demanded that it adopt position favoring public health, reaffirming that the TRIPS Agreement allows the use of obligatory licensing and parallel importation to produce and sell medicines that are less expensive than patented medicines; awarding obligatory licenses through “fast tracking” and allowing underdeveloped countries the option of excluding medicines from the patent process to insure their access for low income people. The reactions of the wealthy countries ranged from the “understanding position” of Norway and the European Union, which recognize the importance of the safeguards unless the TRIPS is seen “in the most flexible manner possible in the public health sector”152; to that of the United States, which took a harsh position in favor of the owners of the patents that is opposed to a flexible interpretation of the TRIPS regarding public health. Contrary to the principle of trade liberalization touted by the WTO, the TRIPS Agreement continues facilitating anti-competitive behavior and trade flows in medicines at monopoly prices. This supports the thesis that this agreement is dedicated to the protection of intellectual property rights and contradicts consumer rights. Consumers from underdeveloped countries have the right to access quality medicines at low prices, and there is no rationale for allowing the international trade regulatory frameworks to continue conferring 20-year protection to the pharmaceutical multinationals for medicines that could prevent the deaths of millions of people.
5.5. Food Sovereignty and the Agricultural Sector The negative impact of CAFTA on consumers also can be seen in the quality of foods in their diet and in the resulting repercussions in their health. Currently there is a serious concern about the availability, quality and safety of foods, especially in the framework of agreements that tend to create a for-profit food market, based on the production of genetically modified or GMO foods.153 152
Ibid. A GMO food has been produced using genetic engineering techniques. It involves organisms, generally plants, into which genes from other species have been introduced (such as bacteria or viruses) or even organisms in which the expression of their genes has been modified for the purpose of obtaining some special characteristic which the plant does not have under normal conditions, such as greater resistance to certain pests, greater productivity, or a product that is more attractive to the consumer. 153
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The business of genetic engineering is in the hands of agrochemical and pharmaceutical multinational companies with commercial interests with researchers that directly intervene in biological processes which we have just begun to understand, and which we are not able to control. There is no doubt that enough good quality food can be produced without resorting to genetic modification of foods, but that the motivation for them is mainly commercial and political, despite the uncertainty about the long term impacts. In 1998, in the United States alone, 20 million hectares (50 million acres) of GMO foodstuffs were grown – of the 28 million hectares (70 million acres) grown in the world. These products for human consumption flooded the market without adequate scientific support indicating whether they are safe or, at least, inoffensive to human health.154 An important controversy exists on the risks and damages of GMO foods and the potential impact on the health of those who consume them. Some specialists question the harmlessness of these foods155, because they associate their consumption with the presence of sudden allergies, increase in levels of toxins, destruction of cells from the immunological system, changes in metabolism, resistance to antibiotics, and other effects. Among the supposed benefits of GMO foods, those related to resistance to plagues, greater yields, and better product quality are highlighted. These are characteristics which, according to the arguments of the GMO defenders, can serve to cover the demand of a growing population in the planet, and deal with the serious problems of feeding the world. These suggestions hide among philanthropic and humanistic purposes the only motivation of the multinational corporations dedicated to this change – the maximization of profits. Their perspective ignores the enormous inequality and lack of access to food caused by the dynamic inherent in the capitalist system, and thus avoids the need to fight the structural causes of the problem of access to food. The experts warn that behind these improvements and new applications are hidden risks and dangers of considerable importance, particularly because the potential damages which consumers of these foods can suffer in the long term have not been sufficiently investigated. The dangers for the environment are also worrisome: the extension of GMO crops puts the biodiversity of the planet and the balance in nature at risk, there is the threat of the gradual disappearance of varieties of traditional plants – less profitable ones, the facilitation of genetic contamination through the transmission of pollen in 154
Ambientalistas versus industriales. Alimentos transgénicos: ¿avance o peligro para la salud pública?, El Expreso, 17- 4-00, Lima, Perú . 155 Two cases are presented as examples: a) The artificial hormone BST, which is injected in cows to promote greater milk production, can increase the risk of contracting cancer in human beings. b) A study done by Dr. Pusztai, world expert on plant toxicity, on a group of rats who were fed with this type of crops showed at the end of the experiment serious damage to their immunological system and to their vital organs.
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nature, and the fostering of herbicide use, which represents an important element in water contamination and soil contamination.156 Despite the controversy engendered by consumer defense organizations, large producers of GMO seed are not yielding in their intention to promote this biogenetic technology. This poses the need for intensifying citizen actions of resistance to the expansion of this wave that assaults the fundamental rights of peoples and of nature itself. Although the use of GMO technology has not been disseminated yet in some countries, it is very possible that genetically modified soy beans, wheat and corn are already being imported. These are later are transformed into products and supplied to consumers who receive no warning. The GMO vegetables are sold mixed in with normal ones, and the companies have refused to provide distinctive labeling, leaving consumers in a defenseless state and without the ability to choose. Broad legislation should be developed to regulate the production and commercialization of these foods. Appropriate entities should be established to evaluate and follow-up on the reports and studies conducted by the companies dedicated to the research and development of these products. In addition, the legislation should include penalties and punishments for those researchers whose products would create health or environmental risks during the development process. While the appropriate controls are defined and activated, we should advocate for the prohibition of the liberation of genetically modified organisms, and clearly mark all food products so that we can choose what we eat. A fundamental demand of consumers is for the application of the precautionary principle, not recognized in CAFTA, which states that, in the face of the simple suspicion of the existence of a danger to health, stopping the commercial flow of these damaging products is justified. Nevertheless, in the logic of the upside down world, the precautionary principle is not a higher principle, and it is the consumer – not the company – who must confirm the inoffensive nature of the products. GMO foods are being introduced without adequate discussion, there is a need to foster and open a serious, profound and unhurried debate, which would allow the citizenry to take a position in the face of the growing pressures from the multinationals to pass lax laws which do not present the least restrictions on the crops, the production and commercialization of GMO foods.
156
According to an OECD report, 66% of field experiments with GMO crops conducted in recent years were aimed at the creation of plants resistant to herbicides. This is the case of Monsanto’s GMO soybean which is resistant to the herbicide Roundup, produced by this same multinational company. The Environmental Protection Agency of the United Status believes that this broad spectrum herbicide is responsible for bringing a large variety of vegetable species to the brink of extinction in that country, in addition to considering it one of the most toxic herbicides for soil micro-organisms like fungi, actinomycetes and yeasts.
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Some of the most polemic issues regarding the impact of the FTAs are the negative effects which they have on the agricultural and agro-food sector. This situation is overwhelming in the case of Mexico, where “the net losers which NAFTA has caused in Mexican agricultural activities are the producers of basic grains and oleaginous products, since they are the ones who have seen the prices of their products punished by the unfair competition which the Federal Executive has permitted and is promoting with the absence of the application of norms which they themselves negotiated in the Treaty. These producers represent 65% of the agricultural surface, create a little less than 40% of production value, and half the jobs in the Mexican countryside.”157 In a context of opening, with a weak linkages among the productive sector and low purchasing power, it is to be expected that the flows of imported goods, whose prices are lower than national goods, as in most cases they receive subsidies in their countries of export, would displace national agricultural production. The results of this are seen in the failure of many businesses and farmers, not able to deal with the international competition, left outside the market with the consequent impact on unemployment. The existing “double standard” in the definition and application of trade policy on the part of developed countries, who protect and subsidize their agricultural sector – and in general the most backward areas, the start-up industries and the strategic sectors – while demanding openness and liberalization of the economies of the underdeveloped countries, creates a situation which leads to the annulment of domestic production in these countries. Further, this annulment takes place, in good measure, in the production of basic grains (corn, rice, sorghum, beans), crops intimately linked to the diet of the population. The importing of U.S. subsidized corn, which is cheaper than internally produced corn, led to the replacement of Mexican production by imported production, and in the practice led to the failure of 2.5 million peasant basic grain farmers, who did not have the capacity to sustain a 45% drop in the real price of corn and to the suppression of internal subsidies by a third of what they were. This situation has a double impact on the lower income population: on the one hand, the capacity for production of food for their own consumption is eliminated and, on the other hand, there is a process of exclusion of the population employed in the agricultural sector, creating high levels of unemployment in the rural area, where the largest contingent of the population in situations of poverty are concentrated. All of this comes together in to create a state of growing food insecurity in the region. Given the seriousness of the situation, it is necessary to find viable solutions to the problem of food security. The FAO also recognizes that “it is not likely that trade would contribute substantially to the problem of food security in most developing countries. Most people who suffer from food insecurity in the world live in rural areas and their means of subsistence are based on employment and farm and off-farm income, which in 157
Commission on Agriculture of the House of Representatives, quoted in Arroyo, Alberto, op cit.
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turn depends, one way or another, on agriculture. And it is the farming sector which creates the strongest economic connections in most of these countries. Historically, very few countries have experienced rapid economic development and poverty reduction without a growth in agriculture, which precedes or accompanies them."158 The Agreement on Agriculture (AoA) and CAFTA, through access of goods to the market, maintain and exacerbate the existing imbalance between the countries of the North and the South, and worsen the food security crisis because the countries of the North, principally the United States with its agricultural mega-corporations, maintain control over the world food market, marginating poor countries from control over access to food. The decrease in the import tariffs, the reduction in internal support measures for production, and the reduction of subsidies for agricultural export policies in the countries in the South are factors which are complemented by the considerable drop in the international prices for agricultural products and the high levels of tariff protection and subsidies in the developed countries. This creates an unfavorable scenario for the underdeveloped countries, as it puts enormous restrictions on access to food for groups with less purchasing power. The abandonment of self-sufficiency and the capacity to produce food has a direct implication for the access of the population to food, increasing the deficit in basic foods and calories for millions of families in the region.
158
FAO, "El Comercio y la Seguridad Alimentaria: Hoja informativa sobre comercio agrícola," (1999). http://www.fao.org.
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6. Civil society in the face of CAFTA “Let it be decreed that now life is worth it, that now the truth is worth it, and that from hands offered we will all work for true life” Thiago de Mello, The Statutes of the Man
While we recognize the importance of trade and investment in processes of growth, these instruments cannot be considered as ends in themselves. Their relevance is rooted in the role which they are given within national development projects, and so they make sense insofar as they are means which would contribute to obtaining the objectives of sustainable and equitable development. The FTAs are not the only, and are certainly not the best, path for guaranteeing an adequate external insertion for small economies. In the logic of the FTAs, the sovereign right of people to define the path of their lives is abandoned to the market. It is unacceptable to allow the search for maximum profits and minimum costs to subsume the principles of solidarity, justice and equity. It is evident that the magnitude of the processes which the WTO manages and which are promoted by the initiatives of the FTAA and the FTA so exceed local capacities that one aspires for the transformation of its logic and content. The planetary dimension of the phenomenon does not mean that it is impenetrable or irremissible, but it demands, above all, that we recommit ourselves to the conviction that it is indeed possible to transform this unjust and unsustainable “order”, and that we cannot renounce the right to define our destiny. This imposes an enormous challenge for world society, and demands the greatest creativity and audacity possible. It requires close citizen coordination on the local, national and international planes. The dream that “another world is possible” begins with construction from below and from within, activating the citizen training and mobilization 88
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in geographical areas and in the sectors. It means threading the social fabric, which is capable of stopping these projects, with the strength of an alternative proposal. The verb is resist, and the actions of resistance make sense from the construction of alternative proposals, structured from below in an effort starting from the specific reality and with proposals from the subjects of the process. With this, their pertinence and applicability is assured, given the particularities of each territory, country or region. The global character of capitalism also demands global responses. Although the cell for the construction of proposed alternatives and citizen actions is the local dimension, these cells cannot be left isolated; they should be connected and integrated with national processes, which in turn have to be connected to regional and global initiatives. We do not aspire to an alternative global model to neoliberalism and we are not betting on the construction of another model which would seek to be universally valid. The idea of homogenizing such distinctive realities in one framework and with schematic responses constitutes an enormous weakness and blunder of neoliberalism, and it makes no sense to replicate this. Although there are no alternative models or recipes, there are basic principles which should be observed, some of them very specific – which respond to particular realities – and others more general, such as demanding that the government should play a role in economic activity and in development planning. We think that achieving just and sustainable development is not possible without the presence of a robust entity which would plan the path and insure the process. Moving ahead in the construction of alternative proposals requires defining our own national development project, which should be structured on the basis of principles of democratic participation, sustainability and reduction in the inequality gaps – age, gender, social, ethnic and geographic –ensuring the fulfillment and enforcement of human rights.159 Since CAFTA is determined by and has been constructed from and for the interests of transnational capital, it is not realistic to think that attaching labor or environmental clauses to the treaty could change its logic and its corporate slant. The inclusion of clauses only tries to imprint a “human face” on the treaty, when its content is incompatible with a focus on human rights. Therefore, it is not possible to reform CAFTA. From the perspective of the people there are FTAs which are bad, worse and worst. The desire to reform CAFTA is supported by those who recognizing the magnitude of the phenomenon, renounce the possibility of stopping it and opt for cosmetic changes which would make it less imperfect, and along the way would allow them to obtain some “splinters of benefits” which can be detached from these processes. 159
Moreno, Raúl (2003): Cumplimiento y vigencia de los DESC en El Salvador, Op cit, p. 110.
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The experiences of the Bolivian population in “war” against the privatization of water carried out by Bechtel in Cochabamba; the citizen opposition to the privatization of telecommunication and electricity in Costa Rica; the struggle of doctors, workers and the Salvadoran people against the privatization of health services and social security; the actions of peasant resistance in San Salvador of Atenco, Mexico; are only some examples that show that social organization, mobilization and pressure constitute powerful instruments which can stop these projects that are inspired and promoted out of a neoliberal logic. Currently, millions of people in the continent survive thanks to their actions of resistance, and based on them, space is being created for alternative experiences directed by a logic of equity, justice and sustainability. This is shown by the millions of Argentinean people who “survive” through a barter network or the thousands of indigenous families who are developing their own production and commercialization systems in a number of Mesoamerican regions. These are living examples, which incarnate the possibility of constructing alternatives to neoliberalism, and they represent experiences of resistance which respond to particular realities, which with creativity and in a quiet way are being promoted throughout the continent in order to build a different world. It is clear that CAFTA is not an alternative for the peoples of Central America, and that the historic and structural problems of the region will not be resolved through this path. Thus, moving forward in putting our own house in order is a task that cannot be avoided. This assumes the affirmation of national development projects, which should tend toward the integration of the peoples of Central America as a tool which would encourage sustainable and equitable development. While the negative consequences created by the FTAs and neoliberal policies become triggers for the social movements, stimulating mobilization and pressure activities on the part of the citizenry; it is a priority to make progress in knowing the phenomenon and in generating proposals. This requires strategy which blends literacy and dissemination with organization and social mobilization. Women and men in the hemisphere have been putting together proposals from an alternative logic which stands for democratic participation, reduction of inequalities, sustainability and the affirmation of peoples’ right to promote their own development projects. These contributions are being gathered together in the document Alternative for the Americas from the Hemispheric Social Alliance.160 For all those of us who from a technical and ethical perspective recognize the insuperable systemic limitations which neoliberalism sets out, resistance forms a key for the
160
See www.asc-hsa.org
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construction of another world. “We still have time to reverse this abandonment and this massacre.”161
161
Sábato, Ernesto (2000): La Resistencia, Seix Barral, Buenos Aires.
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7. Appendices
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WTO agreements
1. GENERAL AGREEMENT ON TARIFFS AND TRADE (GATT). i). The basis is the GATT of 1947, and later the reforms incorporated in 1994. ii). Other agreements in the area of goods: agriculture, sanitary and phytosanitary measures, textiles, technical barriers to trade, measures on trade related investments, antidumping, valuation for customs purposes, pre-shipping inspections, rules of origin, import licenses, subsidies and y safeguards.
2. GENERAL AGREEMENT ON TRADE IN SERVICES (GATS) includes more than 160 sectors and subsectors, among them education, health and the environment.
3.
AGREEMENT
ON
TRADE-RELATED
ASPECTS
OF
INTELLECTUAL
PROPERTY RIGHTS (TRIPS).
4. MECHANISM FOR REVIEW OF TRADE POLICY.
5. RULES FOR DISPUTE RESOLUTION.
6. MULTILATERAL SECTOR AGREEMENTS (civil aviation, government purchases, milk products and beef).
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COMPARATIVE PROFILE- CENTRAL AMERICA-UNITED STATES (2001) Guatemala
El Salvador
Honduras
Nicaragua
Costa Rica
USA
Population Population (millions)
11.7
6.4
6.6
5.2
3.9
Population growth (%)
2.6
1.9
2.6
2.5
1.8
1.1
Life expectancy (years)
65.2
70
66
68.6
77.6
77.5
Fertility rate (births per woman)
4.4
3
4.1
3.5
2.4
2.1
Infant mortality rate (per thousand births) HDI (position in HDI)*
285.3
43
33
31
36
9
7
0,62 (120)
0,74 (104)
0,70 (116)
0,65 (118)
0,86 (43)
0,98 (6)
108.9 (thous.)
21,040
112.1 (thous.)
28,500
1,210
53,820
Environment Area (Km2) Forests (1000 Km2)
32,780
51,100
9.6 million
19,680
2.3 million
1.7
4.6
1
3
0.8
-0.2
9,591
2,836
14,945
37,409
29,501
9,985
5.9 billion
1.8 billion
Deforestation (annual average, 1990-2000) Water use (% of total resources)
130 (thous.)
Economy GNI, ATLAS Method (US$ current) GNI per capita, ATLAS Methos (US$ current) GDP (US$ current)
19.6 billion 1,680 20.5 billion
13 billion 2,040 13.7 billion
900 6.4 billion
380 2 billion
15.7 billion 4,060 16.1 billion
9.8 trillion 34,280 10.1 trillion
GDP growth, annual %
2.1
1.8
2.6
5.1
0.9
0.3
GDP implicit price deflator (annual growth %)
6.5
2.7
9.6
9.1
7.1
2.3
Added value in agriculture (% of GDP)
22.6
9.5
13.7
32.6
9.1
1.6
Added value in industry (% of GDP)
19.5
29.7
31.6
22
28.6
24.9
Added value in services (% of GDP)
57.9
60.8
54.7
45.4
62.3
73.5
Exports of goods and services (% of GDP)
18.6
28.9
38.3
37.4
42.7
11.2
Imports of goods and services (% of GDP)
28
42.9
55
81.8
44.9
15
15.4
16
30.6
31.7
18.2
20.7
Fixed lines and mobile telephones (per 1000 people)
161.7
218.4
83.3
305.4
1,117.90
Personal computers (per 1000 people)
12.8
21.9
12.2
9.6
170.2
625
Trade in goods as percentage of GDP
39.4
57.4
66.3
71.9
19
Exports of high technology (% of manufactured exports)
9.5
7.1
3.2
35.7
32.1
Gross capital formation (% of GDP) Technology and Infrastructure
Trade and finance
Foreign direct investment, net income (US$ current) Present value of the debt (US$ current)
455.5 million
267.8 million
195 million
132.3 million
453.6 million
4.8 billion
4.6 billion
3.2 billion
4.3 billion
4.8 billion
Total debt service, (% of exports of goods and services)
9
6.3
11.2
26.2
9
Source: World Bank, http://www.worldbank.org/data/countrydata/countrydata.html. * The HDI is from the 2002 Human Development Report. http://hdr.undp.org/reports/global/2002/en/pdf/complete.pdf
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CENTRAL AMERICAN COUNTRIES: Gross Domestic Product & Exchange Rates Item & Countries
1995
1996
1997
1998
1999
2000
2001 1/
2002 2/
(Millions of U.S. dollars) GDP at Current Prices Costa Rica El Salvador Guatemala Honduras 3/ Nicaragua
11,722.4 9,500.5 14,653.3 3,960.6 1,840.1
11,843.2 10,315.5 15,674.7 4,078.8 1,920.9
12,829.0 11,134.6 17,782.8 4,717.1 1,968.8
14,095.9 12,008.4 19,193.4 5,264.4 2,067.8
15,796.6 12,464.7 18,316.2 5,437.0 2,213.9
15,956.9 13,139.1 19,288.5 5,923.7 2,434.8
16,381.9 13,738.9 20,970.2 6,387.3 2,543.7
16,886.5 14,288.3 23,256.6 6,402.3 2,521.7
Nominal Per Capita GDP 3,345.4 Costa Rica 1,676.0 El Salvador 1,468.9 Guatemala 706.9 Honduras 415.7 Nicaragua
3,296.1 1,782.5 1,530.3 704.6 422.3
3,485.0 1,884.5 1,690.8 788.7 421.2
3,740.1 1,991.1 1,777.3 851.8 430.5
4,096.4 2,025.4 1,651.8 851.5 448.6
4,046.7 2,093.5 1,694.1 897.9 480.1
4,065.0 2,147.7 1,795.6 937.1 488.7
4,102.3 2,192.2 1,940.2 n.d. 472.1
268 144 88 86 54
290 144 92 98 63
328.6 144.0 105.7 109.4 65.2
343.0 144.0 115.1 119.3 69.6
Nominal Minimum Salary (Monthly) 254 Costa Rica 4/ 132 El Salvador 83 Guatemala 62 Honduras 31 Nicaragua
240 132 87 61 27
Dollars per month 259 267 132 144 87 92 71 81 30 49
1/: Preliminary Data 2/: Estimated data 3/ Information for 2002 from Monthly Executive Report 52 of SECMCA 4/: Refers to simple monthly average 5/: Average annual exchange rate 6/: Average purchase exchange rate, except for Nicaragua which is the average purchase-sale exchange rate. Source: Central American Central Banks and SIECA
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Central America – United States Trade Structure (in percentages, 2001)
Total Central American Exports to the United States
100.00%
Costa Rica
55.20%
El Salvador
5.60%
Guatemala
16.20%
Honduras
19.40%
Nicaragua
3.50%
Total imports from the United States
100.00%
Costa Rica
39.50%
El Salvador
15.80%
Guatemala
23.80%
Honduras
15.30%
Nicaragua
5.80%
Source: SIECA. General Office on Information Technologies. Based on information from Central Banks, Statistical Institutions and Ministries of the Economy.
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CENTRAL AMERICA Summary of the Trade Balance with the United States (2001) in thousands of dollars, not including maquila
Total Central American Exports Total Central American Exports to the United States % of total exports which go to the United States
10,185,306 3,964,983 38.90%
Total Central American Imports Total Central American Imports coming from the United States % of total imports which come from the United States
20,518,121 8,265,114 40.30%
Central America Total Balance Total Trade Balance with the United States
-10,332,815 -4,300,131
Source: SIECA
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8. Bibliography
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Abrego, Abraham (2002): Consideraciones jurídicas sobre los Tratados de Libre Comercio, unpublished, FESPAD, San Salvador. Ambientalistas versus industriales. Alimentos transgénicos: ¿avance o peligro para la salud pública?, El Expreso, 17- 4-00, Lima, Perú . Amín, Samir (1996): Capitalism in the Age of Globalization, St. Martin’s Press. New York. Arroyo, Alberto (2001): Resultados del Tratado de Libre Comercio de América del Norte en México. Lecciones para la negociación del ALCA, RMALC, México. Balassa, Bella (1964): Teoría de la Integración Económica, Editorial Uteha, México. Barlow, Maude (2001): Blue Gold: The Global Water Crisis and the Commodification of the World’s Water Supply. The Council of Canadians. http://www.canadians.org/documents/blue_gold-e.pdf Banco Central de Reserva de El Salvador, Revista Trimestral, various issues. ECLAC (1998): The Fiscal Covenant: Strengths, Weaknesses and Challenges, Santiago de Chile. Galeano, Eduardo (2001): Upside Down: A Primer for the Looking-Glass World, Picador, London. Chang, Ha-Joon (2002): Kicking Away the Ladder, Anthem Press, London. Chomsky, Noam (2000): Rogue States: The Rule of Force in World Affairs, South End Press, Boston. Constitución de la República de El Salvador. Declaración conjunta sobre el Tratado de Libre Comercio propuesto entre Estados Unidos y Chile, ART y ACJR. El Diario de Hoy, San Salvador, various numbers. Enrique Iglesias, Discurso principal Foro de Empresarios de Belo Horizonte, May 14, 1997. FAO, "Agricultural Trade and Food Security: Agricultural Trade Fact Sheet" (1999). http://www.fao.org. Góchez , Roberto (2001), La discrecionalidad de la política arancelaria, Working Document, FUNDE, Unpublished, San Salvador.
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Hemispheric Social Alliance (2002): Alternatives for the Americas, December, www.asc-hsa.org Hemispheric Social Alliance (2002): The FTAA Unveiled: A Citizens’ Critique of the November 2002 Draft of the Free Trade Area of the Americas, January 2003, www.asc-hsa.org Inter-American Development Bank (1998): América Latina Frente a la Desigualdad, Washington. Khor, Martin (2003): WTO: The new threats to developing countries and sustainability, Third World Network, Geneva. Khor, Martín: Debate en la OMC. Las patentes y el alto costo de los medicamentos, Third World Network, Geneva. Kreissl-Dörfler, Wolfang and Quandt, Melanie (2000): La Organización Mundial de Comercio, cinco años después de su fundación: un balance provisional, in Libre Comercio: Promesas versus Realidades, Ediciones Henrich Böll, El Salvador. La Prensa Gráfica, San Salvador, various issues. León, Osvaldo León (2002): Movilización continental contra el ALCA, in ALAI, January 24, http://alainet.org/docs/1698.html. Ministerio de Economía: Proceso de Participación Ciudadana. TLC C.A.-USA, San Salvador, May 2003. Mokhiber, R and Weissman, R. (2002): Striping Away the Big Pharma’s Figleaf, http://www.alternet.org/
Moreno, Raúl (1997): La Competitividad en el desarrollo sustentable, Alternativas para el Desarrollo, No. 45, abril-mayo, San Salvador. Moreno, Raúl (1997): La Programación Financiera y el Mercado de Trabajo, Alternativas para el Desarrollo, No. 50, octubre 1997. Moreno, Raúl (1999): La Reforma Fiscal en El Salvador: una exigencia impostergable, Fundación Ebert, Imprenta Criterio, San Salvador. Moreno, Raúl (1999): La Ronda de la Organización Mundial de Comercio en Seattle: un caos que evidencia la necesidad de la participación ciudadana, Revista Eslabón, MS Dinamarca, Managua.
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The Free Trade Agreement between the United States and Central America: ECONOMIC AND SOCIAL IMPACTS
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The Free Trade Agreement between the United States and Central America: ECONOMIC AND SOCIAL IMPACTS
Raúl Moreno
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