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Recommendations to the United States Trade Representative on the Negotiation of the Central American Free Trade Agreement

 

Catholic Relief Services
October 2003

Introduction

Catholic Relief Services (CRS) is the relief and development agency of the United States Conference of Catholic Bishops. Our perspective on international trade is rooted in moral principles shaped by a long tradition of social teachings in the Catholic Church and shared by many other religious traditions. These teachings maintain that international trade, as all economic relations, must be in the service of the human family.

We believe that this fundamental moral principle is central to the content of whatever trade agreements are negotiated between the United States and other nations, especially the poorer nations of Latin America, Africa and Asia. Trade agreements should advance the common good of all our people, and avoid the danger of enriching the few at the expense of the many. They should produce reciprocal benefits for both sides of the agreement. In this regard, CRS recalls the recent remarks of Pope John Paul II on globalization: "It is up to the political and economic leaders to do everything possible so that globalization does not work against those who have fewer resources or are weaker, increasing even more the gap between rich and poor nations."

Commercial trade has emerged as a major engine of globalization and the primary form of economic exchange between US and many other nations, including some that continue to receive humanitarian and development aid. It has great potential to serve as a vehicle for promoting a better quality of life for members of society in all countries involved in the trading relationship. According to our moral principles, trade is a means to achieving equitable and democratic development, not an end in itself. A truly just and democratic approach to trade agreements and related national policy decisions should seek the integral development of the entire society. As Pope Paul VI affirmed "....when two parties are in very unequal positions, their mutual consent alone does not guarantee a fair contract; the rule of free consent remains subservient to the demands of the natural law… free trade can be called just only when it conforms to the demands of social justice."i

CRS speaks as a US agency linked to 60 million Catholics in the United States, many of whom are family farmers. Our statement also reflects the voices of partners with whom we work in more than 90 countries to provide humanitarian relief, reduce poverty, and promote democratic and peaceful development. CRS's partners in the Catholic Church and in civil society in Central America, as well as many constituents here in the United States, have expressed concerns about the potential impact of the prospective Central American Free Trade Agreement (CAFTA) on their populations, particularly the poor that comprise the majority of the population. They believe that although increased trade between the US and Central America could bring prosperity to poor and marginalized people in all participating nations, there are insufficient assurances in both the process of the trade negotiations and the substance of the trade agreement that their interests will be served.

Informed by their perspective, we elaborate below on our views about both the process and the substance of CAFTA, and offer recommendations for how to shape the trade agreement in order to promote a socially just outcome.

I. The Process of CAFTA Negotiations

Through an authentic democratic and participatory process, national governments and citizens can define together the economic needs, priorities, and interests that will serve the majority of their people in any international trade arrangement. CRS believes that CAFTA negotiations, and the final agreement they produce, will be considered legitimate and just by the affected citizens in Central America and the United States only if they are conducted in a democratic, transparent, and accountable way – even recognizing the limitations of formal democracy in Central American countries. In November, 2002, Bishops from Central America noted, "We do not oppose on principle any type of treaty or trade agreement that proposes economic and social development for our region, but we see an urgent need for more reliable information and broader debate, so that economic interests do not jeopardize the interests of citizens, especially, in our case, of peasant farmers, who would be the most affected by these agreements."ii

CRS wishes to reiterate concerns expressed in an earlier statement to the USTR related to the lack of transparency, public debate and democratic process in CAFTA negotiations to date. Even in the United States and Central American countries with democratically elected government, citizens have not been adequately informed or consulted about the trade agreement. CRS is particularly disturbed by the agreement among the six negotiating governments not to release the CAFTA negotiating text to the public and by their "confidentiality agreements" not to reveal the agenda of negotiation sessions, or the substance of decisions. In the United States, the text is classified as sensitive to national security and foreign policy, which exempts it from the Freedom of Information Act.

Concerns about the process have grown with reports from Central American civil society partners who have monitored and tried to engage in the debate and negotiation process in their countries. Some of our civil society partners in Central America who had accepted their government's invitation to participate in "adjoining room" discussions with negotiators have since withdrawn because they found the channels for participation and influence, as currently designed, ineffective. They cited the difficulty of obtaining access to information, the limited opportunities for providing input to the negotiators, and the lack of response to their policy recommendations. They are now calling for a moratorium on the negotiations until more favorable terms of negotiations can be reached.

Therefore, CRS again urgently requests that the US Trade Representative work with counterparts in Central America to amend the internal negotiation and decision-making process in order to ensure the democratic legitimacy of CAFTA, by taking the following steps:

  1. Immediately suspend negotiations and significantly extend the timeframe for negotiation of the CAFTA agreement to allow sufficient time for broader public education, debate, and impact analysis. This will require trade officials to revisit the rules and procedures of negotiation to allow greater public debate and meaningful civil society participation.

  2. Immediately release the study completed in December 2002 by the International Trade Commission on the potential economic effects of CAFTA on the US economy and hold public hearings around the study

  3. Commission additional independent assessments of the potential employment, poverty and environmental impacts, both positive and negative, of CAFTA in the United States and in Central America, and widely publicize results in both English and Spanish.

  4. Release the CAFTA negotiating texts to the Congressional Oversight Group as well as to the public.

  5. Revoke any "confidentiality agreements" restricting negotiators from releasing the agenda or outcomes of meetings. Instead, publicly release meeting agendas, statements of the negotiating position of the US government, and statements of the outcome of negotiations.

  6. Seek agreement with Central American governments on the adoption of specific mechanisms and procedures for civil society consultation and representation in the negotiating process – including labor, environmental, small farmers, small business, immigrants, women, and other sectors.

II. The Content of CAFTA

Although trade can positively contribute to economic development in Central America, it should be seen as only one element in a larger strategy designed to promote equitable and sustainable development in the region. It should be consistent with, and complementary to, other components of US economic relations with the region, such as foreign assistance and debt reduction, and all should aim toward the overarching goal of poverty reduction. Similarly, reaching this goal will also depend on the capability of Central American countries to strengthen the institutions and adopt policies necessary to advance equitable and sustainable development.

CRS also reminds US trade officials of their commitments in the World Trade Organization dialogue in Doha in 2001 to "fully take into account the development dimension."iii As the Vatican has noted, this will require the US and other wealthy countries to adopt "greater flexibility and a decisively more development-friendly approach than has been demonstrated, accompanied by a courageous implementation of the Doha Declarations aimed at the elaboration of new rules consistent with the Millennium Development Goals."iv Consistent with these commitments, the United States should allow its trading partners to protect important public policy goals relating to food security, nutrition, access to medicines and technology, the elimination of rural poverty and protection of local communities and livelihoods. Trade agreements should also permit local businesses and industries in developing countries to become more efficient and competitive in order to generate employment for the majority of citizens.

Central America stands to be much more significantly affected by a free trade agreement than the United States. Central American exports to the United States represent only 1 percent of all US imports, but US exports to Central America represent a full 46 percent of Central American imports. Thus an agreement that will even modestly increase the volume of trade between the two regions could have dramatic effects upon Central American economies. Guatemala, Nicaragua, and Honduras are among the poorest countries in the world and in 2002, the World Economic Forum found that these three countries rank among the ten least competitive countries in the world. Given the asymmetry between the size of the economies of the United States and Central American countries and between their respective levels of development, Central American producers stand to be overpowered by their larger, more efficient, and often subsidized counterparts in the United States.

We believe it is essential for the negotiators of CAFTA to address this imbalance by adopting trade rules that fully take into account the lower level of development of Central American countries. Consequently, increased trade between the US and Central America should be accompanied by a deliberate program of US economic assistance designed to ameliorate the costs and spread the benefits of trade to the poor majority of citizens. The following sections elaborate on specific recommendations for the CAFTA agreement and for related assistance programs.

A. Agricultural trade

Agriculture is critical to the economies of Central America, generating between 20 to 30 percent of national income and one-third to one-half of employment in most Central American countries. The history of civil war in Central America during the 1970s and 1980s also revealed the extent to which rural poverty and inequality contributed to social disintegration and therefore how important rural development is to regional peace and security. At present, Central America faces a serious food security crisis, due to the general level of poverty and made worse by recent drought and the dramatic fall in the price of coffee on the world market.

Continued agricultural trade liberalization, if not carefully designed, has the potential to displace millions of small farmers throughout Central America as well as small farmers in the United States. CRS is mindful of the concerns expressed by the Catholic Bishops in Mexico, who recently addressed the situation of small farmers in Mexico, in response to the growing social unrest in many rural areas. The Bishops attribute this turmoil to a number of factors including, over the last decade, the North American Free Trade Agreement (NAFTA). Reflecting upon NAFTA, the Bishops state that "the results of this [NAFTA] agreement have been beneficial for some regions and some growers in the country, but the majority of the farmers, small peasant and indigenous farmers, have experienced a severe decline in their incomes and quality of life . . . It is important to note that the group which did reap significant benefits [from NAFTA] numbers in the thousands, while the group that did not is made up of approximately 3 million farmers." CRS-Mexico's partners throughout the country report increasing numbers of small corn farmers leaving their plots of land and migrating to the cities and northward to the United States because of the impact of US grain imports. The US Catholic Bishops have long expressed their concern for the plight of the undocumented migrants who enter the United States seeking economic survival for their families.

The experience of NAFTA offers strong caution for Central American farmers. CRS is disturbed by reports that the United States is insisting that Central America provide immediate access to its markets for US exports of various agricultural products, while it is only permitting a 10 percent increase in the quota for Central American exports of sugar. Such a proposal could cause dramatic displacement among many Central American small farmers.

Therefore CRS urges the United States to prevent a similar outcome in Central America by taking the following steps:

In light of the collapse of negotiations over agricultural trade through the WTO, address these issues immediately through CAFTA and other regional trade agreements if it is not possible to revive multilateral negotiations. Substantially reduce US subsidies that encourage exporting goods below the cost of actual production, adversely affecting Central American farmers as well as farmers in other developing countries.

For staple food crops -- for example corn, bean, rice, beef and dairy products -- permit Central American countries the flexibility to use tariffs, quotas and special safeguard measures and allow realistic, and in some cases indefinite, retention of such mechanisms.

Promote consistent food safety standards that are open to public review and are based on internationally accepted scientific criteria with the objective of ensuring that such standards are not used as a pretext for excluding Central American products from the US market.

Support efforts to stabilize prices of key commodities exported by the region, such as coffee.

B. Technology and Intellectual Property Rights

The United States routinely insists that trading partners adopt legal protections for intellectual property as a condition for free trade agreements, and is therefore likely to do so in the case of Central American countries.

Catholic social teaching upholds the right of private property, but only if such rights do not come at the expense of protecting the life and dignity of people. As the Vatican noted in its statement at the WTO meeting in Cancun in September, "the intellectual property rights system must exist not only to protect creative and innovative impetus but also and primarily to serve the common good of the human family."vii CRS's work with nearly two million people living with HIV/AIDS in 31 countries compels us to strongly support the existing TRIPS agreementviii as well as the spirit of the declaration made by trade ministers in Doha in November 2001. Both recognize the right of countries to take measures to protect public health and promote access to medicines, over and above the obligation to protect intellectual property rights. Although access to affordable medicines is only one element of an effective strategy to address HIV/AIDS in poor countries, it is nevertheless an essential element.

CRS is encouraged by the progress made in late August 2003 allowing poor nations to produce or import cheaper versions of essential drugs for public health crises. Nevertheless, CRS is concerned that the agreement is surrounded by so many difficult technical implementation conditions that it will be very difficult for poor nations to take advantage of it. For example, the agreement requires both the producing countries and the importing countries to give notification of their intent to produce and trade generic medicines, and requires them to obtain licenses for every generic drug that crosses borders, administrative burdens that could lead to delays and discourage producers.

CRS is concerned that the continuing concentration in the ownership of land and resources and the marketing and distribution of food gives control to too few and diminishes effective participation. Patenting of natural resources creates monopoly control of those resources. Partners in developing countries have expressed concern with the potential loss in biodiversity, increase in prices, and commercial sanctions associated with granting of such patents, as well as the possibility of losing access to resources such as seeds, which have been developed over years. CRS believes that trade agreements should not insist on intellectual property rights that would seriously inhibit farmers' ability to use genetic plant resources such as seeds for food and agriculture. As the vice president of the Pontifical Academy for Life, Bishop Elio Sgreccia, recently noted, "genetically modified products must not serve for the exclusive use of enterprises, of great industries. Industries must benefit from a just profit, but must not be turned into a monopoly which becomes a serious burden for those needing to take recourse to these products."ix Furthermore, the principle of transparency, and the public's right to know, should govern the marketing of commodities comprised of genetically modified products, both within and among countries.

Therefore, CRS recommends that the CAFTA agreement respect the following guidelines regarding intellectual property rights and technology:

  • Ensure that the implementation of the agreement regarding production and international trade in essential medicines genuinely allows poor people access to such medicines, especially in the fight against HIV/AIDS.

  • Grant patents for the minimum time and under the minimum conditions necessary to provide incentives for innovation.

  • Prohibit private interests from patenting agricultural products and processes developed over time by rural producers, without their consent and fair compensation.

  • Require that any marketed product constituted of genetically modified varieties be appropriately labeled and that countries importing such products be fully informed about their genetically modified content.

  • Adopt strategies and programs to help transfer these technologies affordably to Central American countries and other developing countries, to the extent such technologies are judged safe and requested by these countries.

C. Labor Rights

Economic choices should be guided by a firm commitment to the dignity of work and the rights of workers, principles central to traditional Catholic social teaching on economic justice. The Vatican has clearly stated in the context of WTO negotiations "Child labor, organized prostitution, slavery and forced labor, and the proscription of labor unions can never be part of national policy or be defended by a country's right to development."x

CAFTA should therefore offer incentives and protection mechanisms to generate stable employment and to safeguard healthy work environments and respect for internationally accepted labor rights standards. CRS observes that in Central America today workers in maquila industries face major challenges to their right to associate, organize and bargain collectively. Labor laws themselves are inadequate and in some cases do not embody International Labor Organization core labor standards. And, even where there are laws on the books, they are not well enforced. Collusion of government labor inspectors with employers is not uncommon.

CRS recommends that any trade agreement with Central America should:

  • Promote the creation of just working environments that secure employment or income-earning opportunities for citizens, particularly the poor and disadvantaged, small farmers, small producers, women, and indigenous peoples.

  • Promote decent work for just wages and in safe and decent conditions;

  • Prohibit the worst forms of child labor and any forms of forced labor;

  • Respect and promote internationally recognized rights of workers to associate, organize and bargain collectively;

  • Include effective dispute resolution and enforcement mechanisms (other than denial of trade benefits) to address violations of internationally recognized core labor standards;

  • At a minimum, promote incorporation of internationally recognized core labor standards in local labor laws, where necessary.

D. Migration

CAFTA seeks to address the movement of capital and goods between nations, but to date does not sufficiently address the related question of the safe and legal movement of workers across borders in response to shifting economic opportunities. The growing contradiction between economic policies premised on increased economic integration between the United States, Mexico and Central America on the one hand, and migration policies based on separation on the other hand, will likely undermine the goals and stated interests of the nations participating in trade agreements.

Immigrant labor has been critical to US economic growth during the 1990s, and the US Treasury Department predicts a shortage of at least 6 million workers in the US economy by 2008. Additionally, Central American immigrants in the US are collectively contributing to the economic well-being of their home countries, providing billions of dollars through remittances.

Shifts in capital investments under CAFTA are likely to result in migration of labor from rural to urban areas within countries, among Central America countries and between Central America and the United States. Similar trends were predicted prior to the implementation of NAFTA,xi though little integration or coherency between trade and migration policies has resulted.

It has long been the position of the Catholic Church that people have the right to find economic, political and social opportunities within their own countries in order to live in dignity. This "right to not migrate"xii is based on the conviction that economic policies must respond to the needs of the most vulnerable sectors – in this case, those most likely to be uprooted. Additionally, the Catholic Church affirms that although sovereign states have the right to impose reasonable limits on immigration, where conditions for dignified life do not exist and individuals cannot find employment in their country of origin to support themselves and their families they have a right to find work elsewhere in order to survive.xiii The long-term goal is equitable development, with migration as a choice rather than a necessity. However, given the anticipated trade-related displacement of workers, any agreement should seek to:

  • Support economic and social development programs targeted to areas of current large-scale internal/external migration in Central America.

  • Provide technical and economic assistance to Central American countries to predict and prepare for migration of populations, whether through programs to address social effects of urbanization or through programs for border personnel training and facilities that are conducive to fundamental human rights standards.

  • Create mechanisms to facilitate and reduce the price charged for the transfer of remittances from migrant workers to their families.

  • Include migration policy experts and migrant representatives in the review and development of the CAFTA trade agreements. Conversely, government and civil society trade representatives should participate in the development of migration policy.

Concurrently, migration policy in the United States must be designed within the context of the larger economic integration between the US and its neighbors, in order to confront the current divergence between economic realities and effective management of migration. Such measures will make it possible for safe, legal and managed movement across borders to the benefit of both migrant workers and US economic and security concerns.

These migration policies should:

  • Protect the basic human rights of immigrant workers in the United States, regardless of their legal status.

  • Promote a comprehensive reform of US immigration laws that features a broad-based legalization of workers, including Central Americans who have established work histories and family ties in the US

  • Expand the number of work visas for Central Americans to enter the US as legal permanent workers, and extend these to workers other than commercial professionals.

  • Create a temporary worker program that is enforceable and offers appropriate protections to workers (fair wages, job portability, employment benefits, etc,).

E. Foreign Assistance, Debt Reduction and Other Complementary Measures

In tandem with identifying rules for CAFTA that will level the playing field between the negotiating countries, CRS urges the United States to make concrete commitments to provide international aid and technical assistance for Central American countries. Such assistance should not focus simply on "trade capacity building" programs that enhance the skills of government officials to negotiate trade agreements. Rather, it should assist Central American producers, especially the poor, to maximize the potential for benefiting from trade, and compensate for any adverse impact on specific groups from trade rules.

Therefore, CRS urges the US to allocate new financial resources to create or expand existing bilateral and multilateral assistance programs through the US Agency for International Development, the Millennium Challenge Account, the international financial institutions, or other official assistance agencies, in order to:

  • Provide transitional assistance for rural and urban workers in Central America who are adversely affected by increased trade, drawing upon the results of independent assessments of the impact of trade on specific groups;

  • Provide technical assistance to improve labor, environment and food safety standards in Central America;

  • Support "fair trade" programs that seek to ensure that producers in Central America receive a stable minimum price for their products, obtain direct access to markets in the United States, be afforded opportunities for employment and advancement, and promote environmentally sustainable farming practices;

  • Support programs that address the root causes of rural poverty in Central America, including public investment in rural infrastructure, and access to credit, technology, information, and other productive resources by small farmers.

  • Work through the IMF and World Bank to reach agreement among creditors countries and institutions to reduce external debt owed by Heavily Indebted Poor Countries to no more than 10 percent of their annual budget revenues, or in the case of Honduras, which is affected by a severe health crisis such as HIV/AIDS, to no more than 5 percent.

III. Conclusion

The Central American Free Trade Agreement holds potential for stimulating growth and development in the region. Given the enormous disparities in the size and level of development between the United States and Central American countries, CAFTA must be slowly and carefully constructed in order to ensure that it ultimately benefits the poor majority of citizens, rather than pose new threats to their livelihood and well-being. Urgent steps must be taken to make the negotiation process much more transparent and participatory. Unless civil society and other stakeholders are meaningfully engaged in the negotiation process, the legitimacy of the agreements will be threatened.

Furthermore, the substance of any CAFTA agreement should only proceed by taking into full account the dramatically lower level of development of Central American countries. This will require that the United States reduce certain agricultural subsidies, allow Central American countries to restrict imports in the interest of promoting food security, subsume protection of intellectual property rights to moral considerations of promoting the common good of people, advance the rights of workers, link trade policies more directly to the problem of migration, and invest in social, economic and debt reduction programs that will enhance opportunities for the poorest people to take advantage of market opportunities. Building such initiatives into CAFTA could considerably expand the opportunity that the agreement will contribute to equitable and sustainable development in the region. And not only Central America, but also the United States will benefit from this outcome, which will likely result in regional peace and stability, lower migration, less drug trade, and increased prosperity.


Notes


i. Populorum Progressio, Encyclical of Pope Paul VI On the Development of Peoples, March 26, 1967.

ii. "To the People of God Journeying in Central America," statement issued by Bishops of Central America, El Salvador, November 25, 2002.

iii. See the Doha WTO Ministerial Declaration (Par. 19): "The TRIPS Council shall be guided by the objectives and principles set out in Articles 7 and 8 of the TRIPS Agreement and shall take fully into account the development dimension."

iv. Note of the Holy See in Preparation for the V Ministerial Conference in Cancun, September 10, 2003.

v. "For the Dignity of the Land, For the Dignity of Mexico: A Message from the Bishops of the Episcopal Commission for Social Action Regarding the Situation of the Mexican Countryside," Episcopal Commission for Social Action, Mexican Bishops Conference, January 2003.

vi. Sandra Polaski, "How to Build a Better Trade Pact with Central America," Carnegie Endowment for International Peace, July 2003.

vii.Statement by Monsignor Frank Dewane, Under-Secretary, Pontifical Council for Justice and Peace, Delegation of the Holy See, at the Fifth Ministerial Conference of the World Trade Organization, Cancun, Mexico, 13 September 2003.

viii. See articles 8, 26, and 31 in the Uruguay Round Agreement: TRIPS, Part II C Standards concerning the availability, scope and use of Intellectual Property Rights, www.wto.org/english/docs_e/legal_e/27-trips_04c_e.htm.

ix. "Ethical Criteria Outlined for Use of Genetically Modified Organisms: Vatican Official Urges Respect for Biodiversity," Zenit, August 18, 2003.

x. Pope John Paul II, Encyclical Laborem Exercens (1981), N. 17, cited in Holy See's Intervention At WTO Conference, 1999, op cit.

xi. The Commission for the Study of International Migration and Cooperative Economic Development, established by the US Government to determine economic mechanisms for regulating immigration, concluded "While economic growth for creating job opportunities is the ultimate solution for decreasing the rates of migration, the economic development process tends to stimulate migration in the short and medium term."

xii. Strangers No Longer, Together on the Journey of Hope: A Pastoral Letter Concerning Migration, Catholic Bishops of Mexico and the United States, 2003.

xiii. Strangers No Longer, Together on the Journey of Hope: A Pastoral Letter Concerning Migration, op.cit.

 



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