Ec 1400 - Cafta Briefing

Tarun Singh TF: Stephen Donnelly Briefing on CAFTA Issue: The issue at hand at your upcoming testimony in front of the U.S. House Ways and Means Committee (HWAMC) is regarding the labor rights and standards under the Dominican Republic- Central America Free Trade Agreement (CAFTA). The HWAMC will listen to your testimony and choose to vote either in favor or against CAFTA and will not be allowed to amend the agreement from its current form. The passage of CAFTA will help facilitate trade amongst member states by reducing tariffs on goods. CAFTA will improve El Salvador’s economy by immediately opening up trade on 98% of product categories by removing existing tariffs on most goods (textile and agricultural industry will still be protected). Chapter 16 of CAFTA delineates labor rights and standards that would need to be met by signatories. Much debate has arisen over whether these labor rights and standards meet the International Labor Organization (ILO) standards and whether CAFTA provides for adequate enforcement. More specifically, concerns over unionization rights and labor conditions in CAFTA countries along with penalty mechanisms for a lack of enforcement are seen as roadblocks by opponents. The HWAMC is interested in whether these labor rights and standards are sufficient given previous international laws and trade agreements. Relevant Interests: There are three principle players who have a keen interest in whether CAFTA is passed by the HWAMC: the United States Trade Representative (USTR), El Salvador and other CAFTA signatories, and the union the AFL-CIO. USTR:

The USTR’s position on CAFTA is largely driven by the economic and political benefits the US will receive as a result of CAFTA’s passage. It is not as concerned with labor issues that have been brought up, but still defends labor regulations under CAFTA as being adequate. Economically the passage of CAFTA will result in more than 80% of US consumer and industrial exports becoming duty free immediately. Furthermore, according to the United States International Trade Committee (USITC), US exports will increase by approximately $2.7 billion while the American Farm Bureau Federation (AFBF) estimates US agricultural exports to increase by $1.5 billion due to CAFTA. This will cement the US’s role as the primary trading partner in the Western Hemisphere and will provide economic incentives for stability in Central America. As for the labor concerns the USTR argues that the labor regulations and enforcement mechanisms are sufficient as Chapter 16 CAFTA does three things: 1. promotes effective enforcement of national labor laws, 2. establishes a cooperative program to improve labor laws and enforcement, and 3. builds the capacity of Central American states to monitor and enforce labor rights. AFL-CIO: Unlike the US, the primary concern of the AFL-CIO, as a union, is that of worker rights and labor standards. The AFL-CIO believes that CAFTA is in violation of previous international agreements which call for appropriate labor laws as a requirement for a free trade agreement as seen in the Generalized System of Preferences (GSP). Restrictions on forming unions and are the ability for companies to discriminately fire unionized workers in CAFTA countries are seen as evidence of insufficient worker rights by the AFL-CIO. Further, Chapter 16.1 of CAFTA allows for countries to develop their own labor standards which is seen is a violation of (ILO) standards. The AFL-CIO also finds enforcement mechanisms to be inadequate under CAFTA. The language

under CAFTA calls for each country to enforce its labor laws, but provides weak mechanisms through a $15 million fine from the labor budget to provide for better labor law enforcement. The AFL-CIO also believes that labor rights can be better demanded by the US in the absence of CAFTA through government to government talks. El Salvador: Like the USTR, El Salvador’s primary concern is the economic gains from CAFTA. El Salvador has a GDP per capita of $5,525 and according to most recent figures spends only $184 per capita on healthcare. Thus, any improvement to El Salvador’s economy is much appreciated. CAFTA will improve the economy by creating $2.8 billion in exports from the US according the USITC. The Country has recently faced civil war and has spent the last 14 years trying to liberalize through economic and democratic reforms. A trade agreement with the US would allow for more economic and political stability in El Salvador. However, these newly adopted reforms also mean that the country is not capable of immediately enforcing changes to labor laws. El Salvador also cites the differences in societal factors such as the difference in the development of unions as a reason for some of the legal differences. Ultimately, it is in the interest of the El Salvador to have CAFTA pass as it would ensure economic and political stability of the country. Our Position: Given the interests of the relevant parties, it would be in the best interest of El Salvador to ask the HWAMC to pass CAFTA as it will allow for political and economic stability in the country. The economic gains from the agreement will help El Salvador increase quality of life for its citizens and will also provide it with the economic resources and incentives necessary to improve working standards. Recommended Strategic Approach:

El Salvador should discuss three primary reasons why CAFTA needs to be passed by the  HWAMC: 1. the effect of CAFTA on the US, 2. the effect of CAFTA on El Salvador, 3. the  precedence on labor rights under CAFTA. Effect on the US: The US will benefit economically and politically from the agreement through increased  exports to CAFTA countries and will do so at a low cost. Exports to CAFTA countries will  increase by $2.7 billion while imports will increase by $2.8 billion. The increase in exports  means the US will be able to profit from this increase in trade while the increase in exports  provides economic relief in CAFTA countries which are relatively poor. Doing so will make the  US into the chief trading partner in the Western Hemisphere. The increase in imports will also  provide economic and political stability in a region that has been plagued with civil wars and  unrest. Furthermore, the US will lose few jobs to CAFTA countries due to their relatively small  size and will prevent illegal immigration as NAFTA did by allowing for better working  opportunities in peoples’ native countries. This strengthening in ties between the US and CAFTA  countries will provide the US with better leverage in asking CAFTA countries to improve worker  rights. Thus, the constituents of HWAMC are not adversely affected but the workers of CAFTA  countries are given a brighter prospectus. Effect on El Salvador: El Salvador has the most to gain from this agreement. Opening up trade would help push  our GDP per capita higher and the gains from trade would allow us to better fund public 

programs like healthcare. Furthermore, it will provide economic incentive to further liberalize  our economy while providing for economic stability. Economic stability is essential in our  country considering we are still rebuilding from a civil war. Furthermore, economic incentives  from trading partners will allow us to better improve worker rights. As a developing country we  have inadequate means of enforcing and changing labor laws immediately, but economic growth  through CAFTA will not only increase our incentives to improve labor conditions but will also  provide us with the resources necessary to do so.  Precedence: We acknowledge that we haven’t had a perfect labor record, but there is precedence for  allowing similar agreements in developing countries like ours. Although CAFTA lacks  enforcement mechanisms present under the Jordan Free Trade Agreement, the wording under  CAFTA matches that of Morocco Free Trade Agreement. Like El Salvador, Morocco was also a  developing nation and therefore the precedence suggests different standards for different  countries. Furthermore, Chapter 16 of CAFTA requires member states to enforce their labor laws  and is in accordance with requirements under the Trade Promotions Authority (TPA) bill which  was passed by Congress in 2002. Chapter 18 Section B of CAFTA even provides for criminal  punishment for corruption which includes the violation labor laws. Finally, it is important to note  that El Salvador has ratified six of the eight ILO core conventions while the US has only ratified  two. CAFTA may not be the optimal solution for labor laws but the precedence shows that it is a  step forward.

Conclusion: I urge you to take into consideration the positive impacts of CAFTA on both the US and  El Salvador, CAFTA’s ability to improve labor standards and the relevant precedence in the case  to recognize that a vote for CAFTA is better than a rejection of CAFTA.