Selling Free Trade in Central America

September 25, 2007

On December 17, 2003, Robert Zoellick, the U.S. Trade Representative, announced that the United States, Guatemala, Honduras, El Salvador and Nicaragua had concluded the Central American Free Trade Agreement (CAFTA). In January, after initially holding out, Costa Rica also jumped on board. The new trade regime was greeted with hearty applause from a large number of beneficiaries who were not, actually, your average Central American. They were, instead, international banks, energy corporations, road construction firms, paper companies, advertising consultants, golf course designers and beachfront developers. In announcing the agreement, Zoellick pumped its advantage for U.S. capital: more than half of Central America-bound U.S. farm exports and 80% of industrial and consumer exports will enter the region duty-free upon ratification of the treaty. The Central American countries will, in effect, open virtually all services—including telecommunications, energy, banking, insurance, transportation and construction—to unfettered U.S. investment. As always, profits may be freely repatriated. And in awarding contracts, Central American governments can no longer provide bidding advantages to their own nationals; U.S. corporations must be treated as if they are local companies.

Labor unions, which have taken a ten-year hit from NAFTA in both the United States and Mexico, greeted the new trade agreement with dismay. The president of the AFL-CIO, John Sweeney, called CAFTA “yet another job-destroying free trade agreement that will undermine workers’ rights here and around the world.” For his part, Zoellick assured unions that the treaty will have a limited effect on U.S. employment or labor rights in Central America. After all, the Central American signatories, renowned for some of the highest poverty rates and lowest wages in the hemisphere, will be obliged through the agreement to “effectively enforce their own domestic labor laws,” he said.

This, of course, left no one reassured. Honduras, for example, has a (largely un-enforced) minimum daily wage of $3 and mandates a not-very-generous 24-hour rest period every eight days. Conservative estimates suggest that 350,000 Honduran children work illegally. In El Salvador, the minimum wage is $4.40 a day, which the U.S. State Department itself declared “insufficient to provide a decent standard of living for a worker and a family.”

Nonetheless, when it is inconvenient to plug CAFTA as a boon to U.S. companies shopping for cheap labor, the agreement is promoted as a chance for Central America to prosper. This marketing strategy has a checkered history associated with the Inter-American Development Bank (IDB) and its primary CAFTA building blocks: the various initiatives of Plan Puebla-Panama (PPP). Mexican President Vicente Fox announced the PPP in September 2000. The plan was billed as a 25-year, $20 billion, road, energy and communications construction program for the southern Mexican states, Central America and Panama. Through PPP, the governments are borrowing billions from a financial consortium cobbled together by the IDB to fund the infrastructure needed for high returns on investments made through CAFTA. This approach has not made Plan Puebla-Panama very popular, despite elaborate cosmetic concoctions applied by the IDB in a vain attempt to alter the Plan’s otherwise frightening appearance.

For example, PPP includes the “Mesoamerican Initiative for the Prevention and Mitigation of Natural Disasters,” which one assumes would support earthquake proofing construction measures or at least emergency aid provisions. On close inspection, however, this scheme will underwrite the development of a market for “catastrophe” insurance. Similarly, a sizable chunk of the funding for the “Mesoamerican Human Development Initiative” will finance a statistical information system on migration. The disparity in funding between pro-business and pro-people projects is clear in the gross numbers: while over $4 billion will be spent to expand road and highway networks, only $34 million is slated for health care. As of August 2003, the education component of the Plan still had no specified goals, never mind a budget, because, as an IDB operative confessed, the governments were unable to think up a regional educational objective. Well, we can see why that would be a tough one.

It is lopsided priorities like these that have caused the furor around PPP, and since the Plan needs private money, public anger is a problem. To put it crudely, private investors are afraid of pissed-off Indians. Ever resourceful, the IDB went out and hired the public relations firm Fleishman-Hillard to improve the Plan’s image.

The challenge for the PR experts at Fleishman-Hillard is that, no matter what they claim, this is how CAFTA and PPP are really going to work: For the sake of argument, let’s suppose that you are one of the fortunate few who actually gets a steady job in, say, an underpants assembly plant between San Salvador and the airport, created as a result of new highways, modernized customs and blossoming Fruit-of-the-Loom investments. You make minimum wage, so you’re hauling in $22 a week. This might have been almost enough to get by in the old days, but these days your food supply is more expensive because the eggs are from Iowa and the corn is from Nebraska. You used to get this stuff more cheaply, but your local suppliers no longer exist since mega-corporations like Monsanto, Dekalb and Walmart have replaced your entire supply chain. Also, your tax burden is a bit heavier because the government is up the wazoo in debt to the IDB and Citibank (its “live richly” motto notwithstanding). Unfortunately, to help pay the debt your government has sold off its public schools, hospitals, highways, water and power utilities to private operators, thus making education, health care, water and electricity cost more too. Even with piecework, overtime and intensive begging, you’re going to have a hard time making ends meet.

But wait, says Fleishman-Hillard. Through PPP, the IDB is funding projects to “promote activities that foster productive integration and the establishment of networks for small and medium export enterprises.” You could start a small business and export to niche markets in the United States! After all, many Central American products can also enter the United States duty- free, so long as they don’t compete with anything made there. “The United States is working to link aid with trade, and to partner with private groups that can promote sustainable development in the CAFTA region,” says a grinning Zoellick.

To prove his point, he personally visited the premises of Shuchil, a small business operating out of the home of Matilde Carillo de Palomo in San Salvador. According to Carillo, she produces pet soaps and dog shampoos, made from traditional Mayan formulas and ingredients (presumably used to launder traditional Mayan pets). Most of the company’s employees are, in fact, traditional Mayan women displaced from the rural areas outside of San Salvador by export agriculture. Now doesn’t that work out nicely for everyone?

These opportunities are, of course, limited: to date only $13 million has been set aside for small businesses in the eight PPP countries. And yet, there’s more. Because the poor in Central America are disproportionately indigenous people, PPP will promote their prosperity through tourism that capitalizes on their colorful costumes and intriguing rituals. As part of PPP, the IDB is promoting a new Mesoamerican vacation phenomenon: “ethnotourism.” If this holiday innovation takes off in upscale tourist markets, those willing to pay can observe real Injuns for entertainment.

Needless to say, both CAFTA and PPP are in for a fight this year, despite the best efforts of Fleishman-Hillard and the IDB. One PPP project has already been repulsed by the Mixtec people of Puebla. They rejected President Fox’s Proyecto Milenium, which was to include a golf course, country club, luxury residential developments and an industrial zone for maquiladoras on what had heretofore been 40 square miles of productive farmland. At around the same time, a rapid mobilization eliminated potential PPP funding for a highway through the Petén Maya Biosphere Reserve.

On the labor front, pressure from the National Association of Public Employees and other civil society groups in Costa Rica nearly kept that government out of CAFTA, because, despite what Zoellick claimed, the agreement does not address the problem of inadequate labor laws and limited enforcement. Public workers’ unions in the other countries that have signed CAFTA are protesting the privatization and foreign expropriation of their jobs and services. In the United States, a coalition of unions, environmental and women’s advocacy groups and other civil society organizations have vowed to fight against ratification of CAFTA, which may turn up in the U.S. Congress as early as this spring. Putting this deal over on everybody might just require more than saturated media markets and better brand positioning. The PR tactics—intended to convey that the public’s interests, rather than those of big business, will be defended—haven’t worked all that well so far.

About the Author
Beatrice Edwards is a research analyst based in Washington, D.C. who monitors the multilateral development banks.

Tags: CAFTA, free trade, Central America, labor unions, neoliberalism

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