Maquilas in Central America

Maquila refers to a system of production, or a factory, in which imported materials undergo a process of assembly or manufacturing, before being re-exported and sold abroad. In Central America maquilas are predominantly for the clothing industry, and are owned by companies from the US, Asia and Europe. They enjoy special tax and tariff regimes and provide cheap goods for markets in the north.

The maquila industry in Central America has been referred to as neoslavery,[1] and these ‘sweatshops’ are notorious for their poor working conditions. Organisations such as No Sweat, and War on Want have campaigned to bring awareness to this issue and forge a mental connection between the cheap garments available in high street stores and the abuse and violation of labour rights which goes on in the factories in which they were made.[2]

Maquila employees endure hazardous working conditions; lack of ventilation, excessive heat, dust, noise and lack of adequate safety equipment are frequent complaints. Bathroom breaks are monitored and timed. Shifts can range between ten and sixteen hours, and forced overtime, often unpaid, is also commonplace. 75% to 85% of maquila workers are women. They may be forced to take birth-control pills, take pregnancy tests, and pregnant women are routinely dismissed without notice or benefits. Workers may face verbal or sexual harassment. The staff turnover in maquilas is high; unemployment perpetuates the situation, as there are always more people desperate for work.[3]

Attempts to organise unions are often crushed, despite national and international labour rights legislation. Unionisation is difficult and minimal due a variety of factors including mass firing, intimidation, fear, death threats, unemployment and capital mobility.[4] When a worker is illegally fired for participating in union activities, they are commonly blacklisted, making it impossible to find similar job elsewhere.[5]

A report by the Maquila Solidarity Network suggests that that shrinking consumer markets due the global financial crisis will impede efforts to improve workplace conditions. They predict an increase in short-term and temporary contracting, less job security, factory closures, and greater anti-union pressure.[6]

[1] MacEoin. G., 13 August 1999 ‘Maquila neoslavery, under conditions from bad to inhuman – maquiladora industry in Central America’ National Catholic Reporter (accessed 13 August 2009)
[2] See;
[3] See Armbruster-Sandoval, R. (2005) Globalization and cross-border labor solidarity in the Americas: The anti-sweatshop movement and the struggle for social justice, Routledge, New York; also Washington Office on Latin America (2009) ‘DR-CAFTA and worker’s rights: Moving from paper to practice’ (May) (accessed 17 August 2009)
[4] Op.cit. (Armbruster-Sandoval)
[5] Op.cit. (Washington Office on Latin America)
[6] Maquila Solidarity Network (2009) ‘How will the global financial crisis affect the garment industry and garment workers?’ (February) (accessed 14 August 2009)

The failure to industrialise

The following section also appears in the book under the same sub-heading, but the section which appears her is a much fuller version.

Eduardo Galeano’s classic work ‘Open Veins of Latin America’ explains how the imperialist states of Europe and the United States kept Latin American countries relatively free from the development of domestic industry by two particular means. First, a system of loans and interest-inflated repayments absorbed finance that would otherwise be available for domestic investment – the recent debt crisis is nothing new. Second, the development of a railway network, normally seen as a necessary condition for industrial development, was designed to link areas of primary production with ports (for export) rather than linking internal areas with one another: “thus railroads, so often hailed as forerunners of progress, were an impediment to the formation and development of an internal market.”[1]

To break out of what were seen as the chains of imperialist domination through which Central America had served simply as a supplier of primary produce to the industries of Europe and the USA, the strategy of domestic industrialisation was followed by some nations from the 1930s onwards. “These measures included increasing tariffs on imported goods. In Central America this was largely to help raise revenue, rather than promote import substitution.”[2] As British academic Victor Bulmer-Thomas admits, however, this industrial expansion did not amount to much. He cites five particular obstacles to industrial growth:

  • energy supplies were woefully inadequate;
  • virtually no credit was available;
  • foreign exchange for essential capital equipment was hard to obtain;
  • the market remained too small; and
  • efforts at regional integration at this time came to nothing.[3]

The post-WWII development of the dependentistas or the Dependency School of thought associated the development of independent national industry with the notion of import substitution industrialisation (ISI). ISI was “an attempt to restructure the nature of economic relations with core economies [Europe and North America] … This would reduce dependence on imported goods, so helping the balance of payments, and would also provide employment.”[4]

Although dependency theory draws on the work of Marx, it is particularly associated with economic historian and sociologist André Gunder Frank[5], although his work simply became the most famous expression of what many had been thinking and saying around Latin America for some time. Dependency theory argues that western capitalist countries have grown as a result of the expropriation of surpluses from the Third World, especially because of the reliance of Third World countries on export-oriented industries (coffee, bananas, bauxite and so on) which are notoriously precarious in terms of world market prices. The theory uses the notion of core–periphery relationships to highlight the inequality, where the core is the locus of economic power within a global economy.

André Gunder Frank[6] takes matters one step further in his notion of the ‘development of underdevelopment’ which stresses that it is the underdevelopment of the structures in Third World countries created by First World capitalist development that creates dependency – see Cristóbal Kay[7] and Walter Rodney[8]. As anthropologist Arturo Escobar bluntly asserts, “Europe was feeding off its colonies in the nineteenth century, the First World today feeds off the Third World.”[9] In other words, dependency theorists see development of the core through exploitation of and extraction from the periphery, leaving the periphery in a constant state of underdevelopment.

Above all else, theories of dependency are in general agreement that the interdependence resulting from global economic expansion and the suppression of autonomous growth results in unequal and uneven development. The dependentistas explain Latin America’s failure to industrialise as a result of this unequal power relationship between the core (USA and Europe) and the periphery (Latin America, and of course Africa and parts of Asia).

Success in Central American ISI was rather limited for a number of reasons, chief amongst which were the small size of the Central American domestic markets, poor infrastructural development and the fact that many industrialisation efforts within the region produced similar products. Additionally, “although some consumer goods were relatively straightforward to produce, attempts to replace the import of other goods (particularly industrial machinery) highlighted the limits of ISI at that time.”[10]

In the 1970s, attempts to industrialise for the sake of independent development changed motivational tack as flows of international finance into the region became the major stimulus to limited industrial development. The debt crisis which followed “these vast flows of credit”[11] is well documented elsewhere[12] and seemed to represent a new form of dependency – ‘new’, but as noted above by Galeano, one that was already well-rehearsed in the nineteenth century.

In the late 1970s and particularly through the policies pursued by the Reagan-Thatcher axis of the early 1980s, Third World attempts at ISI were replaced by an export-oriented model of development, “building on ideas of free trade and foreign direct investment (FDI) as the way forward for indebted nations.”[13] The simplistic notion of comparative advantage was used to justify the need for Third World nations to produce goods or crops for which they have a natural advantage. This effectively justified the continuation of the colonial model of development, and the debt crisis served as a mechanism to ensure the continuation of a relationship of First World dominance over Third World nations.

The economic model mandated by the USA and Britain in the 1980s was later imposed on developing countries by the international financial institutions (IFIs) – the World Bank, the International Monetary Fund (IMF) and in Latin America the Inter-American Development Bank (IDB). The model advocated cuts in public spending and the privatisation of state-owned enterprises, especially utilities such as energy companies.[14]

Free trade and economic growth are regarded as essential pre-requisites of development by the supranational and national agencies: the World Bank, IMF, World Trade Organisation (WTO), Organisation for Economic Cooperation and Development (OECD), European Union (EU) and G8 governments. The discourse of these agencies is commonly referred to as the Washington Consensus and its ideology of free trade is captured in the term neoliberalism. Free trade is synonymous with economic globalisation which is synonymous with the spread of capitalist relations of production, and whichever of these terms is employed, it amounts to an ideology.

Neoliberalism sees development as a single linear progression of economic growth and well‑being, a model that has been portrayed by a number of theorists as a series of steps or stages (such as Rostow’s The Stages of Economic Growth[15]) to the ‘promised land’ – a developed state. There is an almost universal acceptance, at least among those who hold power, that there can be no ‘development’ without economic growth and no economic growth without free trade, an equation that commands near universal respect but which development scholar Gilbert Rist and others insist needs to be questioned.[16]

The notion of free trade itself, however, manages to hide the uneven and unequal economic interdependencies manifest for example in trade protectionist measures adopted by First World governments. In this regard the hegemony of the United States of America is noteworthy, though equally the power vested in the WTO, the G8 and key trading agreements (especially the North American Free Trade Agreement and the Association Agreement with the EU) should not be underestimated.

Free trade fundamentally requires open and deregulated markets which supposedly provide a level playing field to those who operate business such that there exist no restrictions to trade. As the WTO explains, “In order to do business as effectively as possible, companies need level playing fields so that they can have equal access to natural resources, expertise, technologies and investment, both within countries and across borders.”[17] In theory this would allow national economies to specialise in producing goods or providing services that they are supposedly best at producing or providing. They would export these goods or services and import the things that they are not so good at producing. This is the notion of comparative advantage, one of the theoretical planks on which the ideology of free trade is built.

Comparative advantage is based on the theories developed by David Ricardo in the nineteenth century[18], but as Rist points out, “it assumes a number of hypothetical facts which rarely occur in reality”[19], and he proceeds to list thirteen of these assumptions. Activist and writer Teresa Hayter refers to the advice given to Third World governments as being based on the “apparently unimpeachable doctrines of comparative advantage, to the effect that they should concentrate on what they are supposed to be good at: the production of raw materials and primary commodities.”[20]

The theoretical level playing field belies the inequalities of development, economy and power which exist between and within the First World and the Third World. In the case of Latin American and Central American countries, Wooding and Moseley-Williams tell us that “before the current phase of globalisation, [this] was the region of the world where the greatest inequalities were found”, and that “today it is even more unequal.”[21]

Writer Fred Rosen is also critical of the theoretical framework of the Washington Consensus, arguing that it exists “at the height of abstraction, de-linked from reality”,[22] and Wayne Ellwood suggests that “talk of ‘level playing fields’ and ‘pure competition’ obscures the evidence that poor countries are severely disadvantaged to begin with”.[23] Oscar Guardiola-Rivera refers to this supposed playing field as being one “where players are unequal and competition unfair.”[24]

In the existing circumstances of inequality, it can be forcefully argued that there can be no such thing as free trade or a level playing field.

The deregulation of the local business environment – deregulation is another of the theoretical planks on which the ideology of free trade is built – to create the hypothetical level playing field actually creates the conditions which clearly favour those with access to wealth and resources. Stealing Bernard Crick’s phrase, we might describe deregulation as “the dramatic bonfire of the controls needed to make free markets tolerable”.[25] Without those controls which protect the national industries, those who stand to gain are those who already have the advantage of wealth and power that enable them to access even greater levels of capital and technology.

Elsewhere in the world beyond Central America, the idea of promoting a strategy of import substitution industry had been dealt a blow by the rise of the South-East Asian ‘tiger’ economies, and after the 1970s few nations in the world clung onto or placed great hope in achieving development through the rise of an economy led by national industrial growth. For those nations which did not willingly embrace neoliberalism, it was forced upon them by the USA and Europe and by the debt crisis. The crisis was and still is managed by the world’s two major international financial institutions (the IMF and the World Bank) in which the interests of the two major political centres (the USA and Europe) hold sway.

The debt crisis was managed through structural adjustment programmes which later metamorphosed into Poverty Reduction Strategy Papers (PRSPs), although the PR part of the initials might have more accurately signified ‘Public Relations’. Through these the international financial institutions imposed on indebted nations loan conditions which included trade liberalisation, the deregulation of industry and the privatisation of state-owned industries and services. This is what Martin Khor (Director of the Third World Network) describes as the ‘de-industrialisation’ of the developing world[26], preventing governments from managing their country’s basic services such as health, education and water and from protecting the livelihoods of small producers and manufacturers by placing tariffs on unfairly subsidised imports.

But how does this process of de-industrialisation fit with the evidence of increasing manufacturing importance in national statistics for the Central American economies? The Table on Exports of manufactured goods as a percentage of total exports demonstrates that from 1970 to 2010 the value of the export of manufactured goods as a percentage of all exports increased in five of the seven countries. The answer to the apparent contradiction is found in the maquilas or sweatshop assembly factories which have been established in the region over the decades since the 1970s. As labour costs increased in the developed capitalist or metropolitan nations, transnational corporations (TNCs) found it profitable to re-locate the most labour-intensive elements of their production to low-wage countries which would serve simply as a platform to receive components which were altered in some way and then ‘sprung off’ the platform either to markets in the metropolitan nations or to other platforms elsewhere in the world where further alterations or additions were made to the product.

The maquila process is one which contributes to a globalised economy rather than to a national economy. Very often there is little advantage accruing to the host nation other than the employment opportunities offered to local populations, but the maquilas are associated with extremely poor wage levels and abusive conditions of employment. The development of maquilas is covered again in more depth later in this chapter.

To some extent this inequality of access to modern business infrastructure is illustrated by the example of the Plan Puebla-Panama given in the following section. This brings us very suitably to ask the question: how have the effects of these global policies shown themselves in the economies of Central America? And that in turn brings us to an examination of the most recent twenty years of free trade treaties negotiated between the Central American nations and other trading blocks.

[1] Eduardo Galeano (1973) Open Veins of Latin America: Five Centuries of the Pillage of a Continent, New York and London: Monthly Review Press, p. 218.
[2] Katie Willis (2002) ‘Open for business: strategies for economic diversification’, in Challenges and Change in Middle America, edited by Cathy McIlwaine and Katie Willis, Essex: Pearson Education.
[3] Victor Bulmer-Thomas (1987) The Political Economy of Central America Since 1920, Cambridge: Cambridge University Press, pp.80-81.
[4] Op.cit. Katie Willis..
[5] André Gunder Frank (1967) Capitalism and Underdevelopment in Latin America, Monthly Review Press, London.
[6] Frank, A. G. (1966) ‘The development of underdevelopment’, Monthly Review 18, 4: 17–31; (1969) Latin America: Underdevelopment or Revolution, New York: Monthly Review Press; (1970) Lumpen-Bourgeoisie: Lumpen-Development, Dependency, Class, and Politics in Latin America, New York and London: Monthly Review Press.
[7] Kay, C. (1989) Latin America Theories of Development and Underdevelopment, London: Routledge.
[8] Walter Rodney (1988) How Europe Underdeveloped Africa, London: Bogle L’Ouverture Publications.
[9] Arturo Escobar (1995) Encountering Development, Princeton: Princeton University Press, p.83.
[10] Op.cit. (Willis).
[11] Ron Ayres and David Clark (1998) ‘Capitalism, Industrialisation and Development in Latin America: the Dependency Paradigm Revisited’, Capital & Class, 64 (Spring) (pp.89-118), London. (Quote from p.110).
[12] For example, see: Duncan Green (2003) Silent Revolution: the rise and crisis of market economics in Latin America, Latin America Bureau; Susan George (1988) A Fate Worse Than Debt, Penguin; Susan George (1992) The Debt Boomerang, Pluto Press; and refer to the work of the World Development Movement and the Third World Network.
[13] Op.cit. (Willis).
[14] John Perry (2008) ‘The debate on energy and climate change – a different perspective’, Ch. 17 (pp 229-244) of ‘Opening Doors – Improving housing services for refugees and new migrants’, Chartered Institute of Housing.
[15] Rostow, W. (1960) The Stages of Economic Growth: A Non-communist Manifesto, Cambridge: Cambridge University Press.
[16] Gilbert Rist (1997) History of Development, London: Zed Books.
[17] WTO/OMT (1995) GATS and Tourism, Madrid: WTO/OMT, p. 1.
[18] David Ricardo (1817) The Principles of Political Economy and Taxation, London, J.M. Dent, 1973.
[19] Op.cit. (Rist, p.114).
[20] Teresa Hayter (1982) The Creation of World Poverty: An Alternative View to the Brandt Report, London: Pluto Press, p.96.
[21] Bridget Wooding and Richard Moseley-Williams (2004) ‘Worlds Apart’, Interact, Spring 2004. London: Catholic Institute for International Relations, p. 9.
[22] Fred Rosen (2003) ‘Changing the terms of the debate: a report from Antigua’, NACLA Report on the Americas, XXXVII (3), November/December 2003, page 25. New York: North American Congress on Latin America.
[23] Wayne Ellwood (2004) ‘The World Trading System’, New Internationalist, no. 374, December 2004, Oxford: New Internationalist.
[24] Oscar Guardiola-Rivera (2010) What if Latin America Ruled the World? How the South Will Take the North into the 22nd Century, London: Bloomsbury, p.3.
[25] Bernard Crick (2004) ‘How the rich stole the dream’, The Independent, London, 11 June 2004. Crick was referring to the manipulation of the capitalist tax system to benefit the rich, but in the context of the development of the capitalist economic system. We consider that the contexts of his remark and of ours are similar enough for it to be used to describe deregulation.
[26] Martin Khor (21 June 2006) ‘Beware of NAMA’s slippery slope to de-industrialisation’, TWN Info Service on WTO and Trade Issues (June 06/18), (accessed 30.07.12).

Aims and effects of CAFTA-DR, according to UNES

In March 2011 to mark the fifth anniversary of the signing of CAFTA-DR, UNES (the Salvadoran Ecological Unit) sent an open letter to Deputies of the Salvadoran Legislative Assembly demanding an evaluation of the trade agreement, whose effects they claimed included the following:

  • The 60,000 new jobs to be created each year, as promised by those who promoted the agreement, have not been realised; in fact unemployment is greater than it was five years before.
  • Small farmers and small businesses have not been able to export their goods to the US market; in fact the crisis experienced by the campesino sector and by small businesses has deepened.
  • Food cannot be bought cheaper than it was in 2006; in fact the price of basic foodstuffs is much more expensive; similarly with the price of medicines.
  • There is no greater stability or security for Central Americans who migrate to the USA; in fact the humiliation and deportations have increased.
  • The commercial deficit between El Salvador and the USA has widened; although exports from US, European and Korean TNCs in El Salvador have increased, imports from the USA have increased much more. Also, despite their stagnation, dependence on remittances from family members has grown.
  • Two mining TNCs have claims against the government of El Salvador in a foreign tribunal for US$170 million as compensation for the cancellation of their permits for gold and silver extraction in El Salvador.
  • Central American regional integration is experiencing greater difficulties now than it did in 2006 when CAFTA-DR came into force.
  • CAFTA-DR is particularly beneficial for transnational corporations that the European Union has also begun free trade treaty negotiations with the region; this is euphemistically called an ‘Agreement of Association’.

Source: Revista Ecotopia 272 (March 2011) ‘Organizaciones Sociales Demandan Evaluación y Denuncia del CAFTA-DR’, San Salvador: UNES.

Highlights of the trade pillar of the Association Agreement between Central America and the European Union

Mariah Jen 20 June 2011

The Association Agreement between the EU and Central America (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and Panama) marks an important step forward in the relationship between the two regions. The Parties have finalised the legal review of the Association Agreement which includes a comprehensive trade part. Once ratified, this agreement will open up markets on both sides, help establish a stable business and investment environment, increase benefits for citizens and will foster sustainable development. The Agreement is also meant to reinforce regional economic integration in Central America and the EU hopes for it to have a positive spill-over effect on the overall political integration process and contribute to the stability of the region. In 2010, bilateral trade in goods between Central America and the European Union was worth €12 billion.

Negotiations of the Association Agreement between the European Union and Central America were finalised in May 2010. The Agreement can enter into force once the legislative procedure involving the Council and the European Parliament has been concluded.

The Association Agreement consists of three pillars: political dialogue, cooperation and trade. The key elements of its trade pillar are presented below:

1. Substantially improved market access for EU exports to Central America

Tariff elimination – manufactured goods, fisheries and agriculture
The Agreement will largely eliminate tariffs for manufactured goods and fisheries with complete liberalisation at the end of the tariff phase-out period, generally within a ten-year period and with only a small amount (4 percent) of products after 15 years. Upon entry into force of the Agreement, Central America will liberalise 69% of its existing trade with the EU. Once the trade pillar of the Agreement is in force, EU exporters will save €87 million annually in customs duties.

In agriculture, tariffs on key agricultural products will be largely eliminated whilst “sensitive areas” for local markets are being respected. Panama, for example, is a main importer of European whiskeys to the region. 70% of its whiskey imports come from the EU and those will be liberalised on day one of the entry into force of the Agreement. All other Central American countries will liberalise this market after six years. Wine, another key product for the EU, will be fully liberalised at entry into force of the Agreement. EU exporters of wine and spirits can expect savings of €6 million annually in customs duties.

Tariffs on dairy products will be entirely eliminated with the exception of milk-powder and cheese, for which the EU has obtained duty-free quotas. These quotas cover the currently traded quantities and will be increased on an annual basis.

Addressing obstacles to trade in goods
Tariff elimination is only of real benefit if technical or procedural obstacles to trade are also being tackled. The proposed Agreement will ensure more transparency and better cooperation in the areas of “standards” and market surveillance. The agreed provisions go beyond the WTO Agreement on Technical Barriers to Trade (TBT). The requirements for marking and permanent labelling have been simplified. The Parties agree to cooperate when drafting technical regulations, setting standards and establishing conformity assessments. Most importantly, the parties will promote the development of harmonised regulations and standards within each region with a view to facilitate the free movement of goods.

It has been agreed to move towards international standards in customs legislation and simplify their procedures. This will improve trading conditions, while at the same time maintain an effective customs control. Central America has not yet harmonised standards, but has agreed to promote the development of regional customs regulations. This will facilitate operations for traders and business both within and outside the region.

As regards sanitary and phytosanitary (SPS) barriers, the Agreement also goes beyond WTO SPS requirements in key areas such as the regionalisation of animal diseases and pests, and the transparency of SPS import requirements and procedures. It includes other useful trade facilitation tools such as the listing of establishments, exports can come from. Further improvements, e.g. in the field of animal welfare have been agreed. These will help strengthen capacity building in the Central American countries and hence facilitate their market access.

Improved market access to government procurement, services and investment
The services and establishment commitments obtained from Central America are significant and meet the EU’s key interests in telecommunication, environmental, financial and maritime services. Further commitments cover cross-border services, investment and non-service sectors as well as key personnel, graduate trainees and business service sellers. The Agreement also liberalises current payments and capital movements between the Parties. These sectors will benefit from an easier access and possibilities to expand onto all markets of the Central American countries.

The opening of Central America’s public procurement market varies in terms of levels of liberalisation, with Costa Rica and Panama opening their markets more significantly than the other countries covered by the Agreement.

2. Common rules to level the playing field

Intellectual property rights & Geographical Indications
Protection of intellectual property rights is an important part of the Agreement. It includes a chapter on the effective protection of intellectual, industrial and commercial property rights and other rights covered by the WTO Agreement on trade-related aspects of intellectual property rights (TRIPS). As a result, EU rights holders will profit from improved procedures to defend their rights more effectively in case of infringements.

The Central American countries have adopted new or amended their legislation to incorporate regional specialities, so-called ‘Geographical Indications’ (GI) in a manner similar to the EU. Additionally, over 200 geographical indications, such as Champagne, Parma ham and Scotch whisky, are also specifically protected on the Central American markets to the benefit of producers of GI products in the EU.

The Agreement also makes specific reference to the importance of promoting access to medicines as well as protecting the biological diversity.

More competition and enhanced transparency on subsidies
Once the Agreement enters into force, it ensures a level playing field for European operators by calling upon national governments to ban all types of anticompetitive practices including restrictive agreements, cartels and abuse of dominance. This will help guarantee a fair and reliable competition environment for European companies.

In an effort to increase transparency particularly on subsidies, the EU and Central American countries will regularly report on the subsidies given to companies that trade in goods and also exchange information about matters related to subsidies in services. The Agreement goes beyond existing WTO rules in setting up a platform to discuss subsidies in the services sector.

A transparent way to settle trade disputes
The Trade pillar of the Association Agreement between the EU and Central America includes an efficient and streamlined dispute settlement system in accordance with the principles that the EU considers to be most important such as transparency (open hearings and amicus curiae briefs) and sequencing (no right to impose retaliation until such time as non-compliance is verified). A mediation mechanism for non-tariff barriers is also foreseen.

3. Regional Integration

The Agreement responds to Central America’s commitment to strengthen regional economic integration in the region and thus facilitate the movement of EU goods within Central America. Regional rather than “national” regulations and using a single administrative document for customs declarations will considerably ease the administrative burden on European exporters. Customs procedures as well as customs itself are going to be harmonized. Eliminating double duties over time, an importer will have to pay a single duty for the region rather than at each country’s borders. The transition period for this elimination is 2 years.

Regional integration will also help reduce the current regulatory divergences between Central American countries in the services sectors, including maritime transport. Dairy products and processed pig products, for example, will see a harmonisation of sanitary and phytosanitary requirements within the region in the coming years so as to facilitate the free movement of goods in the region.

4. An agreement for sustainable development

Further economic development through trade
Thanks to this Agreement Central American countries will benefit from liberalised access to the European markets in numerous sectors. This entails important economic and social benefits in Central America with gains in national income for Central America as a whole expected to amount at € 2.6 billion. The change in national income is estimated to vary from 0.5% in Nicaragua to 3.5% for Costa Rica in the long run due to the Agreement. In addition, the Agreement is expected to have an overall poverty-reducing effect across the Central American region.

According to an independent Trade Sustainability Impact Assessment commissioned by the EU, the Agreement is expected to contribute to large sectoral gains in the fruits, vegetables, and nuts (FVN) sector, especially for Panama and Costa Rica. Guatemala and Nicaragua are expected to become more competitive in the textiles and clothing sector for example, while El Salvador and Honduras will see an increase in their export of transport equipment.

By granting Central American countries immediate and fully liberalised access to European markets in industrial goods and fisheries, the Agreement will help exporters from these countries to move up the value-added chain. When fully enacted, the reduced costs of trade will have a beneficial impact on growth and jobs in all Central American countries.

Sustainable development
An overarching objective of the Association Agreement is to contribute to sustainable development in both Central America and the European Union, taking due account of the differences and specificities of each region. This objective is embedded in all the sections of the Agreement and finds a specific expression in the trade part through a chapter addressing the interrelation between trade and social and environmental policies. The chapter reflects the Parties’ commitments as regards internationally recognised core labour standards and multilateral agreements addressing environmental issues of international concern. It recognises the right and the responsibility of the Parties to adopt social and environmental regulations in the pursuit of legitimate objectives, and puts much emphasis on the effective enforcement of domestic labour and environmental laws. The Parties also undertake to encourage and promote trade and marketing schemes based on sustainability criteria, and to work towards a sustainable management of sensitive natural resources.

An important element in the overall structure of the Association Agreement is the role of civil society in the follow-up. A Joint Consultative Committee is foreseen and, specifically in the trade area, consultation of civil society stakeholders at domestic level goes hand in hand with a “Bi-regional Civil Society Dialogue Forum” to facilitate exchanges across the Atlantic regarding sustainable development aspects of the trade relations. Should divergences between the Parties arise in the implementation of this chapter’s provisions, recourse to an impartial panel of experts is possible under conditions of transparency.

Cooperation in trade areas
Both Parties have agreed to improve cooperation in areas such as competition, customs, intellectual property or technical barriers to trade. Enhanced cooperation in the production of organic products or the promotion of sustainable development have also been agreed.

Trade flows
In 2010, EU was Central America’s second trade partner after the US (and intra-regional trade), representing almost 9.4% of the trade flows.

In 2010, the main exporters from Central America to the EU were Costa Rica (53.9%), Honduras (21.6%) followed by Guatemala (12%). Exports consisted mainly of coffee, bananas, pineapples and microchips. EU’s exports to Central America went first to Costa Rica (36.3%) then Guatemala (28.1%) and El Salvador (15.2%) and were mainly medicines, petroleum oil and vehicles.

For more information
Text of the Association Agreement:
More details on the benefits of the Association Agreement:


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

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

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.

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’,
[2] Public Citizen website, ‘North American Free Trade Agreement (NAFTA)’,
[3] Jeff Faux (2003) ‘How NAFTA Failed Mexico’, The American Prospect,
[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,
[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

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.