CAFTA’s Decade of Empty Promises Haunts the TPP

By  |  5 / August / 2015

This post is also available in: Spanish

tpp_protest_sign_wideTen years ago, after a flurry of backroom deal-making, Congress passed the Central America Free Trade Agreement (CAFTA).  In the dead of night.  By a single vote.

Exactly one decade later, today trade ministers are gathering in Hawaii to try to conclude deadline-missing negotiations on the Trans-Pacific Partnership (TPP) – a sweeping deal that would expand the CAFTA model of trade across the Pacific.

In attempt to quell the controversy surrounding the TPP, the administration is recycling the same lofty promises that were used to push for passage of CAFTA: the deal would safeguard public health, spur economic prosperity at home and abroad, and protect workers, consumers, and the environment.

After 10 years of CAFTA, the emptiness of such promises is on full display. Today in Central America, life-saving medicines are more expensive due to monopoly protections that CAFTA gave to pharmaceutical corporations – protections that are slated for expansion in the TPP.  And the headlines from several CAFTA countries do not report economic prosperity, but economic instability, drug violence and forced migration.  Meanwhile, CAFTA’s labor provisions have failed to halt the assassination of dozens of Central American union workers who were trying to end unmitigated labor abuses like wage theft.  In contrast, the pact’s foreign investor privileges, which the TPP would expand, have succeeded in empowering multinational corporations to challenge domestic laws, including consumer and environmental protections.

Worse than repeating the mistakes of the past, the TPP would repeat the mistakes of CAFTA’s present.

Making life-saving medicines unaffordable

During the debate over CAFTA, health experts warned that by handing pharmaceutical firms greater monopoly protections, the deal would restrict Central Americans’ access to more affordable generic versions of life-saving drugs.

Unfortunately, they were right.  Take, for example, Kaletra, a drug used to fight HIV/AIDS.  Under CAFTA rules, Kaletra has enjoyed monopoly protections in Guatemala, making generic versions unavailable, for the entire first decade of CAFTA.  Without a generic alternative, Guatemala’s public health system pays about $130 per bottle of Kaletra.  In contrast, the generic version of Kaletra costs less than $20 per bottle, according to the Pan American Health Organization reference price.  For Guatemala’s taxpayers, paying more than six times the generic price for Kaletra under CAFTA means less money to build schools or bridges.  For Guatemala’s HIV/AIDS patients, it can mean the difference between life and death.

Like CAFTA, the TPP is slated to include extreme monopoly protections for pharmaceutical corporations.  Indeed, the deal even omits limited provisions to protect access to affordable medicines that were included the most recent U.S. free trade agreements.  That’s why Doctors without Borders has described the TPP as not only worse than CAFTA in restricting access to medicines, but “the most damaging trade agreement ever for global health.”

Turning a blind eye to labor abuses

One decade ago, the Office of the U.S. Trade Representative sold CAFTA as the “best ever trade agreement on labor,” boasting “world class” labor provisions.  Those provisions failed to prevent the murder of 68 Guatemalan unionists over the course of seven years without a single arrest.  In 2008, the AFL-CIO and Guatemalan unions filed an official complaint under CAFTA’s labor provisions, calling for an end to the rampant anti-union violence, wage theft, and other abuses.  It was not until six years and dozens of unionist murders later that the U.S. government moved to arbitration on the case.  Today Guatemala’s union workers still endure frequent attacks with near-total impunity.

CAFTA’s labor provisions have proven similarly ineffective in the Dominican Republic, where sugar cane workers endure 12-hour workdays in hazardous conditions without receiving legally-required overtime pay.  A Spanish priest who filed an official CAFTA complaint in attempt to rectify the abuses was informed by U.S. Department of Labor officials, “Nothing is going to happen on account of not complying.”  Indeed, nothing has happened.  Despite CAFTA’s “world class” labor provisions, the Dominican Republic’s underpaid cane workers continue laboring in squalid conditions.

Why has CAFTA, like U.S. trade agreements before and since, failed to curb widespread labor abuses?   Kim Elliot, a member of the Department of Labor’s National Advisory Committee on Labor Provisions of U.S. Free Trade Agreements, recently offered this blunt explanation: the labor provisions of U.S. trade deals “are in there because they’re necessary to get deals through Congress.”  She added, “It’s really all about politics and not about how to raise labor standards in these countries.”

Now, in attempt to get the TPP through Congress, the Office of the U.S. Trade Representative is parroting the same promise it made for CAFTA, claiming that the deal would include “the highest-ever labor commitments.”  While the TPP’s labor provisions have been described as more “enforceable” than those in CAFTA, this is nothing new.  The last four U.S. Free Trade Agreements (FTAs) already included such “enforceable” terms, but still failed to end on-the-ground offenses, according to a 2014 U.S. government report.  Colombia’s unionists have faced dozens of assassinations and hundreds of death threatsdespite the Colombia FTA’s inclusion of TPP-like labor provisions.  And last year Peru explicitly rolled back occupational health and safety protections for workers despite the Peru FTA’s “enforceable” labor provisions.  Neither country has faced penalties under the FTAs.  It’s unclear why the TPP’s replication of such unsuccessful labor provisions should be expected to curb the systematic labor abuses in TPP countries like Vietnam, which bans independent unions, uses forced labor, and, by the Vietnamese government’s own estimate, has more than 1.75 million child laborers.

Empowering corporate attacks on consumer and environmental protections

In contrast to CAFTA’s unenforceable “protections” for workers, the deal granted highly enforceable privileges to foreign corporations.  This includesempowering them to bypass domestic courts and challenge domestic consumer and environmental protections before extrajudicial tribunals via “investor-state dispute settlement” (ISDS).

Corporations have not held back in using this controversial parallel legal system to challenge pro-consumer policies, including government efforts to keep electricity affordable.  In 2010 a U.S. energy company with an indirect, minority stake in Guatemala’s electric utility used ISDS to challenge Guatemala’s decision to lower electricity rates for consumers.  The next day, the company sold off its minority share.  A three-person ISDS tribunal generously decided to treat the firm as a protected “investor” in Guatemala and ordered the government to pay the corporation more than $32 million.  In another energy-related CAFTA case, a U.S. financial firm challenged the Dominican Republic’s decision not to raise electricity rates amid a nationwide energy crisis.  The government decided to pay the firm to drop the case in a $26.5 million settlement, reasoning that it was cheaper than continuing to pay legal fees.

CAFTA countries also face an increasing array of ISDS cases against environmental protections.  A U.S. mining company, for example, has launched a claim against the Dominican Republic for delaying and then denying environmental approval for an aggregate materials mine that the government deemed a threat to nearby water sources Other U.S. investors in the Dominican Republic have threatened to launch a CAFTA claim against the government for denying environmental approval for their plans to expand a gated resort.

The TPP would dramatically expand the controversial ISDS system, newly empowering more than 28,000 additional foreign-owned firms to ask private tribunals to order taxpayer compensation for commonsense environmental and consumer protections.

Fueling economic instability

Ten years ago, CAFTA proponents promised the deal would bring economic prosperity to Central America, making it “the best immigration, anti-gang, and anti-drug policy at our disposal.”  Today, CAFTA countries Honduras, El Salvador, and Guatemala are plagued by drug-related gang violence and forced migration.  While the causes are many, “economic stagnation” has fed the crisis, according to the U.S. State Department.  CAFTA clearly failed to deliver on its promise of economic growth for the region.

Worse still, CAFTA has contributed to the region’s economic instability.  Before the razor-thin passage of CAFTA, development organizations warned that the deal could lead to the displacement of the family farmers that constitute a significant portion of Central America’s workforce, by forcing them to directly compete with highly-subsidized U.S. agribusiness.  Indeed, agricultural imports from the United States in Honduras, El Salvador, and Guatemala have doubledsince the deal went into effect, while the countries’ agricultural trade balance with the United States has dropped, spelling farmer displacement.

And despite promises that CAFTA would make up for rural job loss by creating new jobs in apparel factories, apparel exports to the United States from Honduras, El Salvador, and Guatemala have actually fallen $1.6 billion, or 21 percent, since the year before CAFTA took effect.  Not only has the promise of new factories disappeared – so have existing factories.

If the TPP were to take effect, the apparel jobs of Central America would be expected to decline even quicker, contributing to further economic instability.  That’s because the TPP includes Vietnam, a major apparel exporter where independent unions are banned and where the minimum wage averages less than 60 cents an hour – a fraction of the minimum wages in Central America (or even in China).  Central America is already losing the race to the bottom.  It will only fall further behind if the TPP makes Vietnam the newest low-wage competitor.

The promise-defying track record of CAFTA need not be repeated.  When the TPP negotiators meeting today in a resort hotel in Hawaii finish this round of negotiations, we are likely to hear a familiar litany of promises about how the TPP would benefit consumers, workers, and the environment.  With those promises punctured by a decade of CAFTA’s stark realities, we have a unique opportunity to say “enough is enough.”

This blog was originally posted at Eyes on Trade: Public Citizen’s Blog on Globalization and Trade.

Ben Beachy is the Research Director for Public Citizen’s Global Trade Watch