[NYTr] CAFTA in C'Rica Would Cause Deepening Inequality

[All the News That Doesn't Fit]

IRC Americas Program - Sep 24, 2007
http://americas.irc-online.org/am/4575


CAFTA in Costa Rica Would Cause Deepening Inequality

by Maria Eugenia Trejos

English translation by Tony Phillips

In Costa Rica the Central American Free Trade Agreement (CAFTA) with
the United States ran up against a huge opposition movement. The
opposition stems from the fact that Costa Rica has developed extensive
social services and the public knows that they have a lot to lose. Some
of the nation's influential intellectuals have also dedicated
themselves to study the agreement and share the analyses with the rest
of the population. Finally, our somewhat effective democratic
institutions have worked to delay the process in the Legislative
Assembly, opening up more spaces for citizen involvement.

A popular referendum has been called for Oct. 7 to decide the future of
the agreement. There are serious questions as to how it is being
conducted, including doubts about the impartiality of the Electoral
Tribunal, which instituted voting rules that do not guarantee fair
participation in the vote. For example, there is no fiscal control of
media outlets, most of which have expressed a clear bias in favor of
the agreement's approval; nor are there rules as to the use of the
president's and ministers' time and resources in producing propaganda
in favor of approval. Efforts have been made to silence opposition from
the public universities but no mechanism has been created to give media
access to those sectors opposed to the agreement.

Nevertheless, there is a large social movement opposing the agreement.
Diverse in nature, it is composed of a wide range of organizations and
has created many ways of disseminating opinions. The strong presence of
the movement against ratification of CAFTA will not end with the
approval or rejection of the agreement, but could well be the seed of
broader social transformation.

The following paragraphs analyze what CAFTA would mean for Costa Rica.

Main Negative Effects of CAFTA

Put succinctly, CAFTA hands Costa Rica over to the multinational
corporations. This is evident throughout the entire text of the
agreement, but the following aspects illustrate the overall effect of
the agreement:

    * Biodiversity: Chapter 15 on Intellectual Property permits
patenting the genes of living organisms, and Chapter 10 on investment
prohibits, among other things, requiring knowledge transfer from
multinational companies, thus making it possible for the multinationals
to conduct research into our native species and maintain any knowledge
they might acquire in secrecy. The benefits of these rules go to the
huge pharmaceutical and the cosmetic industries and Costa Rica loses
control over its own resources.

    * Water and Natural Resources: Chapter 10 on investment, Chapter 17
on the environment, and Chapter 20 on dispute resolution, taken
together and in the best of interpretations, enable multinational
corporations to sue the Government of Costa Rica should it take
measures they might consider "equivalent to expropriation" or that
"affect their earnings" (Article 10.7.1, appendix 20.2). With this,
businesses' access to the water and natural resources, and their
"right" to profits take precedence over any measure (whether human or
social) that might be taken by the government or municipalities.

    * Culture and Knowledge: Chapters 15 on Intellectual Property and
10 on investment also enable multinationals to take ownership of seeds
and of traditional knowledge of plants and animals.

    * The Markets: The first chapters of CAFTA allow the importation of
subsidized products from the United States, without requiring import
tariffs in Costa Rica. This will be the last straw for the already
damaged food production industry, and along with it put an end to any
hope of food sovereignty. Mexico is a good example of this, as nearly
two million agricultural jobs have already disappeared since Mexico
signed NAFTA with the United States and Canada, replaced by food
imported from the United States.1 Nevertheless, this has not guaranteed
lower national food prices; in fact the price of essential foodstuffs
has risen while ruining the livelihoods of rural workers.2

    * Current Public Investment: CAFTA would open up the Costa Rican
telecommunications and insurance industries, as well as involvement in
other public services, such as water, electricity, and education. For
the same reasons as with water and natural resources (above): in the
least unfavorable interpretation, multinational companies maintain the
right to sue the state for means which they may consider "equivalent to
expropriation" or which "affect their profits"—restrictions or
regulation in those areas thereby preventing the state from maintaining
them under public dominion (see Annex II Non-Conformant Measures, Costa
Rican list).

    * Abundant and Cheap Labor Force: The right to work does not appear
anywhere in CAFTA. To the contrary, the agreement negates any right to
require minimal employment levels in transnational companies. Neither
does CAFTA guarantee labor rights; except in five specific instances,
the country is committed to prevent violations "if commerce is
affected" (see Chapter 16 on Labor). That is to say, if it harms the
transnational companies and not if it harms the workers.

    * National Sovereignty and the application of legislation (use of
law and regulations). The ability to legislate is handed over because
CAFTA puts itself above all national laws so no new law can be
approved—nor can those in place retain their vigilance—where they
contradict CAFTA. The ability to apply laws is affected by the right of
the transnational companies to take their demands before a court of
arbitration. Judges in these tribunals, ignorant of Costa Rican laws,
jurisprudence, or legal interpretation, could modify both the decisions
of internal courts and of state organisms at any level, taking into
account only that which is stipulated in the agreement and not the
Costa Rican Constitution and laws. The ability of the State to regulate
the activities of multinational companies would be affected by the
aforementioned stipulations when it comes to public services and
natural resources.

The damage done by the whole agreement is the hand-over of the country
to the multinationals. The essence of this is found in Article 9.14
(repeated in 10.9.3.c), which says that measures can be taken to
protect health and life, as long as they do not affect commerce.

Impacts on the Poor

The impact of the above on the poor majority and on workers is evident.
Nothing in CAFTA favors any sector of the economy except the
multinational corporations. What is more, Costa Rica is the only
Central American country that did not make any provisions to protect
its most vulnerable sectors, i.e. small producers, impoverished women,
native peoples, low-income sectors, etc.

Furthermore, given that women already constitute a disadvantaged
sector, a treaty that does not protect its most vulnerable sectors
particularly affects women. For example, female small farmers, who are
responsible for the evolution of the genetic variety of foodstuffs and
traditionally charged with feeding their communities, may now encounter
obstacles in the continuation of their traditional practices, not only
because the Intellectual Property stipulations in CAFTA enables the
multinational companies to patent plants and animal species, but also
because the treaty reinforces multinational property rights on their
seeds. Rural women farmers would also be affected if CAFTA were
approved because it would permit the entrance of subsidized farm
products from the United States, without tariffs to compete with their
production.

It is also clear that this is bad news for wage-earning women workers,
since the treaty reduces work opportunities in general and closes doors
to women in particular. Women already have a higher unemployment rate
and a greater presence in the "informal" employment sector in Costa
Rica.

We are told that CAFTA increases exports and increases Foreign Direct
Investment (FDI) and that this will increase employment. Nevertheless,
none of this reasoning is true. On the one hand, CAFTA does not
guarantee an increase in exports nor in FDI. In fact, last year
Guatemala, Honduras, and El Salvador, with the agreement in place,
actually saw their exports to the United States decrease.3

No increase in foreign investment is guaranteed. Last year foreign
investment in Costa Rica, without the treaty in place, was greater than
that which was invested in all of the other Central American countries
put together.4 Also, an increase in exports and in FDI does not
guarantee that employment rates will rise. Between 1994 and 2006 in
Costa Rica FDI rose by 500%, exports by 300%, and nevertheless
unemployment also rose. This is because FDI displaced national
production, and in doing so sometimes generated more unemployment than
employment.5 This also was a result of an increased rate of
displacement of national producers and employees. All such effects
would be exaggerated if the agreement were to be approved.

Protection of labor rights are also not taken into account, as member
countries only commit to support a few labor rights and even then only
when commerce is not affected (see article 16.2.1.a). As with the right
to health and life, not to mention labor rights, all are subordinate to
commercial interests.

CAFTA would affect domestic workers and housewives in particular
because of its negative impact on public services and on those
dependent on basic foodstuffs. As far as public services go, in Costa
Rica the telecommunications and insurance industries would be opened
up, which will affect access to telephone services (which have clearly
become more expensive when they pass out of state control into the
hands of multinational companies). Nor are these the only services;
water, electricity, and education will be subjected to its rules.

None of these three cases are exempt from the application of the norms
of the treaty; either the service is subject to the agreement as is the
case with electricity, or the supposed exclusion is conditional only
for so called "social services" (see Annex II Non-Conformant Measures,
Costa Rican list), not guaranteeing water or education. In this way
multinational companies could use CAFTA to prioritize foreign
investments above national interests.

For example in the case of water, it might mean that priority is given
to suppliers of golf courses or hotels rather than prioritizing
community use. In education it might mean sharing the education budget
as currently happens in Chile. Yes, health services are excluded from
some general norms, but, neither health nor any other service is
absolved from the right given to multinationals to sue the state, in a
court of arbitration for "measures tantamount to expropriation" or
"measures that affect profits."

Simply put, in all cases the ability of the state to regulate services
for public interest is diminished, and the treaty encourages
multinational control, therefore encouraging profit making rather than
the provision of universal public services.

Greater multinational control of services is thereby encouraged, and
international experience has shown that this control does little to
improve the quality of services but does lead to an increase in prices.
A recent local example can be seen in Nicaragua, where electricity was
put in the hands of a Spanish multinational, which in turn has lead to
blackouts.

As for basic consumption, by opening the national market in basic
foodstuffs, leading to possible displacement of national production,
the effects will extend not just to producers, but affect the consumer
as well. The experience of Mexico, as we have said above, is that once
local producers are displaced from the market, the prices to the
consumer increase, and furthermore all profits remain in the hands of
intermediaries or the companies exporting from the United States.6

CAFTA and the Women of Costa Rica

Women in Costa Rica are mainly domestic workers. If we add in those who
work in the "informal sector,"7 which is not a stable source of
employment but really a last recourse for those who have little other
choice, the resulting group encompasses more than 80% of all Costa
Rican women over the age of 15.8

As to those who work outside the home in more formal settings, the
majority work in assembly plants (maquiladoras), largely in the
clothing sector; some also work in education and as domestic servants.
The clothing industry has awful labor conditions: entailing extremely
intensive piecemeal work, the dangers of injury and shift-work, little
protection, and no freedom to form unions. On top of this, the way
wages are set leads to more intensive work and an increase in the
length of the workday while overtime goes unrecognized.

In education, workers in the public sector have full workers rights,
although wages are low and the work intense.

We can predict negative impacts all-around in the sectors mentioned
above if the trade agreement is approved. In the clothing industry, we
can already see effects in the industrial sector with or without CAFTA,
by the way in which the industry has been restructured on an
international level. The multinationals control the chains of
production and the sales and marketing. Countries such as Costa Rica
only work the seams and finishing work, all of which is performed under
the control of the multinationals. It really doesn't matter from the
point of view of the multinationals if the production is done in
Central America, India, China, or Vietnam. They can move production
plants or change contractors from one country to another.

With the 2005 global elimination of the import quotas approved at the
World Trade Organization (WTO), competition from clothes originating
from Asia has displaced Central American and Mexican production. CAFTA
doesn't protect clothing made in these countries and it remains obvious
that this pattern will continue. In fact, just this last year clothing
exports into the United States fell from all countries in Central
America except Nicaragua.9 The same is true of Mexican clothing
exports.10

In the education sector it is expected that CAFTA would lead to a
growth in private education, where wages are lower and labor rights are
not respected; among such rights is the right to organize, which might
otherwise offer some protection.

Above all one finds Nicaraguan migrants working in the domestic service
sector. The agreement stipulates that member countries do not further
their commitments with respect to migrant workers (Art. 11.1.4.5), so
their current lack of protection will no doubt continue. Public
Services and CAFTA

When it comes to public services, one of the principal policy aims of
CAFTA is expansion of multinational activity in public services. This
expansion changes the way Costa Rica has traditionally provided these
services, moving from a philosophy of solidarity and concern for the
people, to the profit motive and a lack of regard for human necessity.
Services cease to be considered a means to attend to the needs of the
population or a way to provide for human rights, and instead public
services are treated like any other merchandise—they are provided only
to those with the means to pay for them.

If this happens, more sectors of the population will find themselves
excluded from access to such services. In this case, the women,
domestic workers entrusted with the survival of their families and
access to services, will be further burdened trying to find
alternatives to that which, until now, has been provided—medical
attention, public education, drinking water, electricity, and
telephones.

To sum up, CAFTA is a legal instrument that favors multinational
expansion without limits, leaving the most underprivileged sectors of
our population totally unprotected, among them women and the poor.


End Notes

   1. Source INEGI, available at http://www.inegi.gob.mx/.

   2. Vargas, Oscar René. ¿Qué es el CAFTA? Un tratado entre desiguales
Centroamérica-Estados Unidos, UPOLI, Managua, 2003.

   3. See
http://www.census.gov/foreign-trade/statistics/country/index.html.

   4. CEPAL, Estimate based on official data available 24 April 2007.

   5. COMEX based on numbers available in the BCCR and PROCOMER found
at http://www.comex.go.cr/estadisticas/inversion/IED%202006.pdf; INEC:
Home polling.

   6. See footnote No.2.

   7. These are the domestic servants whose workers rights are most
often violated, beginning with recognition of the minimum wage.

   8. INEC 2006, main results Home polling, multiple choice 2003 en
http://www.inec.go.cr and OIT: Labour panorama 2004 pages: 98-99, in
http://www.oit.org.pe/portal/documentos/texto_completo_2004.pdf
revisado en noviembre de 2006.

   9. CEPAL (Comisión Económica para América Latina y el Caribe) 2007.
Istmo Centroamericano: evolución económica durante 2006 y perspectivas
para 2007, 16/04/2007.

  10. INEGI 2005: Industria maquiladora de exportación . Economic
Statistics, monthly publication, September, p. 25.

[Maria Eugenia Trejos is an economist specialized in labor studies,
member of Pensamiento Solidario, a group formed to analyze the Free
Trade Agreement and create public awareness about its contents. She is
an analyst with the Americas Policy Program at www.americaspolicy.org.]