Category: Chapter 7

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.

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.

Defenders of Export Processing Zones

Chapter 7 / Export Processing Zones (EPZs), Maquilas, and Zones for Employment and Economic Development (ZEDEs)

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), Maquilas, and Zones for Employment and Economic Development (ZEDEs)

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’.