CAFTA and its Discontents
In a last ditch effort by the White House, six Central American presidents visited Washington on May 12 to lobby for
congressional backing of the Central America Free Trade Agreement (CAFTA), which would eliminate all bilateral trade
barriers to the U.S. and those protecting Central American markets.
In spite of massive protests by labor rights groups throughout the hemisphere, the Bush administration hails CAFTA as a
solvent to spread democracy and fight poverty.
CAFTA is Washington’s answer to the perceived threat to the U.S. economy posed by South America’s new-left movement and
China’s growing industrial power and its search without respite for new energy resources.
If NAFTA is to serve as the model to CAFTA, rough times lie ahead for Central American farmers and day workers.
In an unprecedented trip on May 12, the presidents of Costa Rica, the Dominican Republic, El Salvador, Guatemala,
Honduras and Nicaragua visited Washington to lobby for Congressional approval of the Central America Free Trade
Agreement (CAFTA). The agreement, which would remove virtually all trade barriers on goods entering the U.S.,
purportedly aims to better lure outside investment to the area by opening up Central America’s market to the U.S by
means of the use of bilateral trade preferences. CAFTA’s U.S. proponents hail it as one of Washington’s important
answers to threats to its economy posed by China’s growing trade preeminence. But according to its critics, those U.S.
businesses likely to benefit will do so at the expense of impoverished Central Americans. The House leadership hopes to
bring CAFTA to a vote before the end of July. The mission of the Republican Speaker is to present the trade pact as a
win-win arrangement: good for Central America and good for the U.S. In fact, this is no small task since CAFTA by no
means provides a win-win situation for all sides. Rather, it is not good for the U.S. family farmer or his Central
American counterpart. It is good for Central American maquiladora assembly plant operators but not necessarily their
workers a percentage of whom will be paid slave wages of around a dollar a day. Nor should CAFTA have any appreciable
impact on the flow of tens of thousands of area refugees seeking a living wage who monthly head for illegal entry to the
U.S. If CAFTA will help the poor, why have so many workers throughout Central America demonstrated against its passage
both in the streets of their hometowns or by migration northwards.
Washington Under Pressure
While the Bush administration claims that CAFTA will help secure and strengthen democracy throughout the hemisphere by
promoting growth and reducing poverty in Central America, economic indicators convincingly establish that U.S.
agribusinesses and multinational corporations will be the pact’s overwhelming beneficiaries as a result of cheap labor
and easily penetrable and non-competitive local markets. Under the current Caribbean Basin Initiative (CBI) and the
Generalized System of Preferences (GSP), 80 percent of Central American products already enter the U.S. duty-free, while
U.S. exports to CAFTA nations presently face tariffs of forty percent or more.
The U.S. Chamber of Commerce, a major proponent of CAFTA, insists that the pact would “level the playing field” for U.S.
workers and businesses and that CAFTA could expand U.S. agriculture exports by $1.5 billion a year. But those exports
would come not from family farms but almost entirely from multinational agro-industries like Cargill. Moreover, the
CAFTA countries today can freely export to the U.S. at no or very low tariffs and already are the second-largest U.S.
export destination in Latin America, receiving $15 billion of U.S. exports, making them the 13th largest global export
market for this country. U.S. Trade with the region now exceeds shipments to Russia, India and Indonesia combined.
Bilateral trade between U.S. and Central America currently amounts to approximately $32 billion. Clearly, the current
playing field is not slanted enough to be a significant deterrent to U.S. exports, or enough of an incentive to justify
the stampede tactics the Bush administration seems intent on mobilizing in order to gain support across the country for
House passage of the bill.
Trade between the markedly and hugely asymmetrical economies could very well have a catastrophic impact on the latter’s
relatively uncompetitive markets such as the U.S. and those of Central America. While the Bush administration may be
justified in wanting to stimulate the U.S. economy by expanding trade in all elections, nevertheless, it must be wary of
doing so at the expense of developing nations or the weaker components of America’s own labor pool. Central American
farmers will simply not be able to compete against subsidized agricultural products from the U.S., while increased
American exports will only make CAFTA members more dependent on U.S. deliveries. Unfortunately, this scenario could be
precisely what some Washington insiders are hoping for. One of the White House’s greatest fears is that Central America
and Mexico may decide to join South America’s spreading coalition of new left-leaning governments, which now includes
Argentina, Brazil, Uruguay and Venezuela. With much of the hemisphere moving to isolate the U.S., Washington feels
immense pressure to bolster its regional assertiveness and the Bush administration sees CAFTA as its vehicle to exert
masterful authority in a part of Latin America closest to the continental U.S.
CAFTA already has been approved by all of the Central American governments and many business leaders, but it still must
be voted upon by several legislative bodies, including that of the U.S., Costa Rica and the Dominican Republic. However,
the CAFTA presidents do not necessarily represent even a simple majority of their constituents in spite of the
megalithic public relations campaign they have been waging to influence the affected populations. More than half of
Central America’s population live below the poverty line and more than one-third work in the agriculture sector.
Hundreds of thousands more have been lured to the U.S. by prospects of a living wage. Like President Bush, the CAFTA
presidents vow that the agreement will bolster their economies’ growth and reduce poverty. However, Central American
leaders historically have been unsuccessful in addressing their citizens’ poverty plights, with some of them resorting
to death squad murders and massacres to resist an equable distribution of their countries’ wealth to the poorer sectors
of their population. Not only will CAFTA fail to ease the hardship experienced by impoverished local farmers, but it
will most likely compound it by forcing them to compete against U.S. subsidized goods, further exacerbating the already
dire economic disparity and menacing levels of common crime to be found today throughout Central America.
The China Factor
CAFTA’s proponents claim that income shortfalls to Central American farmers will be relatively modest because
subsistence farmers will continue to provide for themselves and that surplus agriculture workers will be able to find
jobs in other sectors—namely apparel production—if Washington gets its way. In a recent interview with the Associated
Press, U.S. Secretary of Commerce Carlos Gutierrez emphasized that CAFTA could help prevent China from taking over the
U.S. textile market, stating that “[u]nless we do something to keep the textile industry healthy and vibrant, it could
well go to China.” Although China offers much cheaper labor, supporters of CAFTA claim that the U.S. and Central
America’s close proximity to each other will achieve economies in transportation and furnish incentives for businesses
to remain in the region. By eliminating trade barriers, CAFTA would provide a major incentive for U.S. textile
manufacturers to expand their export market, allowing them to become more competitive in the global market.
CAFTA Could Be Doomed to Follow in NAFTA’s Footsteps
There is also concern in Washington that either the EU or alternately, China – or even both – are threatening to replace
North America as the world’s leading trading bloc. For others, CAFTA is seen as an intermediate step between the North
American Free Trade Agreement (NAFTA) which brings together the U.S., Canada and Mexico, and the proposed Free Trade
Area of the Americas (FTAA), which would create a hemisphere-wide trade bloc. If indeed CAFTA is to be modeled after
NAFTA, the future could appear dim for impoverished Central American farmers and working-class U.S. residents. At its
inception in 1994, NAFTA promised to create high-paying jobs in the U.S. and improve living standards in Mexico.
However, after more than 10 years, Mexico has seen relatively little such prosperity, and distinctly has not produced a
win-win situation. Although investments and exports have somewhat risen, NAFTA has, predictably, increased inequality
and poverty in a number of sectors while reducing buying power for large numbers of Mexican workers and
agriculturalists. More than one million Mexican farmers have lost their land, including tens of thousands of subsistence
farmers, because they were unable to compete with the lower prices offered by U.S.-subsidized agriculture exports.
Ironically, Mexico, where corn originated as maize, saw even its subsistence farmers unable to compete against
subsidized U.S. agro-industry. Under CAFTA, Central American small-scale farmers could face a similar depressing fate.
In the U.S. alone, NAFTA has prompted the loss of nearly 900,000 jobs—many of them high-paying—because U.S. and Canadian
businesses have continued migrating south in search of cheap labor.
Labor Rights: a Blatant Omission
While U.S. and Central American leaders continue to promise that CAFTA will provide a magnitude of new jobs, a shift in
industry could represent a profound turn for the worse for workers. Unlike current regional trade agreements such as the
CBI and the GSP, CAFTA does not require signatory nations to uphold universal workers rights, including the prohibition
of child labor, which is a pervasive problem in Central America. In its current form, CAFTA encourages countries to
abide by their existing labor codes. Ironically, the U.S. State Department, the International Labor Organization and
scores of human rights groups have consistently criticized Central American nations like Guatemala and El Salvador, for
their either ineffective or unfair labor regulations, poor work standards and government-sanctioned union-busting
tactics. Almost every affected labor group in both the U.S. and Central America adamantly opposes the pact, and
Guatemala witnessed thousands of protestors rallying against CAFTA, only to be met by repressive police tactics.
Ultimately, both CAFTA and NAFTA are based on the logic that the end justifies the means, with the list of beneficiaries
scheduled to be very modest and one-sided. The Bush administration would be wise to give serious consideration to the
consequences of its narrow trade rationale, which essentially puts revenue and short-term profit ahead of basic workers’
rights and decent living standards, and which could endanger Washington’s already shaky reputation as a dependable
champion of personal rights in the hemisphere, both in the U.S. and Central America.
This analysis was prepared by COHA Directory Larry Birns and Research Fellow Sarah Schaffer.
Additonal Research provided by COHA Research Associates, Xuan-Trang Ho and Hampden Macbeth.