Category: Chapter 7

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.

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.

Defenders of Export Processing Zones

Chapter 7 / Export Processing Zones (EPZs) and Maquilas

In 2000, Daniel W. Drezner of the University of Chicago published an article entitled ‘Bottom Feeders’[1] in which he accused the critics of EPZs of a “lack of supporting evidence” for their arguments, of peddling myths and of simply being wrong. The grounds for his arguments are summarised below.

There is a lack of supporting evidence that the reduction of controls on trade and capital flows has forced a generalised downgrading of labour or environmental conditions;

“Multinationals often pay higher-than-average wages in developing countries in order to recruit better workers” (p.65);

“Several nations, including the Dominican Republic and the Philippines, actually … established labour standards in their EPZs when none previously existed” (p.66);

“Even developing countries … have liberalised their foreign investment laws while simultaneously tightening environmental regulations” (p.66);

“And even in the absence of uniform national enforcement, many multinational corporations have embraced self-monitoring programmes for the environment – an effective complement to government regulations” (p.66)

“Nongovernmental organisations, corporations, politicians and academics use the race to the bottom as an excuse to peddle their policy wares” (p.68).

[1] Daniel W. Drezner (2000) ‘Bottom Feeders’, at http://drezner.foreignpolicy.com/

Criticisms of Export Processing Zones

Chapter 7 / Export Processing Zones (EPZs) and Maquilas

A report by the International Confederation of Free Trade Unions (ICFTU)[1] states that the supposed benefits of EPZs are limited for a number of reasons:

  • work tasks involve simple processing operations, requiring limited and non-transferable skills;
  • most jobs are poorly paid and of low quality;
  • only a small percentage of foreign currency earnings remain in the country;
  • investments are insecure and can easily re-locate to another country offering a more attractive
  • investment climate, and;
  • materials are often imported rather than sourced from the local market.

The ICFTU report also suggests that: “Serious questions remain as to the real benefits of EPZs to development. By its very nature, EPZ investment is precarious, and likely to leave the country at a moment’s notice if a cheaper, more compliant workforce is on offer somewhere else.”[2]

Similarly, John Madeley suggests that the main beneficiaries of EPZs are the transnational companies, rather than the host countries: “They have a record of facilitating exploitation and make a very limited contribution to the overall development of the countries in which they are located.”[3]

A further criticism of EPZs as a development mechanism, and one widely publicised by the NGO sector, relates to the poor working conditions and labour rights violations which occur in the factories situated in the zones, such as the maquilas in Central America. The ICFTU report states that governments offer a weak framework of social and employment rights as part of the incentive package to attract investors, either explicitly through exempting them from labour laws, or passively, through the lack of regulation or enforcement of these laws.[4]

[1] International Confederation of Free Trade Unions (2003) ‘Export processing zones – symbols of exploitation and a development dead-end’ (September p.5) http://www.icftu.org/www/pdf/wtoepzreport2003-en.pdf (accessed 24 August 2009)
[2] Ibid.
[3] Madeley, J. (2008, second edition) Big business, poor people: How transnational corporations damage the world’s poor, Zed Books, London (p.153)
[4] Op.cit (ICFTU)

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’.

Race to the bottom

Chapter 7 / Export Processing Zones (EPZs) and Maquilas

Andria Myriamthopoulos and Martin Mowforth, 2009

Pollution control remains a dream in developing countries. Companies that produce goods will avoid production in countries with strict environmental regulations and will try to produce their goods in countries with less strict environmental regulations. Tietenberg (2007)[1] and Tietenburg and Lewis (2009)[2] explain that this is because they will face the problem of market share loss.

This is a good reason for countries to accept and follow lower environmental standards; which is known as the Race of the Bottom. Developed countries ‘force’ developing countries to keep environmental standards low for their economic benefit. This is not only happening in developing nations but also in weak developed countries whose economy depends mainly on the market flows of stronger countries such as the UK.

[1] Tom Tietenberg, Tradable Permits in Principle and Practice. Moving to Markets: Lessons from Twenty Years of Experience. J. Freeman and C. Kolstad. New York, Oxford University Press, 2007: 63-94.
[2] Tom Tietenberg and Lynne Lewis (2009) Environmental Economics and Policy, New Jersey: Prentice Hall.

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)