Politics, Business & Culture in the Americas

No Ordinary Trade Agreement

Reading Time: 6 minutes[i]CAFTA-DR has already produced groundbreaking results.[/i]
Reading Time: 6 minutes

Anyone who remembers the 2004 debate in the U.S. Congress over the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) likely recalls a contentious and emotional tug of war over the commercial merits and the adequacy of labor provisions in the bill. Nearly five years, $84 million to support labor capacity building and more than $1 billion in overall trade-related assistance (including three Millennium Challenge Corporation compacts) later, CAFTA-DR’s implementation is still a good story to tell.

For the first time in a free-trade agreement, CAFTA-DR includes Trade Capacity Building as one of the law’s core chapters, thus recognizing the asymmetrical development between participating nations and the certainty that the transition to lowered tariffs will involve hardship. It also mandates that a separate committee be responsible for evaluating trade capacity-building progress. This includes analyzing the human, infrastructural and institutional development assistance necessary for countries to more fully participate in and benefit from global trade.

Many who opposed CAFTA-DR questioned whether the bill would ensure that workers in these developing countries (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic) would be subjected to derogation of labor laws and loose compliance, or worse. Convictions on both sides of the debate were strong, and the close final votes in Congress reflected the polarized discourse: the Senate passed the implementing legislation in June 2005 by a vote of 54 to 45, and one month later the House of Representatives followed with a vote of 217 to 215.

The United States pursued this multilateral trade agreement in an effort to go beyond previously enacted unilateral preferential trade benefits provided to Central America. U.S. businesses argued the agreement was necessary to balance the gains made by firms from nations with established bilateral access to the region. Beyond the commercial and economic policy interests, strategic geopolitical concerns played a role in the bill’s ratification. The U.S. expected CAFTA-DR to buttress regional stability by deepening democratic gains, strengthening the rule of law, promoting employment opportunities, and helping to combat organized crime and drug trafficking.

Like most other trade agreements, CAFTA-DR liberalized trade in goods, services, government procurement, investment, and intellectual property. It immediately eliminated duties on 80 percent of U.S. exports in manufactured goods and 50 percent of those for agricultural goods. The remaining manufactured goods are phased out over 10 years; agricultural goods have a 20-year phase out.

But it did more. At a time when the term “trade capacity” was new and still evolving, the unrivaled capacity-building accommodations in and related to CAFTA-DR ensured that this was no ordinary trade agreement.

Now these additions have set the standard for subsequent agreements. The Peru Trade Promotion Agreement took effect in February 2009 with capacity-building provisions, and the pending Colombia and Panama agreements include them too. 

In an effort to address concerns by congressional opponents and supporters of CAFTA-DR, the George W. Bush Administration and Congress came to terms during ratification negotiations on an agreement—based on discussions between then-U.S. Trade Representative Rob Portman and Senator Jeff Bingaman (NM)—that mandated special funding and programs so that CAFTA-DR countries could implement the labor and environment provisions. The first installment of funds—appropriated to the U.S. Department of State and U.S. Agency for International Development (USAID)—totaled $57.34 million for the period FY 2005–FY 2007 in support of labor capacity-building. Since then, additional funds have been appropriated. But assistance is not limited to labor. Help is also provided in the areas of environmental standards, agriculture, customs administration, rules of origin, and technical assistance. 

Beyond setting rules for tariff rate quotas and transitional safeguards, CAFTA-DR established a Labor Affairs Council of cabinet-level or equivalent representatives to oversee implementation of the labor chapter and the Labor Cooperation and Capacity Building Mechanism activities created under Article 16.5. Under the agreement, the president also must report to Congress biennially on progress in implementing labor provisions. This includes advancements on the Labor Cooperation and Capacity Building Mechanism, and on addressing challenges identified by CAFTA-DR vice ministers of trade.

The labor ministers’ assessment continues to guide the labor capacity-building efforts and in itself was a critical advancement in negotiations. In 2004, CAFTA-DR ministers of trade and labor directed their vice ministers to create a working group to make recommendations on enhancing the implementation and enforcement of labor standards and strengthening regional labor institutions.

The Inter-American Development Bank supported this initiative, which led to a 2005 white paper in which the vice-ministerial working group identified six priority areas for effective implementation of labor-related capacity building. They were: labor law and implementation (freedom of association, trade unions and labor relations, inspections and compliance); budgetary and personnel needs for the ministries of labor; strengthened judicial systems for labor law; protections against discrimination in the workplace; elimination of the worst forms of child labor; and promotion of a culture of compliance.

Beyond the actual bill, the Bush Administration promised to allocate $40 million to “labor and environmental enforcement capacity building assistance” over three years, another $3 million to International Labor Organization reporting on labor law enforcement and working conditions, and $10 million annually in rural assistance for the Dominican Republic, El Salvador and Guatemala for five years, or until they qualified for development assistance from the U.S. Millennium Challenge Corporation.

Has It Worked?

All this sounds great, but what happened when the rubber hit the road?

Since the approval and subsequent implementation of CAFTA-DR, the U.S. government has worked in tandem with U.S. businesses and nongovernmental organizations to elevate living standards in all signatory countries. Coordinated and focused efforts on labor, environment and trade-related issues have been a crucial vehicle to support much needed capacity-building and access to the U.S. market.

The sustained commitment has already reaped benefits. For example, in January 2009 the first biennial report submitted to Congress by the U.S. Department of Labor Bureau of International Labor Affairs highlighted the many projects that are working to improve on-the-ground conditions in CAFTA-DR countries. These include helping to eliminate gender and other types of discrimination, especially for workers in vulnerable areas like the sugar industry.

The Dominican Republic is one success. An Office of Gender Equality and Development has been established, and the National Plan on Gender Equality has become operational. Ongoing efforts provide training and raise awareness among workers, employers and inspectors on gender protection and prevent workplace discrimination. Mass-market radio publicity and workshops aim to promote maternity protections and gender rights, and an arbitration process has reportedly brought attention to HIV/AIDS-related discrimination.

The U.S. Department of Labor is also strengthening the rule of law by helping to modernize judicial systems, facilitating the training of public defenders and supporting mechanisms that ensure disadvantaged workers will have better access to the judicial system.

It also dedicated $2.7 million to strengthen labor compliance in the agricultural sector. This project collaborates with local organizations and ministries of labor to strengthen mechanisms for workers to exercise their rights. An additional component created in conjunction with the U.S. Environmental Protection Agency (EPA) aims at improving worker safety through better handling of pesticides. The 2009 biennial report notes the training of 400 workers on 18 farms in the Dominican Republic and the implementation of stakeholder coalitions in Nicaragua and the Dominican Republic that brings together employers, entrepreneurs, workers, and governments to resolve problems. The EPA is also helping to train judges, magistrates and inspectors on the investigation and adjudication of potential environmental violations.

USAID is involved with capacity-building efforts through programs that promote trade-related agricultural diversification strategies in order to spread the benefits of trade more broadly. The results have already had an impact on poverty reduction. For example, in Honduras, plantain farmers are learning high-density planting systems and other advanced agricultural practices including bed preparation, drip irrigation, fruit age-tagging, and disease controls. As a result, these farmers already sold 5.8 million pounds of plantains in the early years of implementation. Before the rural diversification initiative most were not producing plaintains at all.

USAID reports also show more personal examples, such as that of the farmers from El Negrito who moved from growing corn and beans and an annual income of $500 to harvesting 36,300 kilograms (80,000 pounds) of plantains in a year. After servicing business loans, they each had a $10,000 profit. Those gains continue.

The U.S. business community is also working to shore up capacity. Local farmers who now have secure contracts with U.S. companies are moving beyond subsistence farming and finding the opportunity to work their way out of poverty. Some of these local farmers and cooperatives are producing organic fruits and vegetables that can be sold in the region or even to the U.S. market.

Like other trade agreements, CAFTA-DR was always about so much more than the rules of commerce. It is also about the relationship between nations and the collaboration of public and private entities to improve living standards, particularly of those who most need help. There is still much work to be done, but the agreement has deepened and expanded relationships between CAFTA-DR countries and, with sustained commitment, will lead to a more prosperous future.

In this globalized world, the small farmer high in the hills of Lepaterique, Honduras, cannot meet the high standards necessary to sell his goods to supermarkets unless he has technical help. If he doesn’t get that assistance, then we risk his disenchantment not just with a more interconnected global world, but with democracy in his country.

While we await the passage of agreements with Colombia and Panama, it is gratifying to know that the kind of trade capacity that supports such a farmer is a real and tangible part of those agreements as a result of the precedent set by CAFTA-DR. Ultimately, when we assist countries in the adjustment to liberalized trade, we reinforce our commitment to democratic principles—an allegiance we must uphold.

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