Category: Free trade treaties

North American Free Trade Agreement (NAFTA)

Chapter 7 / Free trade treaties / North American Free Trade Agreement (NAFTA)

The following was extracted from the text of Ch.7 in the process of editing down to 100,000 words forPluto.

The NAFTA Agreement came into force on 1st January 1994 and lifted restrictions on trade between the USA, Canada and Mexico over a period of fifteen years, although some specific production sectors were excluded. Broadly its goals were to eliminate barriers to trade, to facilitate cross-border movement of goods and services, to promote fair competition between the three nations, to increase investment opportunities and to provide protection of intellectual property rights within each nation.[1] NAFTA was promoted to increase jobs, raise living standards and improve environmental conditions in the three countries.[2]

These have been the oft-stated goals of most free trade treaties between nations until the more recent Association Agreement between the European Union and Central America. The Bolivarian Alliance for the Peoples of our America (ALBA) also offers a different model of trade between its participating countries. (For both these cases, see later sub-sections.)

Proponents and opponents of NAFTA continue to prosecute their cause regardless of the other’s arguments. For instance, former President of Mexico, Carlos Salinas de Gortari who negotiated NAFTA is reported as saying in 2002 that “The level of trade and type of products that crossed the borders silenced even the most ardent critics.”[3] The corporate lobbyists and government officials who he was addressing probably agreed with him, and certainly trade across the borders increased substantially. Those who hold a different view of the effects of NAFTA – the Mexican farmers, the utility workers and many other groups of workers who in the same year protested vehemently against the agreement – were certainly not silenced.

At the same time as the trade in products increased across the borders, the migration of Mexicans northwards also increased. It was explicitly stated by various protagonists of the treaty (including former US President Gerald Ford) that NAFTA would stem the migration of Mexicans northwards. In fact, as Jeff Faux reports, between 1990 and 2000, “the number of Mexican-born residents in the United States increased by more than 80 per cent.”[4]

NAFTA reduced import tariffs on a number of agricultural products which allowed the import of heavily subsidised US crops to be sold at a price less than the costs of production in Mexico. Mexico had previously used the tariffs to protect its farmers from cheaper, subsidised US exports. Timothy Wise (Director of the Research and Policy Programme at Tufts University) states that the effect of this was 2.3 million people leaving agriculture and heading to the cities and the USA.[5]

In manufacturing industry, before NAFTA Mexico’s laws required car manufacturers such as Ford, Chrysler, General Motors and Volkswagen to buy some of their components from Mexican producers. NAFTA prohibited such laws and car manufacturers supplied their assembly lines with parts from their own subsidiary companies, often from other countries. The result was that “Mexican auto-parts workers lost their jobs by the thousands.”[6]

Regarding NAFTA’s effects on the environment and environmental standards, Kevin Gallagher[7] of Tufts University’s Global Development and Environment Institute has examined the opposing arguments that NAFTA’s effect of increasing incomes would lead to environmental improvements against the idea that free trade would automatically worsen environmental conditions in Third World countries. In summary, he found that by all indicators, Mexico’s environmental institutions were “unable to keep up with the demands of the economic transformations occurring in the country.”[8] Spending on the environment fell, plant-level environmental inspections declined, and NAFTA’s environmental ‘side’ agreement was unable to match up to Mexico’s environmental problems. Gallagher warned that “trade-led growth without the proper environmental policies in place will not automatically lead to environmental improvements.”[9]

A further point of concern for objectors was the loss of national sovereignty. Salvadoran economist Raúl Moreno explains that under NAFTA “national governments which implement policies that limit the ability of private corporations to make profits – such as environmental laws or taxation regimes – can be sued before international tribunals.”[10] This became one of the major objections to later free trade treaties involving Central America.

The issue of communal land ownership by indigenous peoples is also pertinent to later trade treaties that involved Central American countries. Article 27 of the Mexican constitution granted indigenous peoples and landless campesinos communal land ownership. Before Mexico could join the NAFTA, it had to re-write Article 27 to facilitate the privatisation of communal lands. This ensured that indigenous peoples and campesinos swelled the ranks of objectors to NAFTA and was an important factor prompting the start of the Zapatista war against the Mexican state, on the same day as NAFTA came into force.

Even though NAFTA did not directly involve any of the seven Central American nations, the brief summary of its effects and arguments given above explains the strength of feeling of much of Central American civil society against free trade treaties which were later to involve their own nations. NAFTA alerted many sectors of civil society to the threats that they would face if similar treaties between their own countries and the USA were to be agreed.

[1] NAFTA and Inter-American Affairs website (2004) ‘Chapter One: Objectives’, www.mac.doc.gov/
[2] Public Citizen website, ‘North American Free Trade Agreement (NAFTA)’, www.citizen.org/trade/nafta/
[3] Jeff Faux (2003) ‘How NAFTA Failed Mexico’, The American Prospect, http://prospect.org/article/how-nafta-failed-mexico
[4] Ibid.
[5] Timothy Wise (January/February 2011) ‘Mexico: The Cost of US Dumping’, NACLA Report on the Americas, pp.47-8.
[6] David Bacon (September 2008) ‘Displaced People: NAFTA’s Most Important Product’, NACLA Report on the Americas, http://nacla.org/node/4980
[7] Kevin Gallagher (June 2004) ‘Economic Integration and the Environment in Mexico: Lessons for Future Trade Agreements’, Working Group on Development and Environment in the Americas, Discussion Paper No.6.
[8] Ibid., p.13.
[9] Ibid., p.17.
[10] Raúl Moreno (autumn 2005) ‘Avoiding free-fall’, Interact, Progressio, p.21.

Nicaragua exporting beans and cattle to Venezuela

Chapter 7 / Free trade treaties / Bolivarian Alliance for the Peoples of Latin America (ALBA)

From Nicaragua Network Hotline 09.06.09

Two hundred and fifty small farmers in the Department of Carazo planted 870 acres of black beans, all for export to Venezuela, and the national cattle industry will export 1,100 head of cattle there as well this month, part of the Ortega government’s efforts to find new markets under the Bolivarian Alternative for Our Americas (ALBA) cooperative fair trade agreement. The black beans were planted under contract with Nicaragua Food, Inc. (ALBALINISA), which made a commitment to purchase all that was produced. The cattle shipment was part of an agreement to export 5,500 head to Venezuela.

Small farmers received 80 pounds of seed and 200 pounds of fertilizer and technical assistance which enabled them to produce 1,437 pounds of beans per acre cultivated. The Ministry of Agriculture and Forestry (MAGFOR) now plans to expand the program to 17,400 acres, all for export under ALBA to Venezuela.

Nicaragua’s cattle industry has generated US$11 million under ALBA, according to National Assembly Deputy Douglas Aleman. That is expected to rise by the end of the year. Aleman also said that 6,000 tons of beef will be shipped to Venezuela in July as part of the ALBA agreements. He said that he expected that in the coming weeks a second accord will be signed to raise the amount of beef exported to Venezuela to 12,000 tons.

Aleman also said during a celebration of International Milk Day and the Week of the Child, that the proposed Law for the Promotion of the Dairy Sector will, among other things, establish that all children under 12 years old should have a glass of milk a day in school. Promoted by the dairy industry and the government, the law is expected to easily pass the National Assembly.

Criticisms of the EU’s Economic Partnership Agreements (EPAs)

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

EPAs lead to:

  • Significant declines in government revenue due to the elimination of import taxes on goods produced in the European Union; this is likely to result in less budget funding for social and human development.
  • Closures of local manufacturing ventures, especially small and medium-sized enterprises (SMEs) due to competition from cheap subsidised imports.
  • Delivery of basic social services (the provision of health, education and other social services) to non-national private sector operators under the promotion of the privatisation of public services; in turn this is likely to lead to reduced access to these services for lower income groups.
  • Declines in inter-regional trade due to ‘trade diversion’; countries lose their markets in neighbouring countries.
  • Opening up to European competition for all government tenders; local companies which gain their income from government contracts will have to compete with EU companies.
  • Repatriation of profits gained by EU companies to Europe (rather than re-invested within the region) due to ‘investment protection’ clauses.
  • Dumping of cheap EU agricultural surpluses (e.g., dairy products, cereals, beef) which threatens the small-scale farming sector; in turn, this is likely to lead to the collapse of rural economies and rural out-migration.
  • Losses and collapse of local retail sectors in both goods and services because of entry into the local market of European operators.
  • Capital flight from the country because of investment measures that prohibit restrictions on the repatriation of profits.
  • Dispossession of indigenous land owners and lost livelihoods to give way to operations of European tourism, mining and other investors.

Adapted from: Nancy Kachingwe (February 2006) ‘Between a rock and a hard place – Africa faces no-win situation in trade deal with Europe’, Southern and Eastern African Trade Information and Negotiations Institute (SEATINI) bulletin.

Nicaragua has benefited most from CAFTA

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

From Nicaragua News 12th April 2011

Even though the members of the Sandinista Party voted against the free trade agreement with the United States known as DR-CAFTA when the agreement came before the Nicaraguan National Assembly in 2006, the current Sandinista government of President Daniel Ortega said on Apr. 5 that Nicaragua was the country in Central America that had benefited most from the agreement. Speaking at a gathering celebrating the fifth anniversary of the agreement, Economy Minister Orlando Solorzano said that it “is an important instrument for the economic and social development of the country.” Alvaro Baltodano, presidential delegate for investment, said that the growth in Nicaraguan exports and in investment in the country has been the highest in the region. Exports to the United States have increased by 70.5% under CAFTA if free trade zone exports are included, reaching US$2.012 billion. Baltodano said that while the results of CAFTA have been good, “we must search for reforms that permit us to raise the level of competitiveness of our industries in a way that is not based on the sacrifice of the labor conditions [of our workers].”

In a meeting on Apr. 8, Francisco Campbell, Nicaragua’s ambassador to the United States, told the Nicaragua Network that it has been Nicaragua’s participation in both CAFTA and ALBA (the Bolivarian Alliance for Our Americas) that has helped Nicaragua’s economy achieve the stability and growth noted in recent years. In exchange for oil, Nicaraguan sends agricultural products to Venezuela and this keeps demand for those products high and prices stable for farmers. Thus, subsidized US farm products have not caused the damage to Nicaragua’s agricultural sector that they have caused in other countries.

Speaking at the same Managua gathering, US Ambassador to Nicaragua Robert Callahan emphasized the positive achievement of a growth in exports of 71% in five years. At a press conference after the ceremonies were over, Callahan was asked about the dueling opposition and Sandinista marches on Apr. 2, when police prevented opposition marchers from following their route and there were injured among the police and marchers. He answered by saying that “Nicaraguans who want to demonstrate…, to march should have the opportunity to do it without fear, without intimidation and it is the obligation of the government and the police to protect and guarantee this right.” But when a reporter with Channel 4’s Multinoticias, a Sandinista outlet, asked Callahan about “crimes committed by US and European forces in the bombing of Libya,” he lost his composure and responded by saying, “I want to say something; with pleasure I respond to the questions of journalists, real journalists. You are an employee of the government; you are not a journalist. I’m tired of this. It’s just a provocation; you are not a journalist.”

Sources: La Prensa, Apr. 5, 9, 2011; Radio La Primerisima, Apr. 5, 2011.

Civil society participation in the EU’s AA with Central America?

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

Despite the propaganda and the hype from the European negotiators of the EU – Central America Association Agreement about social and labour conditions to be promoted by the AA and about civil society participation in the negotiations, trade unions on both sides of the Atlantic expressed disappointment and anger that the EU had not taken their views seriously. In common with other civil society organisations they consider the final agreement to be one-sided and highly trade-focussed.

The Central American and Caribbean Trade Union Coordinating Body and the Central American Workers’ Confederation along with the European Trade Union Confederation had proposed a substantive Social and Trade Union Charter that they hoped would form the basis of a chapter in the AA. This was presented to negotiators in San Salvador in May 2008 and again in Brussels in June 2008. In March 2009 and February 2010, the union bodies again wrote to negotiators reminding them of the stated intentions of governments to involve civil society in monitoring and verification of the implementation of the AA. In April 2010, Ministers refused to meet trade union representatives on the grounds of lack of time.

The two Central American organisations met in August 2010 and condemned the AA on the following grounds:

  • It fails to take into account the unequal social and economic conditions of the two regional partners.
  • It was a closed and anti-democratic process that excluded civil society.
  • It ruled out any monitoring and verification mechanisms of human rights, labour rights and environmental impacts, and includes no sanctions for non-compliance.
  • A promised Social Cohesion Fund is not mentioned in the AA.
  • The aim of Central American regional integration cannot be achieved by an agreement that is exclusively focussed on commercial issues of interest to the EU.
  • Migration and migrant workers’ rights were not addressed.
  • The AA lacks any mechanisms to improve the access of Central Americans to social security or to health and other services, especially for those who work in the informal sector.

Source: Banana Link (August 2010) ‘Central American trade unions call on governments to reject the EU trade agreement’.

Central America and the EU – An Asymmetric Agreement

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

By Danilo Valladares

GUATEMALA CITY, Jun 4, 2012 (IPS) – The poverty-stricken countries of Central America will face major challenges when the Association Agreement to be signed in late June with the European Union, including commitments on trade, political dialogue and cooperation, comes into effect.

“The region could benefit if all of its products, especially fruit and vegetables, other crops and some manufactured goods, are given privileged access” to the European market, Jonathan Menkos, an expert with the Central American Institute for Fiscal Studies (ICEFI), told IPS.

Menkos said this is the conclusion reached by impact studies carried out by the Economic Commission for Latin America and the Caribbean (ECLAC).

Under the European Union-Central America Association Agreement (EU-CAAA), both sides will open their markets to industrial products from the other. This will primarily benefit the EU, which will be able to sell its vehicles and machinery in this region, and invest in services like finances, communications and transport, experts said.

Central America, on the other hand, will be able to take advantage of quotas for the sale of beef, rice, sugar and textiles to the EU, a market of 500 million people, and of other concessions for the sale of coffee, bananas and rum.

In Menkos’ view, “the success of the agreement depends on generating public goods in the rural areas of our region that are today almost non-existent, such as education, health, roads, highways and other infrastructure for trade.”

Half of Central America’s 43 million people live in poverty, which is concentrated in rural areas. Because of this, Menkos suggested, the region should also aim at other markets, such as South Africa, Russia, China or India.

The EU and the governments of Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama signed the basic agreement in May 2010, after three years of negotiations. Now, following lengthy technical adjustments, the final accord will be signed this month.

Javier Sandomingo, head of the European Commission delegation to Central America and Panama, announced that the definitive agreement would be signed Jun. 28-29 in Tegucigalpa, when Honduras hands over the rotating presidency of the Central American Integration System (SICA) to Nicaragua.

After the signing ceremony, the European Parliament and the legislatures of the Central American countries must ratify the agreement for it to enter into force.

Francisco Robles Rivera of the University of Costa Rica told IPS that the EU’s aim is merely “to consolidate the legal framework for its investments in the region.

“This is important in the present context, when Spanish companies, especially in the energy sector, are being nationalised in the public interest in Bolivia and Argentina,” he said.

“The EU wants new legislation on investments to safeguard, expand and facilitate the operations of European capital in the region, especially in the fields of mining, and insurance, telecommunications, tourism and other services,” he said.

Virgilio Álvarez, of the Latin American Faculty of Social Sciences (FLACSO), told IPS that “unfortunately, all bilateral and multilateral trade agreements ultimately are of greatest benefit to the wealthiest partners, and are therefore asymmetric.”

Nevertheless, Álvarez said it was “important and necessary” to sign an association agreement with the EU. “It will allow us to move forward with Central American integration, and unlike the free trade agreement with the United States (DR-CAFTA), non-trade elements are included,” he said.

The EU-CAAA includes cooperation goals for the region, such as improvement of the situation of indigenous people, justice, security, protection of the environment, fighting climate change, and transport.

It also encompasses an agenda for political dialogue, seeking to promote a series of common values between the parties, such as respect for democratic principles and basic rights.

“We could expect Europe to bring the wealth of its experience to the Central American integration process, but this will depend greatly on our capacity to absorb that experience,” said Álvarez.

Other organisations, in contrast, view the Association Agreement with the EU as a serious threat to Central America.

“Europe gave higher priority to its trading interests than to its traditional economic cooperation for the consolidation of democracy, governance and development in Central America,” says the Mesoamerican Initiative on Trade, Integration and Sustainable Development (CID), a civil society organisation.

“Central America obtained meagre access quotas for agricultural products such as sugar, textiles, beef and rice,” whereas the EU “gained full opening of Central American markets for a wide range of key agricultural and industrial goods, such as dairy products, vehicles, medicines and machinery,” it says in a communiqué.

Moreover, on intellectual property, CID questions the major concessions granted to the EU in terms of protected geographical designations, patents and copyright: in the area of services, the bloc was granted complete access in the fields of finance, transport and energy, among others.

Meanwhile, “Central America has yielded ground in terms of workers’ rights and environmental protection compared with other treaties,” since “the agreement with the EU does not provide for penalties for those who infringe these rights for the sake of commercial interests,” says CID.

The EU is one of Central America’s main trading partners, but the EU is by far the stronger partner, with a trade surplus in 2010 of 5.2 billion euros (6.4 billion dollars) and sales to Central America worth 25.9 billion euros (32 billion dollars), according to the European Commission.

Marco Antonio Barahona of the Central American Institute for Political Studies (INCEP) told IPS that Central America still has a lot of work to do on integration in order to be able to face up to these trade challenges. “We have not even been able to create a customs union in our region,” he said.

Besides, “we mainly export products that Europe can do without, such as bananas, coffee and sugar, as opposed to oil, for example, which fuels the economy,” he told IPS. (END/2012)

Little Concern for the Environment in EU-Central America Agreement

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

19 September 2012 | By Danilo Valladares

The Association Agreement between the EU and Central America could exacerbate sustainability problems in this Latin American region.

GUATEMALA CITY, Sep 17 (Tierramérica).- The Association Agreement between Central America and the European Union (EU) will increase environmental and social pressures on the region, warn experts and activists. But some observers stress its potentially positive impacts.

“We can expect an increase in the activities of extractive industries,” which bring about “negative environmental and social repercussions,” said Juventino Gálvez, the director of the Institute of Agriculture, Natural Resources and Environment at Rafael Landívar University, a Jesuit university.

This is a delicate issue in several countries of the region. In Guatemala, for example, Montana Explotadora, a subsidiary of the Canadian mining company Goldcorp, has been accused of contaminating rivers and affecting the water supply of 18 indigenous communities in the western department (province) of San Marcos, through its activities at the Marlin gold mine.

In May 2010, the Inter-American Commission on Human Rights called on the Guatemalan government to suspend the operation of the mine, but it continues to operate.

“National institutions are precarious, and there is a well-known tendency to disrespect legislation, which is vague and permissive to begin with,” Gálvez commented to Tierramérica.

The entry into force of the Association Agreement, signed on Jun. 29 by the EU, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama, depends on its ratification in the European Parliament and the legislatures of the six Central American countries.

The agreement establishes mutual commitments in three areas: political dialogue, cooperation and trade.

With regard to trade, it will eliminate tariffs on agricultural products (such as coffee, fruit, vegetables and meat), textiles and manufactured goods, while opening up markets to financial, telecommunication, transportation and other services, as well as government procurement.

As for cooperation, the agreement aims to promote technical assistance and exchange in the use of clean energies, mining, tourism, fishing, transportation, sustainable development and the environment.

The most significant section of the agreement with regard to the environment is found in this chapter, under Title V, which also addresses natural disasters and climate change – two key issues for the region.

In the area of political dialogue, one of the aims is to establish common ground in areas such as the rule of law, good governance, democracy, human rights, gender equality, the rights of indigenous peoples, poverty reduction and migration, among others.

For Gálvez, when the “potential” expansion of monoculture plantations is added to the equation, the result will be greater conflict “due to competition between agroindustrial operations and rural communities for access to strategic resources.”

Oil palm plantations, which tripled in size between 2003 and 2010, have given rise to violent land disputes, especially in northern Guatemala, where hundreds of peasant farmers have been displaced and a number have been killed in clashes with the police.

Miguel Mira of the non-governmental Center for Investment and Trade Research of El Salvador believes that “the only interest behind these agreements is to open up more markets to trade and investment for big transnational corporations, while labor and environmental issues are considered irrelevant.”

In Central America, with roughly 43 million inhabitants, half of the population is poor. And poverty is deeper in rural areas.

There is an obvious asymmetry with the EU, home to 500 million inhabitants and one of the wealthiest areas on the planet, which until now has represented barely 10 percent of Central America’s foreign trade.

In 2011, the EU sold 36 billion dollars in goods to Central America, and purchased the equivalent of 31.6 billion dollars, resulting in a trade surplus of 4.4 billion dollars for the EU, according to European Commission figures.

Central American sales are concentrated in telecommunications and office equipment (53.9 percent) and agricultural products (almost 35 percent in 2010). In the meantime, the main goods imported from the EU are machinery and transport equipment (48 percent) and chemicals (12 percent).

“The logic of the Association Agreement is that of free trade, and all other aspects of international relations are subject to this,” said activist Erik Van Mele of the international non-governmental organization Oxfam Solidariteit.

Although the agreement addresses sustainable development and the environment, there is no guarantee of protection for Central America, one of the regions with the greatest wealth in biodiversity in the world.

Article 284 on trade and sustainable development “stipulates that these matters are excluded from the procedures established for the settlement of eventual conflicts,” Van Mele stressed.

Moreover, there are various interpretations of sustainable development, he said.

For example, the promotion of agrofuels as “green energy” to replace fossil fuels “could give rise to deforestation to allow for the planting of monocultures, or to hunger caused by an increase in the price of corn, a staple food in the region, due to its high demand for conversion into ethanol,” he warned.

An evaluation of the agreement requested by the European Commission in 2009 concluded that, in addition to its economic and trade benefits, it would generate greater pressure on land, coastal and maritime resources, with a specific warning on the potential increase in monocultures. It also recommended measures to minimize the impacts, to be adopted in the framework of cooperation.

Gustavo Hernández, the coordinator in Brussels of the non-governmental Latin American Association of Development Promotion Organizations, told Tierramérica that the sanctioning mechanisms for non-compliance stipulated “are not binding” and that there is “little participation by civil society, particularly the majority sectors of the population who will be the most affected” by the agreement.

As far as Luis Muñoz of the Guatemelan Center for Cleaner Production is concerned, however, the experience of the free trade agreement with the United States, in force in Guatemala since 2006, demonstrates that agreements like these can generate positive demands.

“When the environment is linked to the economy, it is more advantageous for companies to invest time and resources in environmental aspects,” he explained.

Moreover, the transfer of technology and the drive for competitiveness also need to be considered, he added. “Before, the pressure to approve environmental laws was very low, but after the free trade agreement with the United States, regulations on wastewater were adopted,” he noted.

Muñoz recognizes that all industries generate impacts, but believes that it is necessary to “seek a balance.”

“Without the profits from coffee, for example, how many people would be left without an income? And I’m not talking about the plantation owners,” he said.

Source: Tierramerica | http://tierramerica.info