DR-CAFTA and Mr. Hyde

Portraying the good, bad and ugly of the 15-year-old Dominican Republic-Central American Free Trade Agreement

Although the words in the phrase “free trade agreement” have a positive connotation, not all agreements render definitive, positive results across the board – including the Dominican Republic-Central American Free Trade Agreement.

The Dominican Republic-Central American Free Trade Agreement, or DR-CAFTA, is a free trade agreement that the U.S has been involved in and driven since 2003. DR-CAFTA encompasses six Latin American countries – Nicaragua, Honduras, El Salvador, Guatemala, Costa Rica and the Dominican Republic – all of which are considered developing by the United Nations. This agreement allows for products to be traded, free of tariffs, duties and quantity restrictions. In the past 15 years, this agreement has yielded both positive and negative results for all countries involved, as well as lasting effects.

The Good and Bad of DR-CAFTA

DR-CAFTA has been good to the U.S. Since 2015, DR-CAFTA has totaled $53 billion in goods trading, and supported 134,000 jobs in the U.S. in 2014, according to the Office of the U.S. Trade Representative.  More recently, 2017 bore the U.S. a $7.1 billion trade surplus for trade goods from DR-CAFTA alone as stated by the U.S. Census Bureau.

The economies from the developing countries in DR-CAFTA have also seen some positive results in the last 15 years. According to the CIA World Factbook, DR-CAFTA helped improve the exportation of goods from Nicaragua, El Salvador and the Dominican Republic, aided in the increase of foreign investment in Costa Rica and assisted in Honduras’ economic growth.

However, a World Bank report from 2005 on DR-CAFTA stated that although some farmers could lose certain assets, the economic growth would be more substantial and the more important factor to focus on. “Ultimately, they need to do it,” stated Maria Clarken, a Winthrop University political science graduate. “It’s the best move for all of them. Even if it’s not the most fair of trades – it works.”

Blake White, a graduate student at Cornell University studying industrial and labor relations, is generally supportive of free trade agreements – like DR-CAFTA – as long as they are on a similar developmental playing field. “I think tariffs are just protective and add cost and taxes and don’t really end up hurting the people that have the most to lose,” said White. “But we still do need to do what we can to promote worker rights and environmental protections in developing countries.”

According to the CIA World Factbook, several DR-CAFTA countries have suffered from a perceived inadequacy of laws and protections. Concerns of security, corruption and lack of skilled workers have deterred foreign investors in both Guatemala and Honduras, while Costa Rica’s poverty percentage has stayed the same for nearly 25 years.

Although unemployment rates have changed little in the past few years for the DR-CAFTA countries, underemployment rates are high, meaning that many people who have work do not make enough money to sustain themselves, or are not able to use their acquired skills in a job. For instance, the CIA World Factbook stated that one-third of Honduras’ working population is underemployed, while Nicaragua’s underemployment rate was 45 percent in 2008.

Further, Nicaragua – which is ranked the poorest country in Central America – obtained a 4.5 percent gross domestic product growth in 2017, but was not enough to make a noticeable difference in the grand situation of the country. “I think they [Nicaragua] were very skeptical at first,” said Clarken, “but ultimately I don’t believe you can deny something that you know can boost your economy even if you are different politically.” In fact, the World Bank stated that Nicaragua’s exports have increased by 71 percent in the last five years, but still remains as one of the poorest countries in the Western Hemisphere.

The Ugly Side DR-CAFTA

When DR-CAFTA was being negotiated and finalized, protests erupted in many of the Central American countries due to opposition of the trade agreement and suspicious governmental actions. As stated in Liza Grandia’s book “Enclosed,” DR-CAFTA was created and talked through in just over a year, while the similar North American Free Trade Agreement took seven years to fully develop. Further, the 2,400-page document was given to the Latin American delegates fully in Spanish only after it was finalized, which hindered their ability to suggest changes.

According to an article published by the “Multinational Monitor” in early 2006, El Salvador introduced DR-CAFTA at 3 a.m. and then approved the agreement on the day before their Christmas leave. After the session let out, many legislators admitted to not having read the implementation text because it was withheld by the U.S. until only two days before the vote. Similarly, Honduras passed DR-CAFTA during a special session in a downtown hotel.

After the U.S. had ratified DR-CAFTA, there were still votes that were needed from Nicaragua, Costa Rica and the Dominican Republic. American public official Robert Zoellick reportedly threatened to cut U.S. aid with Nicaragua if they chose to vote against DR-CAFTA. All the countries eventually voted in favor.

“Even though there is this attitude towards free trade agreements that it’s benefiting both parties – which I think it ultimately does – it benefits one more than the other,” describes Clarken. “I think it truly is a new-age form of colonization to reap the benefits of nations and provide them cheaper to the people in the wealthier countries.”

Before the agreement was fully enacted, there were concerns in the U.S. about negative effects that may come from the deal. During a hearing in the 109th House of Congress in 2005, four members reported their dissenting views on DR-CAFTA which warned of adverse effects caused by the agreement if certain changes were not made.

The report stated, “If the agreements are properly negotiated and free trade partners are properly selected in coordination with Congress, these agreements can contain significant benefits for the United States in helping to set the global trade agenda and in other ways.” The congressmen’s report focused on the lack of environmental benchmarks and basic labor standards, as well as a test data requirement on pharmaceuticals that could drive up prices and curb addressing public health problems in the Latin American countries.

While DR-CAFTA was undergoing its implementation, some social effects began to arise. For example, Costa Rican legislators failed to seek participation and opinions from the indigenous people, by claiming that the Indians would be unaffected by the trade provisions.

However, according to Odir Blanco, director and commissioner of the director of the Comisión Nacional de Asuntos Indígenas, “It’s a lie. Those who say that kind of thing are ignorant people; they don’t know the indigenous tradition, the culture, much less the laws. It is very clear that the free-trade agreement touches upon part of our culture, our lives and of course they have to consult. CAFTA will drive the indigenous communities away.”

Once DR-CAFTA was fully implemented, effects began to become more evident. As stated in an article published to “Foreign Policy In Focus” by Manuel Perez-Rocha and Julia Paley, “the pact has had a devastating effect on poverty, dislocation and environmental contamination in the region.” As of 2014, some of the DR-CAFTA governments were unable to provide basic services to its inhabitants among unemployment, poor labor conditions and low wages.

Further, the article reported that many farmers have migrated to the U.S. with deep economic roots as to why. “DR-CAFTA has now done to Central America what NAFTA did to Mexico,” said Ginger Williams, a professor of history and director of peace studies at Winthrop University.  “We have a lot of immigrants coming from Central America into Mexico and into the United States, and so the border problem is something that we helped create, and we need to understand that.” Williams has studied Latin American history and relations for years, and frequently visits Nicaragua for international service learning projects – a country in the DR-CAFTA.

In 2010, a study was conducted by U.S. and Nicaraguan social workers to examine the living conditions of a Nicaraguan community next to a U.S. factory after DR-CAFTA was enacted. The main concerns from the community had to do with the lack of safe public transportation, funds, fertile soil, medical care, sanitation, accessible education and clean water.

The study states, “the difference in this community is that it has the presence of a factory owned by one of the most powerful and wealthiest countries in the world, and yet residents are not better off in terms of health care and sanitation.” For instance, if a community member needed medical care, they would have to either take the overcrowded public transportation, piece together money for a taxi, bike or walk five at least miles to the nearest hospital – nor were there streetlights or access to public transportation at night.

However, not one of the participants complained about the long hours or working conditions of the factory, as they felt fortunate to at least have a job that paid consistently. “I would ask the question, in free trade agreements, who is free to trade?” stated Williams. “I think free trade agreements benefit the more developed countries than they do the less developed countries and so they don’t give an even footing to the poorer countries.”

Another study done by 2011 Chair of the Milwaukee Fair Trade Coalition, Steve Watrous, found that textile work in Nicaragua in 2011 was paying nearly $130 per month, while the average cost of goods per month for a family of six costs $450 – meaning an average textile worker would have to save their entire salary for three months just to buy the appropriate amount of goods for one month, without paying for anything else.

Further, in Guatemala, a sweatshop called the Alianza Fashion Factory paid their workers and hourly base wage of $1.05 from 2000 to 2013. According to a report by the Institute for Global Labor and Human Rights, the Alianza factory robbed nearly $6 million in wages and benefits from their workers – most notably in health and pension benefits. Journalist Cyril Mychalejko interviewed a former worker from the Alianza factory and found that after the factory was shut down, the company never paid their employees any Social Security payments. According to Mychalejko’s findings, if the workers wanted to earn as much as the CEO of JCPenny – Alianza’s top client in 2011 – they would each have to work for more than 9,776 years.

Fair Trade – Rival or Relative?

Although they may sound similar, fair trade is a distinctive concept that can act in some ways as a rival to free trade agreements like DR-CAFTA. According to the Fair Trade Federation, fair trade supports marginalized people and small businesses to help improve the quality of their lives by allowing for higher labor and environmental standards, a living wage and direct partnerships that take into account individual communities.

As stated by Fair Trade International, fair trade also requires sustainable production, adequate occupational safety and health conditions and environmentally sound agricultural practices, while banning the use of genetically modified organisms, forced labor and child labor.

 

Jonathan Taylor, a co-owner of a coffee roasting company in Rock Hill, South Carolina that buys fair trade coffee, says that their business model values sustainable practices, quality coffee and people. “We value fair trade principles because it maintains a consistent supply of high quality coffees if the people who are producing it are taken care of, and it’s people caring for people around the world. Even though you don’t know them and they’re in Colombia or Indonesia or in Africa somewhere – if they’re taken care of you have that sense of satisfaction knowing I’m helping them be better and be okay.”

However, in no way is fair trade perfect and can at times favor the middlemen and big corporations. “We support the principles but sometimes it’s not practical at the farm level or at our level to pay that extra money to something that really didn’t make a difference,” stated Taylor.  For example, some farmers technically produce organic coffee because they cannot afford pesticides. However, since they cannot a

fford the certification fees to become legally organic, they cannot market their crop as organic or Fair Trade.

Furthermore, not all the money or extra costs go fully back to the producer. Clarken generally understands and agrees with the principles, but believes it still has a long way to go. “Fair trade can be somewhat of a lie because if you look at profit margins of corporations who incorporate fair trade, their profits are still exponentially higher than they should be in something like a fair trade agreement because its not fair if the corporation is getting 50% of the profits when they’ve done essentially none of the work,” said Clarken.

Nicaraguan coffee farmer Daniel Lina has been in the coffee industry with his parents for more than 20 years and is transitioning into organic coffee production. “In my community, my parents employ more people from my community and is healthy to them because they get money everyday and food everyday, stated Lina, “but the problem is we don’t see big [money] benefits with fair trade coffee.”

Lina and his parents have a difficult relationship with fair trade and organic certifications. At one end, fair trade provides scholarships to children for school supplies and helps with communal projects, while the prices and strict regulations do not al

ways pay out well for the Lina’s and other farmers.

“It’s true they pay more but not enough,” said Lina in relation to the fair trade and organic bureaucracies.  “When you are working organic every year, you get not too much production. We have more money from Starbucks because we can use chemicals that can make quantative amounts but probably not quality amounts. This happens in my country with coffee, cacao, peanuts, and pineapple.”

Although there is no definitive answer on how to fully benefit all parties in the the DR-CAFTA, it is important to be mindful on the consumption of goods and services. “I think in the developed world that we live in, we’ve become very accustomed to really having everything and being okay that people in other parts of the world don’t have very much at all,” said Williams. “We need to think about what it is that we wear, what we consume, what we buy and how that impacts other people.”