The NewStandard ceased publishing on April 27, 2007.

Labor Fears Free Trade Deal Will Prompt ‘Downward Spiralâ€TM

Part Three of Three on the CAFTA Clash

by Michelle Chen

Workers’ advocates in the US and Latin America insist that CAFTA treaty will push jobs, wages and living standards to the lowest common denominator while exempting corporations from government regulation.

See also Part I of this series: "Proposal to Open Central American Markets Spurs Debate Over Free Trade"; and Part II: "Fair Trade Advocates Say Open Markets Could Shatter Small Farms".

May 25, 2005 – If Congress ratifies the pending agreement liberalizing trade among the United States, Central America and the Dominican Republic, union members in Kansas and factory hands in El Salvador may soon find their futures more tightly bound in two longstanding, parallel struggles: competing for the same jobs and fighting for the same rights.

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The Dominican Republic-Central American Free Trade Agreement (CAFTA), which would essentially eliminate international trade barriers in the seven member nations -- the US, Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua -- has deepened the cleft between organized labor and multinational corporate interests on issues of global trade. While both sides see a globalized workforce as an unavoidable reality, they clash over the question of whether transnational trade and investment serve as a vehicle, or a roadblock to economic sustainability.

Open Markets, For and Against

From the perspective of Daniel Griswold, director of the Center for Trade Policy Studies at the Cato Institute, a libertarian think tank, free trade relations are a prerequisite for social progress and a moral imperative for the United States. In an essay published this month in the Washington Times, Griswold remarked: "To reject CAFTA because of ‘inadequate’ protections for labor and environmental standards would perversely deny those countries the powerful and necessary tool of trade expansion to lift those very standards. It would punish some of the poorest countries in our region merely for being poor."

Organized labor advocates charge that CAFTA would undermine economic security, drive down living standards, and perpetuate unfair labor practices in member countries.

US industry leaders have bolstered claims of economic gains for the US with similar arguments, tying the removal of trade barriers to the strengthening of civil society. In a statement endorsing CAFTA, John Engler, president of the National Association of Manufacturers, one of the largest industry associations in the country, predicted that CAFTA would create not only a $1 billion growth in US export production and 12,000 domestic jobs, but also prosperity for the other member nations that would "promote democracy and political stability and improve the labor and environmental conditions in the region."

In the statement, Engler argued that the Central American and Dominican economies were too small to harm the US through the outsourcing of domestic manufacturing jobs, but they were large enough to help it, since unrestricted access to the region’s consumers would "offer a major opportunity for US exporters" to sell more goods.

Taking the exact opposite view, CAFTA skeptics argue that Central America and the Dominican Republic, with a collective Gross Domestic Product estimated at about $200 billion, are too poor to be a viable market for US products, and that because the agreement offers neither decent wages nor adequate labor protections, CAFTA would bring little economic advancement for workers in the US or in the other member countries.

Losses Predicted for Workers Across Borders

Critics argue that the new penalty mechanism is little more than a gesture.

Organized labor advocates charge that CAFTA would undermine economic security, drive down living standards, and perpetuate unfair labor practices in member countries, by encouraging multinational corporations to shift jobs to wherever regulations are weaker and wages are lower.

To many critics, CAFTA’s predecessor, the North American Free Trade Agreement (NAFTA) -- which encompassed the US, Mexico and Canada and took effect in 1994 --embodies the darker realities of free trade obscured by the positive rhetoric of pro-business factions. The Economic Policy Institute (EPI), a progressive think tank, reported that under the first seven years of NAFTA, in which hundreds of thousands of US jobs moved to the lower-paying "sweatshop" sector of Mexico, real wages for a majority of the US workforce declined and income inequality grew.

NAFTA’s impact on Mexican workers was even more severe, according to EPI. Five years after NAFTA was initiated, manufacturing wages were 20 percent lower than 1990 levels, and as of 2004, the Mexican economy was still producing jobs at only half the rate needed to sustain the growing pool of available labor.

Domestic job loss from CAFTA is expected to be concentrated in the textile and apparel sectors. Workers in these industries have criticized CAFTA’s "Rules of Origin," which regulate the use of imported products in garment manufacturing, for potentially inflating imports by allowing a variety of garments made with materials from non-member countries to enter the US duty-free. A recent study by analysts at the University of Michigan predicted that fluctuations in trade under CAFTA would drain about 19,000 textile and apparel manufacturing jobs.

Forecasts of job losses under CAFTA are generally dwarfed by estimates measuring the likely impact of outsourcing under NAFTA, which shed roughly 766,000 US jobs within seven years, according to EPI’s calculations.

But the labor advocacy community is more alarmed by other potential effects of free trade policies that are harder to couch in exact economic terms.

EPI’s research has suggested that free trade rules, while not the only factor influencing the dynamics of the labor market, could negatively impact working conditions and have chilling effects on organized labor. The group reported that after NAFTA was implemented, employers became more likely to use the threat of plant closure or relocation as leverage to pressure workers in collective bargaining situations.

Sarah Massey, a spokesperson for the AFL-CIO, told The NewStandard that regardless of the number of jobs eliminated under CAFTA, organized labor’s opposition stems chiefly from fears that such an expansion of free trade would intensify labor exploitation worldwide.

"Let’s say it’s 90 jobs, or 90,000 jobs," she said. "It will still promote this race to the bottom on wages, and it will influence the working class here in the United States."

CAFTA Opponents Foresee Downward Spiral for Workers’ Rights Worldwide

Labor and human rights activists believe that the labor provisions of CAFTA, like the various trade liberalization policies that have preceded it, will further push the workforces of poor countries away from social and economic sustainability.

"We see CAFTA as a corporate bill of rights without a labor bill of rights," said Massey, pointing to labor provisions in the agreement that the AFL-CIO has decried as deeply inadequate.

CAFTA technically requires governments to enforce existing labor laws. But a member country’s government is also guaranteed "discretion in investigatory, regulatory, prosecutorial and compliance matters," and can only be disciplined if its failure to enforce labor laws directly affects trade in the region. Under current regional trade policies, which CAFTA would replace, any violation could trigger a sanction, regardless of its commercial impact.

In the case of a sanction under CAFTA, the penalty system would be based on a monetary fine, which basically takes the form of additional funding allocated by the violating member government for more enforcement measures. The primary disciplinary instrument in current trade law is the revocation of trade privileges, but in promoting CAFTA, the US Trade Representative Office (USTR) dismissed the breaking of trade ties as "a very blunt instrument that would harm the very workers whose rights are at issue."

Neena Moorjani, a spokesperson for the USTR, described CAFTA’s penalty system as an "innovative" and "targeted" approach that "goes back to correct the specific labor problem identified," in that the penalty would supposedly cover the cost of improved enforcement.

But critics argue that the new penalty mechanism is little more than a gesture. "It’s not the lack of money why the workers’ rights situation in CAFTA is so bad," said Paul. "It’s really the lack of political will in the region to do anything about it. And CAFTA lets the violators off the hook."

Officially, CAFTA directs member countries to "strive to ensure" adherence to International Labor Organization (ILO) Declaration, which establishes collective bargaining rights and bars the use of child and forced labor. The USTR claims that other CAFTA member states are in compliance with ILO requirements; it has also publicized recent labor administration reforms implemented by member governments, supposedly under the incentive of stronger trade relations with the US.

Nonetheless, opponents say both the existing laws and the domestic enforcement systems are so weak that workers are often powerless against employers. In some of the member countries, the main protection against retaliatory dismissal for workers who attempt to unionize is a minor fine levied on the employer, which the AFL-CIO called "a small price to pay to keep factories union-free."

Denouncing the ILO provisions as "utterly non-enforceable," Larry Weiss, executive director of the fair trade advocacy group Citizens Trade Campaign, contended that the officials who crafted CAFTA were intent on preventing factory workers in oppressive situations from asserting their rights. "It is the policy of those governments … to ensure that there will be no unions in those sectors," he said.

Protecting the ‘Rights’ of Corporations

Another controversial feature of CAFTA, with implications for social infrastructure as well as national sovereignty, is its broad regime of legal "rights" granted to corporations. The free trade framework imposed over local governments would open channels for the privatization of public utilities in member countries and the control of agricultural and pharmaceutical production through elaborate intellectual property rules.

Solidifying these new entitlements would be a "dispute settlement" mechanism, by which corporations could file lawsuits to challenge government policies that allegedly impinge on their right to free trade. Such offending policies could include regulations protecting public safety or the environment at the purported expense of corporations and their investors.

The arbitration procedure that CAFTA would establish is similar to NAFTA’s international judicial system for multinational companies. The watchdog group Public Citizen reported that under NAFTA’s tribunal system, corporations have brought a total of 42 lawsuits against governments. As of February 2005, private companies had received a total of $35 million in public funds as compensation for "losses."

In 1997, for instance, the Metalclad Insulation Corporation of California set a precedent for overriding local authority by suing the Mexican municipality of Guadalcazar for refusing to grant a construction permit to expand a toxic waste facility. Despite protests by local residents and the designation of the site as part of an ecological reserve, the corporation won a $15.6 million indemnity from the Mexican government due to the denial of "fair and equitable treatment" under NAFTA statutes.

According to EPI economist Robert Scott, the NAFTA model has codified corporate impunity in free-trade agreements. "It has just resulted in huge shifts in political power and legal rights," he told TNS, "from cities and workers and states, to corporations."

Although CAFTA is the latest red flag to emerge in the free trade debate, both supporters and detractors believe that multinationals will continue their global pursuit of higher profits and lower wages regardless of whether the agreement is ratified.

Fair trade activists warn that the so-called "race to the bottom" in working conditions is far from finished: after leaving hundreds of thousands of US workers in the lurch, the sinking floor of labor standards is shifting yet again, as multinational manufacturing jobs rapidly abandon Mexican and Central American workers for the even lower-paying factories of Asia.

Business interests have argued that trade cooperation through CAFTA, even if it does not reverse the outsourcing trend, would at least enable member countries to save remaining jobs. But labor advocates counter that even the most desperate effort to protect jobs must not fail to protect workers as well.

"The minimum we should expect of our trade policy," said Paul of the AFL-CIO, "is that it does no harm."

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The NewStandard ceased publishing on April 27, 2007.


Michelle Chen is a staff journalist.

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