Category: Chapter 7

How “Good Regulatory Practices” In Trade Agreements Erode Protections For The Environment, Public Health, Workers And Consumers

Chapter 7 / The failure to industrialise

The following article by Bert-Jaap Verbeek in the Dutch SOMO publication is based on Stuart Trew’s report for the Canadian Centre for Policy Alternatives (CCPA) entitled ‘International Regulatory Cooperation and the Public Good’ published on 22 May 2019. It came to our notice through the daily online news from popularresistance.org ; we are grateful to all for their permission to reproduce Bert-Jaap’s article here.

Key words: CETA; trade treaties; TTIP; USMCA; precautionary principle; good regulatory practices; the public good.

By Bart-Jaap Verbeek, Somo.nl        

May 24, 2019

How “Good Regulatory Practices” In Trade Agreements Erode Protections For The Environment, Public Health, Workers And Consumers2019-05-242019-05-24https://popularresistance-uploads.s3.amazonaws.com/uploads/2017/12/popres-shorter.pngPopularResistance.Orghttps://popularresistance-uploads.s3.amazonaws.com/uploads/2019/05/screenshot-2019-05-24-at-9.05.38-am.png200px200px

Seven NGOs, including SOMO, have released a new report that focuses on the significant threats to precautionary environmental, labour, consumer and public health policy from regulatory cooperation and “good regulatory practices” chapters within the EU-Canada Economic and Trade Agreement (CETA), US-Mexico-Canada Agreement (USMCA), and the currently parked EU-U.S. Transatlantic Trade and Investment Partnership (TTIP).

“Regulatory cooperation and Good Regulatory Practices provisions in trade agreements run the risk of locking in a deregulatory framework that seeks to eliminate ‘unnecessary’ barriers to global trade and investment. This poses a serious threat to much needed public interest regulations, including precautionary environmental, labour, consumer and public health policies”, says researcher Bart-Jaap Verbeek.

Warning since 1995

Since the 1995 founding of the World Trade Organisation (WTO), environmental NGOs and public interest watchdogs have warned that overly restrictive language in the WTO agreements unfairly constrains the policy options available to governments for conserving animal and plant habitats, eliminating pollution, reducing greenhouse gas emissions and taking toxic chemicals out of our consumer products, among other public interest priorities. While some progress has been made to remedy this imbalance in newer free trade agreements — through the inclusion of environmental, labour and sustainable development chapters, for example — big business has lobbied successfully for other, less-discussed provisions and chapters that institutionalize an ideology of deregulation.

This report focuses on the significant threats to precautionary environmental, labour, consumer and public health policy from regulatory cooperation and “good regulatory practices” chapters within the EU-Canada Economic and Trade Agreement (CETA), US–Mexico–Canada Agreement (USMCA), and the currently parked EU-US Transatlantic Trade and Investment Partnership (TTIP). It will be argued that, while international regulatory cooperation is often pitched to governments and the public as innocuous or beneficial, the terms under which this cooperation takes place belie its real function as a further entrenchment of corporate bias in the globalisation project. “Good regulatory practices” can, and are intended to, delay or distract the public and decision-makers from introducing a more democratic and sustainable economic and social policy.

Trade bias

Typically, regulatory cooperation and “good regulatory practices” chapters in trade agreements require governments to institutionalise voluntary or mandatory arrangements through which public servants in different countries can and in some cases must work together, usually in close collaboration with industry, to reduce or eliminate differences in domestic laws, policies, standards, regulations and testing procedures — including health, environmental and consumer protections — that are said to impede trade. This trade bias in the regulatory process has roots in U.S. law, but it has since been elaborated in a set of regulatory best practices developed within the Organisation for Economic Cooperation and Development (OECD) and at the WTO.

One important tenet of “good regulatory practice” is that regulation should be based on “risk management”, meaning that its objective is limited, and it is justified by currently available scientific evidence. As the risk-based regulatory framework has evolved, it has come to also require regulators to minimize the costs, or “burdens” on business, consider how they might regulate in ways that encourage trade and innovation and adopt international standards or practices wherever possible. These tenets attempt to strip political or ethical considerations from government rule-making and are, in a fundamental way, directly opposed to the precautionary principle, which states: “When an activity raises threats of harm to human health or the environment, precautionary measures should be taken even if some cause and effect relationships are not fully established scientifically. In this context, the proponent of an activity, rather than the public, should bear the burden of proof.”

A privileged space for multinationals

“Good regulatory practices” (GRP) are, therefore, at once, an ideology of how and when government should intervene in the market (to protect people or nature, for example), a set of institutional arrangements for regulating in a pro-business way and in cooperation with other governments, and a new privileged space for multinational corporations to intervene in national rule-making, frequently and at the earliest stages. This report [by Stuart Trew] begins by exploring the roots of “good regulatory practices” ideology in the WTO, OECD and U.S. law. It then examines how GRP-based regulatory cooperation has functioned between Canada and the United States and compares that to the expected functioning of similar bodies in the concluded CETA and proposed TTIP and USMCA agreements. Following this, we consider what business lobbies have said they hope to get out of transatlantic regulatory cooperation.

The report concludes by considering the benefits of precaution and regulatory leadership, along with some alternative forms that international regulatory cooperation could take that are not based on the deregulatory GRP ideology. The findings here should be of special interest to European policy-makers, activists and the public as the European Commission sets out to revive the stalled TTIP negotiations — even as opposition to the ratification of CETA with Canada remains strong. But the report should also resonate in North America where policy-makers will soon debate the ratification of a NAFTA replacement that includes the most aggressive, short-sighted “good regulatory practices” chapter negotiated to date.

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UK signs accord with Central America to ensure continuity of trade deal

Chapter 7 / Europe’s Association Agreement (AA) with Central America

Key words: Association Agreement; tariffs; liberalisation.

On 18 July 2019 in Managua the United Kingdom signed an agreement with the Central American nations to guarantee that British companies and consumers would benefit from the same freedom of tariffs when it leaves the European Union as it enjoyed as a member of the EU. The trade deal signed in 2006 between Central America and the European Union was called the Association Agreement.

Commerce between the UK and the six countries of Central America (minus Belize) amounted to US$1.255 billion in 2018 with a balance in favour of the Central American countries. UK consumers will continue to benefit from low prices for goods imported from Central America, such as shrimps, coffee, fruit, vegetables and sugar, amongst others.

Central American consumers will continue to enjoy low tariffs on British products such as alcoholic drinks, medicines, machinery and cars.

The agreement also provides a framework for cooperation and development, especially in matters relating to the environment and human rights.

Despite the balance in favour of the Central American countries, the Agreement requires various market liberalisation measures to be implemented by the Central American governments and allows well-financed UK firms to compete with less well-financed Central American firms in many spheres of economic activity.

The Central American Bank for Economic Integration (CABEI)

Chapter 7 / Free trade treaties / SICA: Central American Integration System

The Organised Crime and Corruption Reporting Project (OCCRP) is a global network of investigative journalists specialising in crime and corruption. It publishes its reports in English and Russian and its website is at: https://www.occrp.org  On 31st October the OCCRP released a report on The Central American Bank for Economic Integration (CABEI). The full report can be found at: https://www.occrp.org/en/the-dictators-bank/the-dictators-bank-how-central-americas-main-development-bank-enabled-corruption-and-authoritarianism , but a summary of the key points and the report’s introduction are given here for The Violence of Development website. OCCRP credits are given as follows.

 

Credit: James O’Brien/OCCRP

by Eli Moskowitz (OCCRP), Jonny Wrate (OCCRP), Madeline Fixler (Columbia Journalism Investigations), Bill Barreto (No Ficción), Ernesto Rivera (Lado B), Daniel Valencia (Redacción Regional), Andrew Little (Columbia Journalism Investigations), and Mariana Castro (Columbia Journalism Investigations). Data by Romina Colman (OCCRP). Research by Angus Peacock (OCCRP)

31 October 2023

 

The Central American Bank for Economic Integration was created (in 2006) to give the region more control over its own development, but a new investigation by OCCRP and partners raises questions about the bank’s lending practices.

Key Findings

  • CABEI has funded major infrastructure projects that have later been engulfed in scandal, where its loans were used to pay bribes, or seen as an easy source of cash by alleged conspirators.
  • Internal audits obtained by reporters show the bank has ignored red flags when investing in projects, including lending money for hydroelectric dams even after violent crackdowns on protesters.
  • In recent years the bank has begun giving out policy-based loans, a few-strings-attached type of financing that critics say is easily misused.
  • In El Salvador, reporters found $200 million of one CABEI loan designed to support small businesses through the pandemic was diverted to fund the country’s ill-fated plan to make Bitcoin a national currency.
  • CABEI has faced criticism for lending billions of dollars to Central America’s authoritarian governments, providing an important source of funding for the region’s authoritarian leaders as they committed widespread human rights abuses.
  • Late in 2021, nine of CABEI’s directors wrote a letter warning of the bank’s worsening financial situation and raising transparency concerns. Financial statements show these indicators have declined since then.

In mid-November, the Central American Bank for Economic Integration (CABEI) will appoint a new executive president for the next five years. Whoever takes the helm of the region’s main investment bank does so at a key moment in its history.

While only a small player compared to global institutions like the World Bank, CABEI plays a vital role in channeling billions of dollars into its five founding states: Nicaragua, El Salvador, Honduras, Guatemala, and Costa Rica. The bank says it accounts for close to half the development finance in Central America, one of the poorest parts of the Western hemisphere.

CABEI played a critical role during the COVID-19 pandemic, when the bank gave over a billion dollars in loans and grants to keep its founders afloat. With all of these states’ sovereign bonds rated as “junk,” CABEI has become a lifeline to international financial markets — and a key source of funding for the region’s authoritarian leaders.

“It doesn’t matter what the politics are as long as poor people are getting services,” the bank’s outgoing president, Dante Mossi, said at an event in Washington, D.C., this year, as he faced criticism for providing funding to Nicaraguan dictator Daniel Ortega.

“The bank is not a political model,” Mossi told the assembled crowd.

Others disagree.

CABEI has been criticized for giving billions of dollars to Central America’s authoritarian regimes — led by Ortega, President Nayib Bukele in El Salvador, and the former president of Honduras, Juan Orlando Hernández. Now an investigation by OCCRP and partners can show the bank has funded projects that led to environmental destruction, and others where loans were diverted for corrupt practices or used to fund the pet projects of dictators.

Reporters spent more than a year investigating CABEI, combining open-source data with official investigations, leaked documents, and interviews with current and former bank employees. To get a clearer picture of the bank’s track record, reporters also compiled a database of more than 500 approved operations from the past quarter century. Together, they show how CABEI’s failures have enabled waste and corruption in one of the most unequal regions on Earth.

Seven out of every 10 jobs created were in the informal sector

Chapter 7 / Introduction

El Economista

By Evelyn Machuca

Translated by Martin Mowforth

25 November 2022

Key words: CEPAL; jobs; informal sector.

 

Unemployment levels in 2022 represent a set-back of 22 years with women especially badly affected, according to CEPAL (the Economic Commission for Latin America and the Caribbean). The majority of new jobs were created in the informal sector.

Seven out of every ten jobs that were created in the post-pandemic era were set up in the informal sector, according to the report ‘Social Panorama of Latin America and the Caribbean in 2022: the transformation of education as a base for sustainable development’, presented in November by the Economic Commission for Latin America and the Caribbean (CEPAL by its Spanish initials).

Although for 2021 income inequality (measured by the Gini Coefficient) was slightly lower for Latin America than it was in 2020 – measured at 0.458, around the same level as for 2019 – “the word ‘slightly’ has to be emphasised” said the Executive Secretary of the UN organisation, José Manuel Salazar-Xirinachs.

On the other hand, the unemployment level projected for 2022 represents a retrograde step of 22 years, especially affecting women for whom unemployment rose from 9.5 per cent in 2019 to 11.6 per cent in 2022.

“The impacts of the pandemic in terms of poverty and extreme poverty have not been reversed and countries are facing a silent crisis in education which affects the future of the new generations,” warned the UN official. He called on countries to make decisive investments in education and to convert this crisis into an opportunity to transform education.

Data collected for the report also showed that the percentage of youths aged 18-24 who neither studied nor worked increased from 22.3 per cent in 2019 to 28.7 per cent in 2020, this involving especially young women, 36 per cent of whom found themselves in this situation compared with 22 per cent of men of the same age.

CEPAL predicts that by the end of this year, 201 million people (32.1 per cent of Latin America’s total population) will live in poverty and 82 million (13.1 per cent of the population) will live in extreme poverty.

Siete de cada 10 empleos fueron creados en sector informal

Chapter 7 / Introduction

Por Evelyn Machuca, El Economista

25 de Noviembre 2022

Palabras claves: CEPAL; empleos; sector informal.

La desocupación proyectada para 2022 representa un retroceso de 22 años, afectando especialmente a las mujeres, dice la CEPAL (la Comisión Económica para América Latina y el Caribe).

El desempleo retrocedió, pero mayoría de nuevos empleos surgieron en sector informal. Foto: LPG

 

Siete de cada 10 empleos que fueron creados postpandemia por covid-19 fueron abiertos en el sector informal, según el informe “Panorama Social de América Latina y El Caribe 2022: la transformación de la educación como base para el desarrollo sostenible”, presentado ayer por la Comisión Económica para América Latina y el Caribe (CEPAL).

Aunque para 2021 la desigualdad de ingresos (medida por el índice de Gini) disminuyó levemente con respecto al 2020 en América Latina, situándose en 0.458, en niveles similares a los de 2019, “hay que enfatizar la palabra levemente”, declaró el secretario ejecutivo del organismo de Naciones Unidas, José Manuel Salazar-Xirinachs.

Por otra parte, la desocupación proyectada para 2022 representa un retroceso de 22 años, afectando especialmente a las mujeres, para las que la desocupación subió de 9.5 % en 2019 a 11.6 % en 2022.

“No se ha logrado revertir los impactos de la pandemia en materia de pobreza y pobreza extrema y los países enfrentan una crisis silenciosa en educación que afecta el futuro de las nuevas generaciones”, advirtió el alto funcionario, quien llamó a los países a invertir decididamente en educación y a convertir esta crisis en una oportunidad para transformar los sistemas educativos.

Otro de los datos interesantes que fueron recogidos en este informe da cuenta de que el porcentaje de jóvenes de 18 a 24 años que no estudia ni trabaja (NINIS) de forma remunerada aumentó de 22,3% en 2019 a 28,7% en 2020, afectando especialmente a las mujeres jóvenes (36% de ellas se encontraba en esta situación, comparado con un 22% de los hombres).

Finalmente, la CEPAL proyecta que, para finales de este año, 201 millones de personas (el 32.1 % de la población total de la región de América Latina) vive en situación de pobreza y 82 millones (el 13.1 % de la población mundial) en pobreza extrema.

CAFTA’s promises of more employment in Costa Rica did not materialise, research finds

Chapter 7 / Free trade treaties / Central American Free Trade Agreement (CAFTA-DR)

By Fabiola Pomareda García, pomaredafabiola@gmail.com

7 October 2022, Semanario Universidad 

We are grateful to Fabiola and to Semanario Universidad, a weekly Costa Rican newspaper, for permission to reproduce her article in The Violence of Development (TVOD) website. We are also grateful to Pamela Machado, a Brazilian journalist, for doing the translation and summary of Fabiola’s article specifically for the TVOD website. What follows is more of a summary than a direct translation. 

Promises of increased employment opportunities in Costa Rica made at the signing of the free trade agreement with the United States, known as CAFTA, have not materialised, research from Andrej Badilla Solano from the Centre for Research in Culture and Development (CICDE) of the Universidad Estatal a Distancia (UNED), has found.

At the time of the signing of CAFTA, the second administration of Óscar Arias Sánchez had said that the CAFTA would generate 500,000 jobs.

According to Badilla, “there have been no changes in employment data in the entire period after the implementation of the agreement,” which came into effect in 2009. The reason for this, Badilla said, is that the strategy pursued by the government was the creation of Free Zones “which are under an ‘exception’ regime and their contributions are limited to the payment of social charges under very advantageous conditions,” he said.

As of 2018, the number of jobs generated by the Free Zones represented only 5.3% of the total workforce in Costa Rica, representing approximately 116,000 jobs – lower than the half a million positions promised by former president Oscar Arias Sánchez. “The indicators show a marked deterioration in the labour market during this decade. We are still waiting for the 500,000 jobs that Arias Sánchez promised us,” Badilla said.

In addition to the unfulfilled promises of employment, medicines have become more expensive in Costa Rica as a result of an intellectual property clause included in CAFTA, Badilla said. The agreement established more favourable conditions for patent holders. This, in turn, has made medical drugs more expensive and has strained the budget of the country’s social security fund, said Badilla, citing a study by Martínez Piva and Tripo (2019) which shows that 35% of the budget allocated to the purchase of medicines from the Fund corresponds to medicines with patent protection.

“Since there is a list of official medicines and some have this intellectual property protection, the Fund has no choice but to pay for them, it has no choice but to pay the price determined by the producers. But we could pay less and allocate less of the budget if these drugs were generic”, Badilla highlighted.

Moreover, the researchers said that the agreement had increased the availability of junk food and harmed people’s diet. According to Badilla, in all Central American countries the prevalence of obesity in adults ranged between 12% and 15% before CAFTA was signed. But after the approval of the treaty the prevalence of obesity increased by 10%.In Costa Rica the prevalence of obesity among adults was 14.8% in the year 2000; while in 2016 it was 25.7%.

 

Andrej Badilla, Researcher at the Centre for Research into Culture and Development of the State Distance Learning University (UNED)

 

Las promesas del CAFTA sobre generación de empleo no se cumplieron, expone investigación

Chapter 7 / Free trade treaties / Central American Free Trade Agreement (CAFTA-DR)

Por Fabiola Pomareda García | pomaredafabiola@gmail.com

7 octubre, 2022, Semanario Universidad

Les estamos muy agradecido a Fabiola y al Semanario Universidad, un semanario tico, para su autorización para reproducir su artículo en el sitio web The Violence of Development. Además le estamos muy agradecido a Pamela Machado, una periodista Brasileña, para la traducción y el resumen del artículo de Fabiola específicamente para nuestro sitio web.

La investigación analizó cuáles han sido las implicaciones del CAFTA en la seguridad social, específicamente en lo que respecta al mercado de trabajo, los medicamentos y propiedad intelectual, la apertura del mercado de los seguros y la importación de alimentos.

Indicadores del mercado laboral de la última década desmienten la promesa hecha por la segunda administración de Óscar Arias Sánchez de que el Tratado de Libre Comercio con Estados Unidos generaría 500.000 empleos, según una investigación del politólogo Andrej Badilla Solano.

El investigador del Centro de Investigación en Cultura y Desarrollo (CICDE) de la Universidad Estatal a Distancia (UNED), expuso lo anterior en su conferencia “A 15 años del DR-CAFTA: Cómo el tratado de libre comercio con los Estados Unidos ha impactado a la seguridad social”.

Badilla señaló que el tratado tuvo consecuencias directas sobre la seguridad social en cuanto al mercado laboral y los medicamentos; así como consecuencias indirectas, como la segmentación médica producto de la apertura de mercado de seguros y la importación de alimentos.

Si bien actualmente un 42% de las exportaciones del país tienen como destino los Estados Unidos, según datos de 2022 de la Promotora de Comercio Exterior (Procomer), aquella promesa de generación de empleo de la segunda administración Óscar Arias Sánchez nunca se cumplió, afirmó Badilla.

Mostró los datos de cómo en el periodo entre el 2010 y el 2021 la tasa de desempleo ha oscilado alrededor del 10%, mientras el subempleo ha oscilado alrededor del 20% y la tasa de informalidad se ha mantenido en un 40%.

“Todo el periodo posterior a la implementación del tratado no ha habido variaciones en los datos sobre empleo. La estrategia implementada por el Estado ha sido la atracción de Zonas Francas, que están en un régimen de excepción y sus contribuciones se limitan al pago de cargas sociales bajo condiciones muy ventajosas. Pero la estrategia de generación de empleos a través de Zonas Francas resulta insuficiente para la demanda de empleo que tiene la población costarricense”, explicó Badilla.

Al 2018 la cantidad de empleos que generaban las Zonas Francas representaba solo el 5,3% del total de la fuerza de trabajo de Costa Rica (alrededor de 116.000 empleos), citó Badilla.

“Los indicadores muestran un marcado deterioro del mercado laboral durante esta década. Seguimos esperando los 500 mil empleos que nos prometió Arias Sánchez”, dijo.

El Tratado de Libre Comercio entre Centroamérica y Estados Unidos (conocido como DR-CAFTA por sus siglas en inglés) fue ratificado por el país mediante el referéndum del 7 de octubre de 2007 y el tratado empezó a regir el 1 de enero de 2009.

 

Presupuesto para compra de medicamentos

En cuanto a los medicamentos y la propiedad intelectual, Badilla aclaró que Costa Rica pudo haber negociado mejores condiciones de propiedad intelectual, ya que el tratado generó un encarecimiento de los medicamentos debido a la protección de patentes y propiedad intelectual.

Según explicó, muchos de los medicamentos que se utilizaban en Costa Rica ya estaban protegidos por reglas de propiedad intelectual desde la segunda mitad de los noventas, ya que Costa Rica se unió a la Organización Mundial de Comercio (OMC) en 1995 y a la Organización Mundial de Propiedad Intelectual (OMPI) en 1999.

Con el tratado lo que hubo fue una ampliación de las medidas y una creación de condiciones aún más favorables para los dueños de las patentes, dijo. Esto tuvo un impacto en la seguridad social ya que los medicamentos que tiene protección de propiedad intelectual son muchísimo más caros que los genéricos. La situación tiene un efecto en el presupuesto asignado a la compra de medicamentos de la Caja Costarricense de Seguro Social (CCSS) destacó.

Badilla citó un estudio de Martínez Piva y Tripo (2019), que muestra que un 35% del presupuesto asignado a la compra de medicamentos de la Caja corresponde a medicamentos con protección de patentes.

“Como hay una lista de medicamentos oficiales y algunos tienen esta protección de propiedad intelectual, a la Caja no le queda más que pagarlos, no le queda más que pagar el precio que los productores determinen. Pero podríamos pagar menos y destinar menos del presupuesto si estos medicamentos fueran genéricos”, destacó Badilla.

 

Mayor acceso a «comida chatarra»

Otro señalamiento del investigador es que el aumento en la importación de productos agrícolas, tanto para la producción como para el consumo, permitió un acceso a una mayor variedad de alimentos con alto contenido calórico, lo cual generó cambios en la dieta y ha tenido un impacto en la salud de la población.

“Hay consecuencias como una mayor disponibilidad de comida chatarra, con efectos dañinos para la salud”, resaltó Badilla.

Citó que en todos los países de Centroamérica la prevalencia de obesidad en adultos oscilaba entre un 12% y un 15% antes de la firma del CAFTA. Pero después de la aprobación del tratado la prevalencia de obesidad aumentó en un 10%.

En Costa Rica la prevalencia de obesidad entre adultos era de un 14,8% en el año 2000; mientras que en el 2016 era de un 25,7%.

La obesidad está asociada a enfermedades crónicas como diabetes, hipertensión, problemas cardíacos y prevalencia de cáncer, entre otros, recordó Badilla.

El investigador del Centro de Investigación en Cultura y Desarrollo (CICDE) de la Universidad Estatal a Distancia (UNED) Andrej Badilla.

 

Nicaragua and China Speed Up Implementation of Free Trade Deal

Chapter 7 / Free trade treaties / The Role of China

Over the last few years, since the demise of the most recent plans for a building of a trans-oceanic canal, relations between Nicaragua and China have grown closer. This short piece from TeleSUR outlines the newest trade link between the two countries. 12 July 2022 ,By teleSUR/MS in the  Newsletter

Nicaraguan and Chinese diplomats sign trade agreements, Managua, Nicaragua, July 11, 2022. | Photo: Twitter/ @Plomo19792

 

Key words: Nicaragua; China; Free Trade Agreement; Agriculture; Early Harvest Agreement.

 

On Monday, Nicaragua’s Trade and Industry Minister José Bermúdez announced that President Daniel Ortega’s administration is promoting actions to implement the Free Trade Agreement (FTA) with China.

This Central American country signed the “Early Harvest Agreement” (EHA), a trade instrument whose objective is to facilitate the bilateral exchange of agriculture-related goods by establishing preferential tariffs.

Among other things, this agreement favours trade in harnesses for vehicles, textiles, beef and bovine meat, seafood, vegetables, rum, plants and flowers, garlic, sweet corn, tuna, pasta, bakery products, truck tires, and raw materials.

“Nicaraguan exports to China could increase by some US$100 million in tariff-free goods. Chinese demand will force us to increase our production,” lawmaker Wilfredo Navarro said, adding that the EHA “contemplates investments from Chinese companies to Nicaragua.”

Recently, Nicaragua and China also signed a Memorandum of Understanding (MoU) for the establishment of the Joint Commission for Economic, Trade, and Investment Cooperation.

This instrument is designed to facilitate the participation of the Central American country in China’s new “silk road”, which implies multimodal interconnection between countries on several continents.

Between January and May of this year, Nicaraguan exports to China reached US$3.1 billion, which represents a year-on-year increase of 19.1 percent.

The new Honduran government repeals regressive and oppressive acts

Chapter 7 / Export Processing Zones (EPZs) and Maquilas

In The Violence of Development website we try to avoid party politics within the seven Central American countries, focussing instead on the issues of development that transcend party boundaries. But in the case of Honduras a progressive government has recently taken over from a government of gangsters and narco-traffickers whose policies promoted only the interests of an elite, an oligarchy, a mafia, policies widely and enthusiastically supported by the US and Canadian governments despite the fact that the former government gained control only through defrauding the democratic votes and wishes of the Honduran people.[1]

In order to foster the notion of development for all, many of the first acts of the new government of President Xiomara Castro have involved the repeal of laws set by the gangsters who ran the former government. Two of the laws repealed are summarised below.

By Martin Mowforth

May 2022

 

First, the Honduran hourly employment law entitled employers to hourly contracts, the payment for which could be a matter of agreement between the employer and the individual employee, thereby violating articles 46 – 48 of the Honduran Labour Code. The Honduran Association of Labour Lawyers (AALH) described this law as “worsening working conditions for Hondurans.” A report from the Rights Centre for Women and a Beverage Industry Workers Union revealed that 75 per cent of Honduran women with part-time work have not had access to maternity licenses or have been denied the right to breastfeeding. The AALH stated that, “this situation has benefitted employers who have amassed wealth as a product of exploitation,” and noted that poverty levels had increased by 20 per cent since the enactment of the hourly employment law.

Second, on the 2nd May [2022], the new government repealed a law that authorised self-governing economic zones known as ZEDEs. ZEDEs operate as privately-owned and autonomous cities which serve as special investment districts. Banks and corporations active in ZEDEs appoint their own administrative officials, mostly from the United States, and it is they, rather than the Honduran government, who determine the regulations for taxation, courts, policing, education and healthcare for residents. In 2013 the Honduran Constitution was amended to legitimise ZEDEs despite the fact that they clearly undermine national sovereignty and treat Hondurans as disposable. President Xiomara Castro described the repeal as recovering Honduran sovereignty.

One such ZEDE is called Prospera and is located on a 58 acre site on the island of Roatán. Its US backers have said that they intend to proceed with the ‘development’.

[1] Former Honduran President Juan Orlando Hernández (JOH) has now been extradited to the United States accused of drug trafficking and firearms use.

Central America Between China and the United States

Chapter 7 / Free trade treaties / The Role of China

by Alberto Belladonna

Over the last twenty years, the role of the Chinese in Central American development has grown. Of course it has not been entirely through altruism – China gains considerably from Central American resources. In October 2019 Alberto Belladonna of the Italian Institute for International Political Studies (ISPI – www.ispionline.it/) produced a commentary on the geopolitical trends in the comparative influences of China and the United States on the region of Central America. We are grateful to Alberto and to the ISPI for their permission to reproduce the commentary in The Violence of Development website.

“The Monroe Doctrine is alive and well”, proclaimed former US National Security advisor John Bolton in April 2019, re-invoking an old vestige of American foreign policy dating back to 1823. A time when an infant United States was attempting to affirm its sphere of influence south of the Rio Grande, declaring that any interference in the region from European powers would be recognised as an unfriendly act against Washington. Bolton’s message, rather than to the “old European colonial powers”, was referring to new powers, as former Secretary of State Rex Tillerson already did one year before, when he warned Latin America against China’s new imperial power. A warning message aimed especially at South American countries but which also concerns Central America (CA), an often-neglected region but with a strategic geopolitical role in the current context of big-power confrontation.

 

The United States: Central America’s “Big Brother”

Since the foundation of the United States, for Washington CA has always represented a natural sphere in which to extend its geopolitical presence. An inseparable bond, sometimes too tight: “So far from God, so close to the US” Porfirio Diaz, president of Mexico in the end of nineteenth century, once said. But, how could CA not be so close to the United States? A few sheer numbers are sufficient to underline the role played by the US as gravitational pole for the whole region.

Washington has always been the region’s main trading partner. Today, it still accounts for almost 47.5% of total exports and 40.6% of imports; more than doubling the volumes of the European Union (CA’s second trading partner with 24 % of exports; 9.6% of imports) and even surpassing inter-regional trade (which accounts for 30.8% of total exports and 14.8% of total imports).

The US and CA are also bound together by the Central American Free Trade Agreement (CAFTA), a trade deal that goes beyond tariff-cutting and includes the protection of international property rights, investments and norms regarding public procurement procedures and financial services. CAFTA consolidated the role of the US as the major source of foreign direct investment (FDI) (27.3%) for the region, well ahead of the European Union (17.2%) and intra-regional flows (12.3%).

The US is also the major source of official development aid with annual average spending of $700 million between 2016 and 2017 focused on strengthening political, social and economic conditions in the region.  In particular, through the Central America Regional Security Initiative (CARSI), the United States invested almost $500 million to combat criminal organizations and illegal trafficking in CA.

Finally, the US is also the main destination of migration flow from CA: in 2017, 3.5 million CA immigrants resided in the US. They play a pivotal role in developing their countries of origins with their remittances representing on average 7.5% of regional GDP, ranging from 0.9% in Costa Rica to more than 20% in Honduras. But they also constitute an important source of labour force for the US, as CA nationals register a participation rate higher than both the overall foreign and US-born populations. There is, however, a rising fear of a potential demographic revolution caused by uncontrolled Hispanic migration, as well-known political scientist Samuel Huntington contended in “The Clash of Civilizations” (1996) and later reiterated in his in-depth study “Who Are We? The Challenges to America’s National Identity” (2004). Indeed, Mexican and CA immigrants represent 37% of the US’s foreign-born population, and 71% of the country’s 11 million illegal immigrants. This last group was the main target of president Donald Trump’s 2016 election campaign. Rising tensions culminated in April 2019 when Trump froze about $450 million of US foreign aid to Guatemala, Honduras and El Salvador due to their inability to limit migrant outflows to the United States.
China’s ‘Yuan Diplomacy’ in Central America

While the US seems eager to step back from the region, considered mostly a source of instability and constant mismanagement of aid and cooperation funds, China is silently advancing on the chessboard by extending its Belt and Road Initiative (BRI) to ‘America’s backyard’.

China’s presence in CA has been growing since the late nineties with a breakthrough in 2007 when Costa Rica became the first country in the region to end diplomatic relations with Taiwan. “An act of elemental realism, an awakening to the global context we are forced to deal with”, declared at that time Costa Rican president Óscar Arias. Indeed, elemental realism was at the core of Chinese interest in Costa Rica. A small market of almost non-interest for Chinese exports (0.25% of its total in 2018) Costa Rica became a strategic platform after the signing of a bilateral Free Trade Agreement in 2010, which allowed Chinese enterprise to indirectly exploit the US market through CAFTA. Beijing’s plans also called for Costa Rica to become a strategic platform to refine Venezuelan oil directed to China through a joint project worth $1.3 billion: a project that turned out to be a failure, overwhelmed by government scandals, legal restrictiveness and environmental abuse.  Nevertheless, trade with China increased over the last decade at the annual rate of 14.9% with an increasing trade balance in favour of Beijing. Most importantly, in September 2019 Costa Rica decided to scale up its relations with Beijing by signing a memorandum of understanding under the umbrella of China’s BRI as well as by promoting the country’s plans to create a Special Economic Zone (SEZ) in Puerto Limón where Chinese products could be manufactured.

Yet the first CA country to sign a BRI agreement was Panama. With almost 6% of the total global maritime trade passing through the country, China’s main interest undoubtedly was the Panama Canal. After failing to create a similar infrastructure in Nicaragua, Beijing in fact invested massively in Panama, making the country the prime destination for Chinese FDIs ($2.5 billion) in the region. Among major projects, in May 2016 China Landbridge, a privately owned company, bought Panama’s largest port located on Margarita Island. The investment in the Panama Colón Container Port (PCCP), which cost over US$1.1. Chinese Overseas Shipping (COSCO), another key player in the area, also decided to expand its operations on the Atlantic side of the canal. Finally, China also focused on the free port of Colón, where tons of Chinese products are disembarked, transformed and reshipped to Latin America and the US. Here, Huawei installed its sixth global distribution centre.

China’s pragmatic attitude did not prevent the country from doing business with Panama even before formal diplomatic ties were established between the two countries. The same goes for China’s business relations with Guatemala and Honduras, two countries that are still close to Taiwan. Indeed, from 2006 to 2016 Chinese exports to Guatemala and Honduras increased by 300% and 750% respectively. Chinese products found a very receptive market in CA: on the one hand, they were not required to follow the same strict standards of Western markets. For example, China has become the second exporter of vehicles to Guatemala and Honduras with a market share of 11.75% and 14.75% respectively. On the other, thanks to lower prices, China gives CA the chance to access a larger range of products, which would have been impossible otherwise.

The frontrunner of China’s expansion in CA is Huawei. In fact the company has built telecommunication networks throughout the region, works with most major telecommunications providers such as Millicom, and is ready to build an underwater cable link between China and Latin America. A situation which is prompting concerns from the US, which released a document stating that “China’s aggressive telecommunications investments in the region raise security concerns about placing the region’s communications backbone on Chinese networks; an increasing portion of data and message traffic will flow through and come to depend on, Chinese-supplied infrastructure”.

Still, China’s interests in the region are more subtle. Increasing its relations with CA will indeed also increase China’s negotiation power when it comes to Asia Pacific and the South China Sea: a wild card to play switching their respective backyards.

Future perspectives

But is CA de facto shifting into China’s orbit? Probably not. Last May, Mexican president Andrés Manuel Lopez Obrador and the United Nations Economic Commission for Latin America and the Caribbean (ECLAC) presented the Comprehensive Development Plan for Central America, which sets an investment of about $30 billion in production and infrastructure projects in CA. The objective is to integrate CA and Mexico in a way that could also serve the US market through the newly established United States-Mexico-Canada Agreement (USMCA). Although Trump thwarted this project with a new clause, which imposes a minimum wage of $16 per hour in those factories that export cars to the US, CA’s future remains tied to closer integration with the US. Against the backdrop of the ongoing trade tensions between China and the US, CA could benefit from the ongoing decoupling process and a more regionally integrated value chain intercepting more delocalization process from North America. CA is indeed meant to remain bound to the US. However, China will not cease to exploit the US’s inattentions and negligence to increase its influence, as if the two were engaged in a long-term game of Go.

Guatemala offers El Salvador a port on the Atlantic Coast

Chapter 7 / Free trade treaties / SICA: Central American Integration System

Shortly after the inauguration of Alejandro Giammattei as the new Guatemalan President, he met with President Nayib Bukele of El Salvador and offered a deal of potentially great benefit to El Salvador: namely a port on the Atlantic coast of Guatemala. Lucy Goodman translated and summarised articles about the deal from La Prensa Gráfica (by Melissa Pacheco, 28.01.20) and El Economista (29.01.20), and Martin Mowforth added various commentaries on these for The Violence of Development website.

March 2020

Key words: El Salvador – Guatemala integration; Atlantic port; security cooperation; domestic flights.

El Salvador and Guatemala plan to eliminate the border initially for the passage of persons and later for freight. They have also re-defined flights between the two countries as ‘domestic flights’.

(Melissa Pacheco) The presidents share the announcements between themselves about the removal of the border for the transit of people and goods.

 

The Guatemalan president offered a concession to create a public-private partnership as the means to enable completion of a Salvadoran port on the Atlantic coast. Land from the Santo Tomás de Castilla National Port Company (Empornac) will be ceded to El Salvador for this purpose. The area to be ceded is known as El Arenal (or The Quicksand) and currently serves as a depot for containers. Last year (2019) Empornac carried out technical studies to determine the feasibility of constructing a pier to accommodate dredgers and cruise ships there.

“We have offered El Salvador something unprecedented in the history of Central American integration and today I want to announce it publicly because we’re going to explore, as soon as possible, the possibility of El Salvador having a port in the Guatemalan Atlantic. We will deliver this Project as a public-private partnership so that El Salvador can develop it. It is an offer that we have made to El Salvador, we consider it to be the right thing to do,” Giammattei announced at a press conference that took place at the Presidential House.

He added that he had spoken with the authorities of SICA (Sistema de la Integración Centroamericana / Central American Integration System) in order to receive the support of the institution in the implementation of the project. He also announced that he made a firm pledge to officially de-categorise flights between Guatemala and El Salvador to ‘domestic’. This comes as part of the initiatives to improve integration in the region.

The Guatemalan Minister of Economics, Antonio Malouf, confirmed that a legal-technical analysis for ceding the land of Empornac will be carried out.

“Basically, it would be our entry to the Atlantic. Our goods will have the power to go from the Atlantic and enter from the Atlantic. I believe what we’re doing is making a real union that is going to spread to other countries in Central America that will want to unite and do similar,” declared the Salvadoran President.

Apart from the possible construction of the Salvadoran port on the Guatemalan coast and the re-categorisation of flights, the leaders announced that in one month they hope to have removed the border for the passage of people and within three or four months the barriers for goods between the two countries.

“We have to sign papers where we can eliminate the customs on goods respecting that goods entering El Salvador and destined for Guatemala have already paid taxes in El Salvador and do not have to pay them in Guatemala and those that have entered Guatemala destined for El Salvador do not have to pay them in El Salvador. We believe it will take us about three months,” the Guatemalan president declared to the media.

The elimination of the borders for the passage of people also requires the implementation of a bi-national arrangement on security. “If someone passes from Guatemala to El Salvador evading an arrest warrant, they will not be evading anything because we are going to have the same approaches in both countries,” Bukele stated.

Giammattei referred to their intention to apply similar security sanctions, one of which was to standardise the criminal codes in both countries. In the language he used to explain this part of the agreement, Giammattei betrayed his profoundly hateful and hardline understanding of crime in society. “Standardising the penalties, the sanctions, the punishments, so that when they spray ‘Baygon’ here the cockroaches do not go there because they think that there they will find it easier, and when they spray ‘Baygon’ the cockroaches won’t come here, as the law will be the same for the two countries,” said the new president

Moreover, he said that they had been monitoring Bukele’s Territorial Control Plan (PCT), the main commitment of the Salvadoran Government to improve security conditions, and he (Giammattei) did not rule out implementing some of the same sanctions in Guatemala.