blocking CAFTA may help the rest
of the world
by David Moberg
In These Times magazine, June
If you believe the Bush Administration,
its free trade agreement with five Central American countries
and the Dominican Republic will open "BIG" (its emphasis)
markets to American products, forge an alliance to save domestic
textile jobs, "protect labor and environment:' and, of course,
"strengthen freedom and democracy."
Judging from their protests, many workers
and peasants in those countries disagree. And judging from Bush's
reluctance over the past year to bring the Central American Free
Trade Agreement (CAFTA) to a vote, a majority of even this Republican
Congress don't believe him. But the push for a vote is now on:
The region's leaders are visiting the United States and trade
officials are striking special interest deals for support-such
as the $500,000 federal grant that tilted The Humane Society to
support CAFTA after years of criticizing similar trade pacts.
There are good reasons to doubt the administration
claims. Even if they're wide open to American exports, the signatories
are small, poor countries-including Guatemala, El Salvador, Costa
Rica, Nicaragua and Honduras. The largest, the Dominican Republic,
is a market about the size of Bakersfield, California. Even optimistically
exaggerated trade with them isn't going to make a dent in the
record U.S. trade deficit, which reached $617 billion, or 5.3
percent of the U.S. economy, last year.
CAFTA isn't likely to expand markets by
reducing Central American poverty much either. Flooding their
markets with subsidized US. corn will hurt many of the rural poor.
The North American Free Trade Agreement (NAFTA), the model for
CAFTA, offers scant inspiration. Over NAFTA's first eight years,
Mexico lost 1.3 million jobs and suffered declining real wages,
according to the Carnegie Endowment for Internal Peace, and the
United States lost 880,000 jobs, according to the Economic Policy
No boon to workers
Hemispheric cooperation is not likely
to save either Central American garment workers or the remaining
US. apparel and textile workforce. The global quotas on export
of apparel and textile products to Europe and the United States
established under the longstanding Multifiber Agreement had dispersed
the industry to dozens of poor countries. But when it ended on
December 31, Chinese garment exports to the United States shot
up in January by 75 percent, with 20 times more cotton knit shirts
coming in than a year earlier. Apparel factories in both Central
America and the United States have been shutting down. Not even
China's upwards reevaluation of its currency, which is needed
to reflect economic reality and to redress a rapidly growing trade
imbalance with the United States, is likely to stop the Chinese
from capturing a projected 70 percent of the US. market in a few
years, much of it at the expense of small, poor, garment-exporting
On labor rights, CAFTA is no improvement
over NAFTA's deeply flawed labor side agreement, and it retreats
from the labor rights standard that unions praised in the free
trade agreement with Jordan signed in 2000. It simply requires
the countries to enforce their own laws and "strive"
to protect labor rights, with no meaningful penalties if they
fail. Under current preferential trade agreements, unions and
human rights groups have been able to petition the US. government
for trade sanctions-and win some improvements-when Central American
governments have violated international labor standards.
Central American laws and enforcement
of the rights of workers to organize and strike fall far short
of international standards, according to studies by the State
Department, the International Labor Organization, Human Rights
Watch and labor organizations, including the AFL-CIO. And the
International Labor Rights Fund, whose study of Central America
the Bush administration refused to release officially, reports
that even during CAFTA negotiations several governments "were
taking steps to downgrade their labor laws'
The weak protections for labor rights
are not the only way in which CAFTA is a blow against democracy.
More than a deal to lower tariffs, CAFTA is an agreement to protect
corporate rights (including intellectual property) and to restrict
government controls over investment, public procurement and provision
of public services that breaks new ground, according to Lori Wallach,
director of Public Citizen's Global Trade Watch. "The procurement
rules are horrific, even broader than NAFTA, way broader than
WTO," she says. In many ways, CAFTA grants investors and
corporations far more rights than NAFTA or the proposed inclusion
of public services under World Trade Organization rules. It even
incorporates some of the very broad and controversial language
of the failed Multilateral Agreement on Investment.
CAFTA, following the NAFTA precedent,
allows foreign investors to sue governments under international
trade tribunals to protect against loss of property, not only
from nationalization but even from regulatory measures that might
constrain corporations and are thus deemed "indirectly ...
equivalent to expropriation:' Despite a congressional requirement
in the 2002 "fast track" legislation to restrict such
investor protection, CAFTA opens the door to expanded action by
foreign corporations in the United States and other CAFTA countries
to fight "regulatory takings:' or losses of potential profits
because of public interest legislation. For example, if CAFTA
had been in place, Harken Energy-an oil company in which Bush
was once an investor and director could have more easily pursued
its claims for $12 million in damages against Costa Rica for a
government moratorium on oil drilling. Those claims are now filed
in that country's courts.
CAFTA's larger context
CAFTA is more important politically than
economically. It's a stalking horse for the broader Free Trade
Agreement of the Americas and a step toward stronger protection
of corporate interests in future trade agreements. It faces unusually
unified Democratic opposition, much of it focused on labor rights,
and right-wing Republican hostility, focused more generally on
globalism. But some Republicans also have regional concerns about
increased imports of textiles and sugar, since CAFTA threatens
a price support system that relies on supply control, not on taxpayer
The debate over CAFTA highlights some
of the weaknesses in the cheerleader view of globalization, exemplified
in New York Times columnist Thomas Friedman's latest effusive
book, The World Is Flat. The world has been flattened, he argues,
by a combination of software and communications technology, the
opening of China, India and other markets, and changing corporate
strategies, such as outsourcing and offshoring. Everybody competes
and collaborates on this giant, open, level playing field now,
offering great opportunities to rich and poor countries alike.
While this "flattening"- or
opening-of a more global market in labor, goods and services is
undoubtedly underway, Friedman ignores the vertical dimension
of the new world economy. First, there's the issue of power. Deals
like CAFTA underscore how much the rules of the world economy
are shaped by the United States, acting on behalf of the interests
of multinational capital (and secondarily in the interests of
U.S. corporations). In his previous book, Friedman said that governments
had no choice but to accept the "golden straightjacket"
of the Washington Consensus policies of austerity and privatization.
When Bush advocates the spread of freedom and democracy, he is
not calling for power to the people. He wants governments that
will accept these external policy constraints and deal with the
consequences, through the appearance of democracy and elections,
but will not deviate from or challenge the corporate global agenda.
The "flat world" has room for only a very flattened
notion of democracy.
There is also the issue of inequality.
The number and proportion of extreme poor, living on $1 a day
or less, has declined worldwide over the past two decades, as
the numbers of moderately poor have increased, but the progress
has been uneven, with many countries regressing, especially in
Africa. While there's a heated debate among academics about how
to measure global inequality overall and whether it has risen
or fallen in recent decades, even the most optimistic pictures
show rising global inequality if the dramatic changes in China
are excluded. Indisputably, inequality within most countries,
whether rich or developing, including China, is increasing.
Submission to free markets and the dictates
of the Washington Consensus do not guarantee economic success,
and as economist Jeffrey Sachs argues in The End of Poverty, the
market is no magic answer to global poverty. Indeed, several studies,
including a recent analysis from the International Labor Organization,
have found that protection of labor rights, democracy and greater
equality are associated with higher economic growth, stronger
export performance and other signs of economic success.
China, on the other hand, proves an exception
to the arguments of both neoliberals and social democrats. China
has succeeded partly because it hasn't submitted to the flat world:
Its currency controls, which now pose severe problems for the
United States, helped to stabilize China during the 1997 Asian
financial crisis and helped it grow (often at the expense of jobs
in both rich and poor countries). But CAFTA would prohibit such
controls, which permit governments to slow down sudden flights
of capital, and many of the other means by which China harnessed
foreign investment for domestic growth.
If opponents succeed in blocking CAFTA,
the victory will be important mainly as a signal that the onwards
march of corporate-friendly economic agreements has at least temporarily
halted. It will open political space to the demand that governments
go back to the drawing board and devise new relationships and
institutions that respond to the realities of both the "flat"
world of global integration and the "vertical" world
of power and inequality.
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