CAFTA: Unilateral Free Trade?

Over a thousand workers from U.S. and the Dominican Republic and labor and elected leaders joined this Tuesday, May 10, in a rally and press conference to express their opposition to CAFTA and other trade agreements that, they say, affect the job market in US and do not end benefiting the Latin American economies either. Washington Hoy 2003 GDP/PBI (click to enlarge) By Valéria Chalegre, Rio de Janeiro 05/06/2005 The reluctance by four Central American countries to ratify CAFTA is not a surprise. Ever since the beginning of negotiations that led to the agreement in early 2004, its path has been a thorny one, with each country in turn making claims to protect its perceived interests and all pondering the agreement's possible effects on the development of the region. During the final week of negotiations, in January, 2004, Costa Rica withdrew from the negotiating table in the face of continuing U.S. demands that it open its telecommunications and insurance markets to U.S. investors. This prompted the extension of the negotiations to smooth the Costa Rica issue. Guatemala, once its team of negotiatiors returned home in December, 2003, decided that it had given up too much, much more than its neighbors, and went back to Washington in January to correct what it perceived as unfavorable terms. Their hope, as expressed by the lead negotiator, Guido Rodas, was that the agreement was not "carved in stone." The U.S., meanwhile, also took some steps of its own, and signed a bilateral agreement with the Dominican Republic, hoping for that country's future adhesion to CAFTA, which finally happened in August 2004. From then on, the agreement was renamed United States - Dominican Republic- Central America Free Trade Agreement (DR-CAFTA). Washington Hoy Interesting Facts (click to enlarge) "With today's addition of the Dominican Republic," said former U.S. trade representative Robert Zoellick, "CAFTA will become the second largest U.S. export market in Latin America, behind only Mexico, buying more than $15 billion in U.S. Exports. That exceeds U.S. exports to Russia, India, and Indonesia combined. The two-way trade amounts to some $32 billion." To become effective, the agreement needs the approval of the U.S. Congress in a yes or no vote; and the ratification from the Central American countries. To date, only El Salvador has ratified CAFTA. U.S. Demands during the negotiations stage have provoked continuous and hardcore opposition in the Central American countries, expressed in very heated street protests that have resulted in fatalities in some cases. "In nearly every major area of concern to the development potential of the region, the Central Americans ended up ceding tremendous ground from their initial proposals", says Vince McElhinny, of the InterAction Inter-American Development Civil Society Initiative. Moreover, the façade of regional unity disintegrated under the onslaught of a relentless U.S. strategy of ultimatums, which were followed by divide-andconquer bilateral negotiations over the most sensitive products." According to McElhinny, the U.S. has remained relatively inflexible on these and most other important Central American demands, and many pending disputes resulted in settlements for third- and fourth-best arrangements that "have little to offer and much to threaten the longterm development needs of Central America." CAFTA is a very broad and complex agreement that promises new economic opportunities and brings a laundry list of regulations to many sectors of the economy. The major points of contention are agriculture, textiles and apparel, and labor and environmental rules, but it also extends to telecommunications and investment services. The essence of CAFTA is the near elimination of trade tariffs. Strong Opposition The opponents of CAFTA insist the agreement serves mainly U.S. interests, because it offers U.S. businesses extensive and abusive rights to operate in Central America. Although some sectors of the U.S. economy feel threatened by the agreement, the treaty's opponents say the threats are overwhelmingly to the Central American countries, which open their economies and markets, private and public, to free access from the stronger and bigger American business. Many of the protests center on the loss of jobs and the difficulties that developing countries will have in competing against the U.S., especially in food and other agricultural products, which are heavily subsidized by the U.S. government. "CAFTA also sets broad rules regarding what constitutes an expropriation, as well as the compensation due to investors if expropriation does indeed occur," says Kevin P. Gallagher, research associate at the Global Development and Environment Institute, at Tufts University. "Certainly, the U.S. does not want foreign countries to nationalize U.S. Firms." According to Gallagher, "CAFTA's little secret is that it leaves open the possibility that ad hoc investment tribunals will interpret social and environmental regulations as an "indirect expropriation." What's more, the firms themselves (as opposed to nations filing on a firm's behalf, as in the World Trade Organization) can file suit for massive compensation from foreign governments. For example, U.S. firm Occidental Petroleum took advantage in 2004 of a U.S.-Ecuador investment agreement to challenge Ecuador's decision to cancel value-added tax rebates. Occidental was awarded $71 million plus interest." To U. S. trade representative Zoellick, "opponents of free trade offer a false choice." "The way to improve labor and environmental standards is through open trade, leading to more work and greater prosperity," stated Zoellick at the signing of DR-CAFTA."I have traveled around the world too many times to keep count. Wherever I go, one fact remains the same: Free and democratic peoples in opentrading, prosperous societies choose higher standards for themselves. Dominicans are already doing the same." A Health Issue The health issue has also received special attention from civil society and other organizations in the fight against CAFTA. In the way the agreement was formulated, it includes abundant regulations on patents, copyrights, and other protections for intellectual property; opponents charge this amounts to heavy protectionism for the U.S. pharmaceutical industry. CAFTA countries, who are all members of the World Trade Organization (WTO), already have to abide by a system of patent regulations, but those in CAFTA are even more restrictive. WTO demands protection of patents for 20 years for all products, including pharmaceuticals, with some exceptions; such as for instance, a country's right to authorize competition of generic drugs in case of public health emergencies. This guarantee is vital to the so-called developing countries, where access to drugs can be precarious at best. As an example, in Brazil during the last six years the cost of AIDS therapy based on three drugs has dropped 98%, due to the government's promotion of generic drugs, under the umbrella of this WTO exception. This wouldn't be possible under CAFTA. Under the U.S. Proposals, countries such as Guatemala won't have the right to license generic drugs to help their population. In fact, to accept Guatemala's participation in CAFTA, the U.S. Demanded that the country abrogate the local law that promoted generic competition, resulting in lower prices. Despite the intense street protests in Guatemala, the Guatemalan Congress accepted the conditions. There are some 80 thousand HIV-positive patients in Guatemala. Atazanavir, developed by Bristol-Myers Squibb, is one of the drugs often prescribed in AIDS treatment. Its price is around US$ 10,000 per person per year. At those prices, Guatemala's budget can't even begin to cover the care of its HIVpositive population. Under CAFTA provisions, if a generic version of Atazanavir were developed this year, it couldn't enter Guatemala's market until 2009, to protect Bristol-Myers Squibb's rights. This risks not only patients' lives but also the spread of AIDS. On the Other Hand... History records other agreements between countries with very different economic status that had a positive outcome for society as a whole, in the medium and long terms. That's the case of the European Community, unifying countries as different as Portugal and the United Kingdom, with notable advantages for both. Some say that's also the case of the North America Free Trade Agreement (NAFTA), which has brought growth to cities such as Monterrey, Mexico to twice the median national income. Five Mexican border states have benefited from U.S. Businesses moving their operations south of the border, creating jobs, generating revenue, and brewing protests in the U.S. The rest of Latin America is also discussing free trade: the Free Trade Area of the Americas (FTAA) is a broad agreement between 34 countries, including the U.S.. Opponents and proponents of DR-CAFTA clearly perceived this as a stepping stone towards the more comprehensive FTAA.