CAFTA doomed? Latin America Data Base 6/24/2004 US Congress, Democratic presid

Significant numbers of opponents to the Central American Free Trade Agreement (CAFTA) throughout the signatory countries, and at least one presidential candidate, cast doubt that the agreement in its present form will ever become law.

Although the agreement was signed on May 28 by representatives of the United States and the five signatory countries — Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua — in order for the accord to take effect in any of the Central American countries, it would first have to be ratified in the legislature of each and in the US Congress. 

The administration of US President George W. Bush has admitted that proponents of the CAFTA are far short of the votes needed to pass the accord in the United States. It is unlikely that the matter would come up for a vote before general elections in November.

After rancorous discussions among the governments involved that led some to negotiate separately, protest in the popular sectors and dissention in the private sector — even if the accord does pass in the US Congress, it could still fail to ever become operative as presently written.

Reopening the negotiations

Democratic presidential candidate John Kerry said if elected he would reopen the talks because he does not approve of the way the accord treats labor and the environment. A renegotiated agreement would have to provide "adequate and fully enforceable protections" for the environment and for workers in Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, Kerry said.

No fewer than 10,000 Costa Ricans saw it Kerry’s way and turned out in the streets of San Jose on May 31 to let that be known. Hospital workers closed the road from the capital to the airport, and students closed other roads in the university area. Striking teachers and workers from the Instituto Costarricense de Electricidad (ICE), the state power and telecommunications company, joined together for what could be a protracted battle against CAFTA.

"This is barely the first step in a chain of actions that will not stop until the trade agreement is stopped," said union leader Albino Vargas.

Among the companies that have announced support for the agreement are Boeing, Eastman Kodak, ExxonMobil, Intel and Nestle. They all stand to benefit from the US President Bush-led march southward intended to blanket all of the hemisphere with free-trade agreements. The sole exemption, by mutual disdain, will be Cuba. CAFTA would bridge the North America Free Trade Agreement (NAFTA) to the north and the Free Trade Area of the Americas (FTAA) to the south.

What is for Kerry a "disappointing and unnecessary step backwards" that would lead to "a race to the bottom on workers’ rights and environmental protection," was, for US Trade Representative Robert Zoellick, "new hope for easing poverty, fostering development, and strengthening democracy."

Signing for the Bush administration at the ceremony, Zoellick called Kerry’s concerns "economic isolationism."

Predicted flight of investments and jobs

Linda Chavez-Thompson, executive vice president of the AFL-CIO labor federation, said the deal would encourage US corporations to move jobs to Central America, where they can "manufacture goods in foreign sweatshops with low-wage labor and sell us those goods at huge profits."

On textiles, a category with which there was considerable difficulty during negotiations, much of what Central America gained might be moot by the time the US Congress acts on the agreement. Analysts expect a flight of investments and jobs away from Central America to China. The exodus will be triggered by the elimination of all remaining quantitative restrictions on importing garments and textiles to the US when the World Trade Organization’s (WTO) 1995 Agreement on Textiles and Clothing (ATC) expires on Jan. 1, 2005. Central America will be just one region among many to lose this industry when the ATC floodgate opens, sending an expected 30 million textile jobs around the world to China, India and Pakistan during the next three to five years.

The case of Honduras illustrates this point. Textile assembly accounts for most of Honduras’ manufacturing sector. To avoid tariffs of 18 to 28 percent, Honduras buys fabric and thread from the US.

Under CAFTA, Honduras and other countries of the region could buy these materials from anywhere. That would partially offset the 20 percent cost advantage China has in labor and material. But, if CAFTA is delayed until 2005 or 2006, the migration to China could already have taken place. The industry is well known for its ability to flee in an instant to take advantage of a labor-arbitrage opportunity.

In this situation, the relative advantages are untested. Central America cannot compete in costs, but it can beat China in delivery of finished goods by sometimes as much as two weeks. 

Giving China a one-year advantage could sound the death knell for the needle trades in the isthmus. Mexico lost almost a third of its maquila industry to China during a two-year period in the mid-1990s after Beijing employed an aggressive commercial and investment strategy.

The loss of this industry, together with the expected crushing of small agricultural producers in the region if CAFTA goes in effect, has led analysts to conclude there will be substantially increased pressure on the poor and dispossessed to migrate to the US.

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