Press Memorandum: U.S. Investors and Multinationals Will Emerge As Main Winners from CAFTA Ratification

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Council On Hemispheric Affairs

Monitoring Political, Economic and Diplomatic Issues Affecting the Western Hemisphere

Memorandum to the Press 04.73


Word Count: 2350

Monday, 18 October 2004


U.S. Investors and Its Multinationals Will Emerge As Main Winners from CAFTA Ratification

• As part of the Bush administration’s move to expand and legitimize the interests of U.S. investment capital throughout the hemisphere, on May 28 Washington signed a multilateral free trade accord with five Central American nations that, if ratified, threatens to adversely affect living standards for a large percentage of the region’s population.

• Although the Central American Free Trade Agreement (CAFTA) clearly and forcefully addresses the most pressing demands of multinational corporations, such as protecting investor and intellectual property rights, it fails to ensure the enhancement and enforcement of labor rights and environmental regulations and limits the exercise of national sovereignty.

CAFTA’s provisions undermine
Central America’s sovereignty because they establish a set of supranational mechanisms that, by their very definition, supersede laws promulgated by each respective country’s legislative branch. These CAFTA-implemented mechanisms will mainly protect the economic interests of international and domestic investment sources, but will offer worker and environmental groups little protection or right of redress.

• CAFTA will exacerbate the unequal economic relationship that currently exists between the world’s largest economy and Central America’s underdeveloped societies, by eliminating the only recourses the latter possess to protect their national interests, to politically determine governmental policy and to mobilize social reforms.

• CAFTA advocates in Congress may attempt to ratify it in a lame duck session before the legislative chambers officially reconvene next January.

May 28, 2004, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, together with the United States, signed a free trade accord whose underlying principle is the aggressive protection and expansion of individual and corporate investor rights. These privileges come at the expense of environmental protection, legislative independence, and a nation’s right to autonomously determine social and economic policy. Despite the assurances of its proponents, the Central America Free Trade Accord (CAFTA) is not likely to translate into a significant improvement for the region’s atrocious labor rights record because it does not institute the fixed penalties and incentives required for such a profound change. The absence of such provisions is especially distressing in Central American societies that, in a twisted and deadly caricature of respectable collective bargaining, have historically witnessed hundreds of labor leaders gunned down and intimidated by hired hands on the payrolls of land owners and factory managers.

The agreement’s limited and unbalanced scope is a result of a heavily delimited negotiating process that lacked any sense of transparency and only involved government-sponsored experts. In its present form, CAFTA represents a very significant undermining of the traditional sovereign rights of nations and exposes a lamentable deference on the part of Central American governments. This clearly demonstrates their intent of mainly serving privileged elements of their societies at the expense of the generality of their populations. Once implemented, CAFTA will, in fact, likely condemn the area’s agricultural, service and industrial workers to further marginalization, with the accompanying risk that they might fall into abject poverty. Most likely, comparable Central American enterprises will be hard-pressed to successfully compete with foreign competitors because they lack the economies of scale, investor control, access to low interest loans, investor pool and an outreach to skilled management which is readily available to transnational commercial entities.




This analysis was prepared by Gabriel Espinosa Gonzalez, COHA Research Associate.

October 18, 2004

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