Envío Digital
Central American University - UCA  
  Number 270 | Enero 2004


Central America

What’s in Store for Us Following the Signing of CAFTA?

What will Central America be like after the signing of the Free Trade Agreement with the United States? The official propaganda in Nicaragua is joyfully celebrating the setting up of “a bridge to the future.” But where will that bridge lead us?

Amaru Barahona

Only four countries signed the free trade agreement (FTA) between Central America and the United States on December 17, 2003: Guatemala, El Salvador, Honduras and Nicaragua. Costa Rica did not sign on that date and asked for a temporary suspension of negotiations. The official arguments used by the Costa Rican negotiators were that the country had still not achieved a satisfactory balance with the United States, that there was not enough time to calmly deal with certain sensitive questions and that they needed time to hold consultations and redefine positions.

The United States accepted Costa Rica’s request, but US trade representative Robert Zoellick quickly declared publicly that “we’re not going to wait very long for Costa Rica... Costa Rica is a good democracy, but we aren’t willing to concede it greater privileges than the other countries because that would be unfair.” The negotiations between Costa Rica and the United States were reinitiated soon after, on January 7. Nobody in Costa Rica, whether inside or outside of the government, ever doubted that the bilateral agreement would eventually be signed, as indeed happened at the end of the month.

Following the US beat on the different timescales

During the negotiations, the vast majority of Central Americans had no access to the approved drafts. Over a month and a half after the December 17 signing, when this article was being written, it was still impossible to obtain the text of the final agreement to study its details. Knowledge of the agreement remained an act of faith regarding what was being said by the negotiators, trade ministers and Presidents, people with little credibility among the Central American populations. With the exception of the fleeting resistance shown by Costa Rica, the deadlines established for the regional governments’ signature were imposed.

These deadlines have been rigorously met because the United States urgently needed the agreement to be signed. What is known in English as the Central American Free Trade Agreement (CAFTA) is effectively a bridge to the Free Trade Agreement of the Americas (FTAA), which the United States increasingly sees as the salvation for its trade deficit, the highest on the planet; its fiscal deficit, also the highest on the planet and growing as a result of the bad business that the war in Iraq has turned out to be; its enormous agricultural surplus, which it needs to export; and its economy in general, in a long cycle of slow growth with frequent crises. It also urgently needs the FTAA agreement to be signed because it’s concerned about what’s happening in South America, specifically the resistance bloc being formed against the FTAA by Brazil, Argentina, Venezuela and Paraguay, and which Bolivia might join. The declaration of Miami in the context of the World Trade Organization (WTO) meeting and the dissonance generated at the OAS Monterrey summit are two of the most visible expressions of this resistance.

Now that the governments have been forced to follow the beat of the US drum, it is all or nothing time for the respective parliaments. As has previously happened with Mexico and Chile, the Central American parliaments will be issued an apocalyptic ultimatum: either ratify the whole package of agreements or be denied access to export markets. The choice is between the FTA and economic death.

Central America didn’t negotiate as a bloc

While we may not know the details—larger or smaller bands, longer or shorter deadlines—we do have enough elements at this point in the game to predict the general results of the FTA and the direction to be stamped on the Central American societies in general, and Nicaraguan society in particular.

We know that the United States formulated the model for the texts involved and therefore defined the conceptual framework and guidelines for the process. We know the precedents set by the free trade agreements signed with Mexico and Chile. We know about the letter sent by US trade representative Robert Zoellick to the US Congress, explaining his country’s objectives regarding the signing of the FTA. We know the banalities and lies that the Central American negotiators told the media. We know what was behind Zoellick’s tour of Central America. And finally, we know that Central America did not negotiate as a united bloc, which was no great surprise. What was referred to as “negotiating en bloc” amounted to little more than the Central Americans jostling around to pull the rug out from under the others’ feet, with each country doing its best to satisfy US demands better than the others. Knowing all of this, we can make a decent stab at summarizing the probable results of the FTA and forecasting the days ahead.

No increased access to the US market

It will be hard for Central American exports to the US market to reach the current level of access, given the tax exemption that we already had as a result of the Caribbean Basin Initiative (CBI). This historic level of access will be also be undermined by other non-tariff methods: the toughening and more rigorous application of US sanitary and phyto-sanitary standards; and the newer anti-“bioterrorism” norms, the latest measure dreamed up by imperialist protectionism.

The US team employed two primitive but effective tactics. The first was the old favorite of divide and conquer and the second was the theory that with vassal governments, the more bullying applied the better the results. Robert Zoellick may be a petulant hawk and former director of Enron (the corporation that stole billions of dollars), but it has to be recognized that he fully achieved the objectives that he presented to the US Congress. With the look of a visionary, Zoellick passed through Central America distributing crushing sentences: “An FTA with the USA is a privilege not a right,” “The CBI has to be turned from a unilateral and revocable gift into a contract of reciprocal responsibility…” Such words immediately triggered the colonial syndrome among our oligarchies, and everyone from the businessmen to the negotiators and governments knelt down before him.

Condemned to be what we already are…
but now without food sovereignty

In the short and medium term, the United States will gain tariff-free access to the region for 80% of its products, both industrial and agricultural. The introduction of industrial goods will immediately eliminate the possibility of Central America developing domestic productive chains that might sometime in the future permit industrialization with an expanding domestic market. This condemns us to being what we already are: raw materials producers and assembly plant hosts, a tourist spot and, increasingly, labor exporters.

The agricultural goods entering the region will be those subsidized by the United States for production aimed at domestic consumption: basic grains (maize, beans, rice, wheat and rye), potatoes, onions, tomatoes, sub-tropical vegetables and fruit, sugar, cotton, soy, edible seeds, crop seeds (including transgenic seeds), edible oils, beef, pork, poultry meat, dairy products, etc. This will include all of the processing, by-products and packaging for those goods.

This tariff-free introduction will end up devastating the agriculture activities of Central American countries aimed at their own populations’ consumption. Maybe some products in the hands of the region’s big producers, such as sugar, beef, rice, poultry or dairy products, will be protected for a time, but sooner or later they will succumb to the competition from US production, which combines subsidies and high technology. Thus, through the FTA, Central America is renouncing its population’s food sovereignty and turning them into guinea pigs for the consumption of genetically manipulated foods.

Central American opposition to subsidies:
Little more than a show

With Zoellick in the lead, the US negotiators dispelled any lingering doubts about an issue that was already quite clear: the United States will not eliminate any subsidies for its agricultural production, which currently amount to around US$171 billion a year. The Central American negotiators made a show of opposition to these subsidies, but we already knew it would be little more than a show and that they would end up accepting them as inevitable. On the issue of subsidies, as in the negotiations as a whole, the behavior of the Nicaraguan representatives was a real jewel of vassalage in action.

Mario Arana, the splendid minister for development, industry and trade, appeared to be an independent thinker until a few years ago. Now he seems to be parroting the arguments of Robert Zoellick: “You can’t discuss the matter of subsidies in the FTA, because the European Union and Japan also subsidize,” or “We’re going to raise the question of subsidies with the WTO, which is the most appropriate stage.” But these statements were little more than lies. In the WTO meeting in Cancún, Nicaragua was one of the most servile countries, lining up behind the United States against the Brazil-led Group of 20, which dared to raise the issue of eliminating US, European Union and Japanese subsidies.

“Costa Rica’s attitude is deplorable,” opined Nicaragua’s chief negotiator, Carlos Sequeira, referring to the Costa Rican government’s reluctance to be hurried into signing the agreement on December 17. During the negotiations, Sequeira, in contrast, paid special attention to his ties and handkerchiefs and strutted around Regina Vargo—the chief US negotiator, who doesn’t even speak Spanish. Sequiera was constantly looking to be photographed with her, displaying a compassionate smile.

A green light for “nontraditional”
and assembly plant production

Two kinds of Central American goods will be given the immediate competitive potential to enter the US market tariff-free. The first kind are agricultural products that for mainly climatic reasons are hardly produced in the United States. Known as nontraditional products, these include melons, pineapples, cassava, chayotes (a small squash), the bright purple cactus fruit known as pitahaya, flowers, ornamental plants, peanuts, sesame seeds, seafood, etc. All processed and packaged derivatives will also be included. The second kind are goods from the tax-exempt export assembly plants known as maquilas, despite tenacious opposition from US unions, who rightly argue that the very low labor costs in the South, which are the attraction for the maquilas, increase unemployment and labor instability among their members and tend to lower their wages. As a very special deference to the powerful Nicaraguan Pellas family, some other industrial goods, such as its Flor de Caña rum—will almost certainly be allowed to enter tariff free.

Costa Rica is the only country in the region that has managed to convert much of its agricultural production to nontraditional products. The others still mainly depend on the traditional agricultural production that is currently in crisis (coffee, bananas, sugar, meat) and, for that matter, has no competitive potential in the United States or any other market. It was in this context that the brilliant Central American negotiators decided to pull their high card from their sleeve: they would ask the United States to help finance their conversion to nontraditional products. But these were the illusions of imperial servants who have lost their minds along with their identity. The United States is not going to give so much as a cent, particularly when it is going through its own financial crisis. What it will give, if anything at all, will be loans that will serve to increase the Central American countries’ unpayable debts and perpetuate their fiscal crises.

We won’t build a domestic market
and we won’t be competitive

Beyond such illusions, both nontraditional agricultural goods and those assembled in the maquilas are already present in the region to a greater or lesser extent, in a reformulated version of the old enclaves (banana plantations, mines, palms, rubber, wood) that were organized in the past by US capital. Both processes are controlled—and will be increasingly controlled—by transnational capital, particularly from the United States. In the case of nontraditional agricultural products, this control is achieved through financing, technology packages and marketing networks, and in that of the maquilas, through technical and financial control and vertical capacity, not to mention direct control of the productive cycle.

Like the old enclaves, neither of these newer processes induces the building of domestic productive links capable of generating an extensive domestic market.
This is even true of the sophisticated version of maquilas, represented in Central America by the INTEL factory in Costa Rica. At the same time as INTEL’s production increased the Costa Rican GDP by 2%, there was a drop in available national income. Both nontraditional agriculture and maquilas are also labor intensive yet do not have the capacity to absorb the unemployment that will be generated by the devastation of traditional agriculture, even given the conditions that will tend to be imposed (increased wage reduction and slave-like control of the work force).

It is also probable that both productive processes will suffer reduced competitive viability for the same reasons as the export products now referred to as “traditional” (coffee, bananas, cotton, beef and sugar). One reason is that they are a specialization imposed on the South by the North, and an increasing number of countries are entering the market and competing with the same recipe for success. Another reason is that most agricultural goods, today’s nontraditionals, can be and are being produced with subsidies in the North, using greenhouse technology. And finally, other countries—in addition to China, which is already breaking the Mexican maquilas—will also enter the US market with maquila production by means of the WTO or other FTAs.

Costa Rica, the regional exception,
will succumb to privatization

In addition to the different bands and deadlines for phasing out tariffs, an aspect that acquired importance during the last stage of negotiations was the privatization of the remaining state services—the process known euphemistically as the “opening up of state monopolies.” This was particularly important for Costa Rica, because the other countries, particularly Honduras, are well on their way towards complete privatization, in which virtually the only area not sold off is the air. Costa Rica is the exception because an important sector of its public services (which includes banks, telecommunications, energy, petroleum refining, insurance, the water system and part of the pension system) still resist that logic.

At the beginning of the negotiations, Costa Rica was the only country that expressed disinterest in discussing the opening up of its state assets within the FTA framework. But things changed a lot. On his imperial tour of the region, Zoellick visited the Costa Rican presidential palace and informed the President and journalists that “either you open the state assets up to us, or we’ll sign the agreement with just four countries.” The oligarchy and its political and ideological mouthpieces all joined in the chorus: “State assets have to be opened up.”
In the December 2003 rounds, therefore, the Costa Rican government substantially changed its position. It accepted the idea of including the “state monopolies” in the discussion. It sustained that there would be no privatization, but that there would be an “opening up,” which despite the worn-out word play amounted to the same thing. The distinction is merely that the government is thinking about introducing the privatization process gradually in an attempt to avert any domestic social conflict.

Costa Rica’s reluctance to sign on December 17 can be explained by the excessive US demands related to the deadlines and just how much of the sector should be privatized. In addition to telecommunications, the US negotiators are also calling for the privatization of insurance, and there is even talk of including the financial services. Without underestimating the importance of this skirmish of resistance, everything would unfortunately appear to suggest that the imperial demands will be satisfied. Legislative commissions are already being formed to rewrite the laws regulating telecommunications and insurance.

Although any change in the Costa Rican government’s position would surely provoke strong popular resistance, we believe—and let’s hope we’re wrong—that another result of the FTA will be the radical elimination of the few services in Central America that still remain in state hands, which will pass into the control of transnational companies, particularly US ones. Central America will be homogenized in line with neoliberal orthodoxy, bringing—Costa Rica—the most backward country in that respect, into line again. We are moving towards a homogenization of the social barbarism reigning in the isthmus, to which Costa Rica is currently the exception.

Left to the will and laws of the transnationals

Following all of the legislation passed regarding the structural adjustment programs, it is difficult to protect investments made by transnational capital in Central America much more than they already are. But if there is any remaining legal opportunity, the FTA will see to it that the transnationals’ interests are completely satisfied. With the signing of the FTA, no country will be able to sue the transnationals for not honoring state norms and contract clauses, although the transnationals will be able to sue countries that they consider are not bending to their will.

The increased guarantees for transnational capital are at the expense of a reduced government tax collection capacity, which of course will be further affected by the elimination of tariffs required by opening up the markets. This means that the Central American countries are heading towards an even more insoluble deepening of their fiscal crises and financial imbalances and, as a result, towards a greater dependency on foreign debt.

Our biodiversity: Handed over on a silver platter

The United States hardened its position on patents and intellectual property, seeking benefits for its transnationals that exceed those already achieved through intellectual property agreements in the WTO. This means that the continuance of Central American production and/or purchase of generic medicines and agrochemicals is at risk throughout the region. In the most optimistic scenario, the United States may have reduced its demands regarding generic medicines, but we don’t believe it would have done so in relation to generic agrochemicals.

Something more strategic than generics is at stake here. The FTA will hand over our greatest wealth to the US transnationals on a silver platter. Central America’s biodiversity, including water, is not only greater than US biodiversity, it is one of the greatest treasures on the planet. By means of the norms governing patents and intellectual property, the US transnationals will be able to monopolize the exploitation and marketing of our biodiversity. And we’ll be left with the ruins, as has happened previously with minerals, wood, rubber and bananas.

Environmental and labor norms:
Hands up and wages down

Labor and environmental issues were the filling in the FTA negotiations, and the Central American negotiators paid squeeze the work force. The states have to answer for any infringements for not assuming their responsibility in overseeing fulfillment of the laws scarcely any attention to them. In this area, the United States presented itself as a progressive force, which scared sectors of the regional oligarchies. The United States proposed effectively enforcing the Central American legislation on labor and environmental matters, but its proposal was never anything more than a rhetorical formulation with a double aim. It sought to respond to the protests from US unions, while at the same time making itself appear more advanced in this area than the native oligarchies.

The US negotiators knew that their country’s environmental legislation is more progressive than the Central American laws, even allowing for Bush’s refusal to sign the Kyoto protocol. They also knew that workforce “flexibility” has prevailed in our societies for some time now. Given such conditions, the heart of the judicial labor issue lies in wage levels, where there is an abysmal distance between the United States and Central America.

What the United States really wanted was for the region’s labor and environmental legislation not to become so rigorous as to trouble US capital. They knew, for example, that the oligarchies would never think about demanding that US investment in the area homogenize wages upwards. Nor were they even likely to consider demanding homogenization in line with Costa Rican wages, which are the highest in the isthmus, precisely because all of the Central American oligarchies are seeking to lower them. The most concerned of all was the Costa Rican oligarchy, due precisely to the high wage levels in their country. In this respect, Nicaraguan migration is a real blessing because it helps bring down wages and lower the concern.

In relation to both the environmental and labor issues, the United States sustained that the transnationals should not have to respond for their failure to honor the established norms, even though they cause catastrophes and squeeze the work force. It will be the states that answer for any infringements for not assuming their responsibility in overseeing fulfillment of the laws. This is an idea that has come to complement the norms on foreign investment and patents and intellectual property. It provides complete impunity to the transnationals when sacking our resources and trampling on our work force.

The end of development projects in national states

Phrases such as “Challenges and opportunities will have to be faced,” and “There will be winners and losers” have been repeated again and again by the politicians and their technocrats when describing their expectations regarding the post-CAFTA reality in Central America. In fact, there will be neither winners nor opportunities for the Central American countries as political communities. Those projects that once existed to consolidate national states and break out of underdevelopment will lose any historic viability. We will end up forming part of the annexed states of Central America, one of the colonial protectorate forms that are flourishing in the 21st century.

Winners? Transnational capital, particularly from the United States, which will completely control a productive model that we already know and that will be consolidated, based on exports from agricultural enclaves and industrial maquilas and complemented with privatized public services and tourist activities. It is a model that relies on foreign debt, food dependency, low wages, the exportation of migrant workers and the plundering of natural resources.

Of course some native minorities will manage to keep afloat: those associated with and subordinated to transnational financial capital; those associated with and subordinated to the financial capital that controls nontraditional agricultural production and maquila production; those associated with and subordinated to the transnational capital controlling tourist activities; those importing and providing services for the consumption of the elites; and the political bureaucracies and technocracies at the service of the empire.

Minorities with imperial citizenship
and a majority of pauperized colonists

These minorities will no longer be “nationals” in the traditional sense of the word. They will form part of a kind of imperial “citizenry,” but of the second, third or fourth class. All empires throughout history have tended to organize the rights of their subjects according to a hierarchy.

Those of us in the remaining majority of the populations will form part of a colonized class: a diaspora of pauperized and miserable survivors. Some of us will survive as cultural ghettoes, because we have had the chance to help create the cultural power that Latin America has become. Nicaragua has made a particularly significant contribution to the construction of that power. But to create ourselves a political citizenry and be able to access the benefits of economic civilization, we will have to radically change the perspective of our struggle. We will have to do so in the context of and in coordination with the different struggles of all of those colonized and excluded from across the planet; all those who are currently resisting the imperial project of barbarized world colonization.

Amaru Barahona is a Nicaraguan social scientist living in Costa Rica.

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