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Statement on the Central American Free Trade Agreement: CAFTA Does Not Measure Up!

February 2005

This document measures the proposed Central American Free Trade Agreement (CAFTA)¹ against the principles that are central to the Interfaith Statement on International Trade and Investment adopted by the AFSC Board in 2001. Critical provisions in the content of the final CAFTA text reveal that it does not advance the goals of a more just, sustainable and prosperous human society. In our role in advancing those principles, AFSC has joined with our partners in the global South, including the Hemispheric Social Alliance that represents civil society groups from 14 countries in Latin America, to oppose the current form of CAFTA before Congress.

Background

AFSC has worked for many decades in Central America and in the U.S. on issues that concern this region. Our work has been that of witness and listening to those with whom we work, providing them with the opportunity to speak to a wider audience and being present on their behalf when they cannot. In this work, we regularly provide information and analysis of complex economic justice issues and advocate with our partners for just economic policies.

Given the failure of World Trade Organization (WTO) Ministerial talks in Seattle (1999) and Cancún (2003) to come to agreement, the U.S. government is now actively pursuing regional and bilateral trade agreements modeled on the North American Free Trade Agreement (NAFTA). After ten years, the accumulated evidence surrounding the NAFTA demonstrates that many dire predictions made by its opponents were not borne out. But on the other hand, it was clearly not the panacea some thought it would be. A growing number of experts are questioning whether the NAFTA model is the best template for future trade and investment agreements as many negative impacts are uncovered--most severely felt by small farmers and the poor. Since the CAFTA extends the harmful aspects of NAFTA rather than correcting them, the chances for fair, sustainable development in the region will be diminished.

Even in the face of the emerging criticism of this model, U.S. policy has been to attempt to expand NAFTA to all 34 countries in the Western Hemisphere, excluding Cuba, in the Free Trade Area of the Americas (FTAA) agreement. But their efforts have met severe resistance. Brazil, Argentina, Venezuela and Bolivia are unwilling to accept the U.S. demand for a comprehensive FTAA agreement like NAFTA, and have instead been negotiating for a more flexible model that allows countries to opt in or out of different parts of the agreement. Not at all pleased with this strategy, the U.S. is now focused on passing the CAFTA in hopes of isolating Brazil and pressuring them to change their tactics.

Pushed by powerful political and corporate interests, this agreement was crafted in secret. And with President Bush's "Fast Track" (or Trade Promotional Authority), Congress can vote only Yes or No on trade deals--preventing U.S. representatives from responding to constituents and influencing or amending the agreement. While the agreement was signed in Mary 2004, the Bush Administration has yet to present CAFTA to Congress due to the overwhelming opposition and inability to secure enough votes for its passage.

If CAFTA passes Congress in its current form, it will harm the most vulnerable in Central America, will be more comprehensive and intrusive upon national sovereignty than the NAFTA agreement, and if ratified, will become the model for future U.S. regional trade agreements.

Fair trade agreements are possible, and if accompanied with aid and investment, can play an important role in promoting development within the context of a more just society. Based on AFSC’s work in the region and in the U.S., and analysis of the final CAFTA text, the organization has concluded that, on balance, the CAFTA agreement does not serve the interests of justice
and the common good.

Evaluating CAFTA against the interfaith principles

Below is an evaluation of the new CAFTA text against the principles from the Interfaith Statement on International Trade and Investment adopted by the AFSC Board in 2001. For each principle, one or two examples are provided to demonstrate how the CAFTA agreement is in violation.

1) International trade and investment systems should respect and support the dignity of the human person, the integrity of creation, and our common humanity.

We observe:

In order to attract manufacturing jobs from multinational corporations, the human person and integrity of creation has been systematically violated as Central American countries allow practices that breach internationally recognized labor and environmental standards. A recent report by Human Rights Watch found workers in El Salvador export processing factories are often denied overtime pay, deprived by employers of their social security contributions, and systematically denied their right to freedom of association.² CAFTA’s chapter 16 on labor only requires countries to effectively enforce their own labor laws, regardless of the fact that many are far below the International Labor Organization (ILO) core labor standards.³ Fines are the penalty mechanism used when parties cannot resolve the dispute over a country that failed to enforce its own labor laws.⁴ But this is likely to be ineffective because penalties are levied on governments of the countries where the violations occur, not the companies that violate. In fact, the fines that the governments pay would actually be paid back to themselves to fund “appropriate” labor initiatives. And nothing stops governments from shifting the amount equal to the fine out of the labor budget into the budget that paid the fine, effectively canceling out the fine.

Also a threat to common humanity, CAFTA’s Intellectual Property Rights rules in Chapter 15 would grant exclusivity on medical test data to pharmaceutical companies for five years. This would have the effect of establishing a five-year patent monopoly and a ban on generic production of certain medicines.⁵ This would be the case even if the patent term has expired and even if countries have issued compulsory licenses that would otherwise allow them to produce and sell generics while a product is patented--making it difficult for Central American governments to obtain cheaper drugs to meet their public health needs.

2) International trade and investment activities should advance the common good and be evaluated in the light of their impact on those who are most vulnerable.

We observe:

The final CAFTA agreement is closely modeled after the NAFTA and will have similar impacts on the poor and vulnerable. Although the agreement helped provide employment opportunities and improved standards of living for some, NAFTA has not fully measured up to the principle of advancing the common good. Nobel Laureate economist Joseph Stiglitz has described NAFTA’s impact on Mexico since the agreement passed ten years ago: poor Mexican farmers have faced an uphill battle in their effort to compete with highly subsidized American corn, local small-sized enterprises have lost access to credit from foreign-owned banks, growth has slowed, income disparities between the U.S. and Mexico grew and real wages have fallen.⁶ In an analysis of the CAFTA text by Oxfam International⁷, they found that many Central American producers of basic grains, such as corn, rice, beans and sorghum, as well as poultry, pig, cow and dairy farmers, will be forced out of business by the flood of cheap subsidized goods coming from the U.S. The only products that will continue to receive protection under CAFTA are white corn in Central America, fresh onions and potatoes in Costa Rica, and sugar in the U.S. Because of the importation of highly subsidized U.S. yellow corn, prices in the region will likely suffer a dramatic drop, seriously affecting producers. The region will also run the risk of having consumption of white corn, which is preferred by consumers, substituted by yellow corn when the price drops. As happened in Mexico, subsistence and small farmers will migrate off their lands to the already overcrowded urban centers experience high levels of unemployment.

3) International trade and investment policies and decisions should be transparent and should involve the meaningful participation of the most vulnerable stakeholders.

We observe:

The negotiating text of CAFTA was never available to civil society until the negotiations were completed. Without creating negotiating mechanisms that include the participation of all who are affected, we cannot expect the outcomes to benefit them. In the U.S., Congress approved Trade Promotion Authority (TPA) also known as ‘fast track’. This legislation gives the executive branch the power to negotiate trade agreements and leaves Congress with two options: vote yes or no. As a result, Congress cannot respond to constituents and influence or amend the agreement.

4) International trade and investment systems should respect the legitimate role of government, in collaboration with civil society, to set policies regarding the development and welfare of its people.

We observe:

The CAFTA would prevent government procurement processes that give preferences to local firms in granting contracts--making criteria other than price and quality ‘unnecessary barriers to trade’. This means that the use of government contracts to promote gender equity, social justice and respect for human rights would be prohibited. For example, living wage legislation, which mandates that a municipality can only hire suppliers that pay their employees a living wage--higher than minimum wage and determined locally--would be undermined. Although the U.S. negotiated an exception for procurement policies on behalf of its own small and minority businesses--and Costa Rica and Nicaragua did the same for small, medium and micro enterprises--El Salvador, Guatemala and Honduras filed no such exceptions.⁸

The U.S. pushed for an investment agreement in the CAFTA that prohibits performance requirements intended to influence the behavior of foreign investors. As a result, governments cannot mandate that a foreign company buy a certain percentage of its inputs from a domestic producer or hire a certain percentage of local people. Historically, this was a common tool used by now developed countries to spur the growth of local industries.

5) International trade and investment systems should safeguard the global commons and respect the right of local communities to protect and sustainably develop their natural resources.

We observe:

The CAFTA rules in Chapter 15 on Intellectual Property Rights could be used to weaken national or international health and environmental standards. According to an analysis of the text done by the Institute for Agriculture and Trade Policy⁹ CAFTA would require Central American countries to adopt the U.S. model of corporate patenting rights including ratification of the Union for the Protection of New Varieties of Plants (UPOV) of 1991¹⁰. The UPOV allows for patents on plants that trump farmers’ traditional rights to save their own seeds. This would essentially permit multinational biotech corporations to sue farmers for patent violations, even when using their own seeds if crops become contaminated by pollen drift or distribution systems.

Conclusion

Guided by the principles of the Interfaith Statement on International Trade and Investment, fair trade in the Western Hemisphere is an achievable goal. With these principles incorporated into trade agreements, they could foster a more just, sustainable, and prosperous human society. In its current form, the CAFTA does not measure up to these principles adopted by the AFSC Board in 2001. For this reason, AFSC takes a stance against the CAFTA agreement in its current form.

Notes

1. The complete CAFTA text is available at http://www.interaction.org/library/detail.php?id=2605
2. Human Rights Watch. (2003) El Salvador: Government Ignores Widespread Labor Abuse CAFTA Must Include Strong Protection for Workers' Rights. Dec. http://www.hrw.org/press/2003/12/ elsalvador120403.htm
3. The ILO core labor standards include the rights to freedom of association, collective bargaining, the elimination of forced labor, the abolition of child labor, and the elimination of discrimination.
4. U.S. Central American Free Trade Agreement, Art. 20.17
5. This analysis came in part from Weissman, Robert. (2004) Dying for Drugs: How CAFTA Will Undermine Access to Essential Medicines. Essential Action, March.
6. Growth has slowed to 1% on a per capita basis (from 3.2% during 1948-73), income disparities between the US and Mexico has grown by 10.6%, and real wages have been falling at a rate of 0.2% a year. Stiglitz, Joseph. (2004) The Broken Promise of NAFTA. The New York Times, Op-Ed. Jan. 6
7. Galian, Carlos. (2004) CAFTA: The Nail in the Coffin of Central American Agriculture. Oxfam International, March.
8. US Central American Free Trade Agreement, Annex 9.1 Section G
9. Olson, Dennis. (2004) Central America Free Trade Agreement: Implications for Farmers in Both the U.S. and Central America. Institute for Agriculture and Trade Policy/ART, March.
10. US Central American Free Trade Agreement, Art. 15.1