The Impact of CAFTA on Mexico and Central American Countries

The controversial CAFTA (Central America Free Trade Agreement) or CAFTA-DR is a big factor in international business. It not only affects the seven countries that are involved in the agreement (The Dominican Republic, The United States, El Salvador, Guatemala, Nicaragua, and Honduras-also Costa Rica when and if they approve the agreement), but it also affects Mexico as well. Mexico is part of NAFTA (North American Free Trade Agreement), in which CAFTA is essentially an offshoot (http://en.wikipedia.org/wiki/CAFTA). The agreement has a goal of creating a free trade zone, which NAFTA already has. The free trade zone affects businesses because certain rules are relaxed in order to convince companies to do business in a certain area.

In some ways CAFTA may seem odd because the United States is doing business and/or dealing with some countries that don’t have a percentage of the wealth of the United States. The relationship between the Central American countries involved in the agreement, when all the countries come aboard (ex: Costa Rica) will result in 80 percent of the taxes (tarrifs) being eliminated on US exports to the countries. President George Bush is a huge supporter of CAFTA and has been since 2002. He said that it will not only help with jobs for people both in the United States and the Central American countries, he also feels that it will help the countries become more democratic. Bush said in a speech last year (http://www.oas.org/speeches/speech.asp?sCodigo=05-0163) that CAFTA will be a big boost to farmers and consumers. It will help consumers because if CAFTA works to its full effect, consumers will be able to purchase goods at a reduced rate because of the reduced tarrif.

Many people oppose CAFTA and a lot of them point to the fact that NAFTA has cost a lot of farmers in participating countries (ie: Mexico) their jobs and businesses to bigger corportations. That is the “company line” of the Public Citizen (http://www.citizen.org/documents/ADERHOLT_DECEMBER.pdf).There are a lot of other oppositions, there are several websites that encourage people to look up and write letters to their local congressmen who passed the bill, in fact there are articles on anti-CAFTA sites (stopCAFTA.org) that point to the problems that CAFTA has caused in even states in the U.S such as Alabama. Democrats.com printed an article from a person called Dinamic that said that CAFTA wants privitization of public services, which could be devastating, especially to poor people who cannot afford things like health care or education. Other reasons for the anti-CAFTA sentiment include the Central American countries losing power to control it’s own destiny which leaves it’s people and businesses vulnerable to the larger entities such as the United States. In other words it’s more than just the poor Central America Countries being affected by this agreement, it’s the United States as well. The United States will also be affected because people in struggling countries will flock to America in unhealthy numbers to try to make up their losses from being in a CAFTA country whose people Despite that, El Salvador’s management is and has always been on board with CAFTA as they continue to try to become Americanized in its econonmy. President Antonio Saca did many interviews as CAFTA was being drafted praising the agreement and what it will do for his potentially upcoming country. When it comes to businesses being affected by this agreement, as talked about above the agriculture industry would probably be first and foremost on that front. The reason is obvious a lot of the goods that will be transported back and forth under this agreement are foods and other goods created by agriculture.

Impact of CAFTA on the economy of El Salvador

Introduction

CAFTA is very important to El Salvador because the United States is its most important trading partner and to be able to in essence be married to a major country like the United States in that area is a major step for the country. Another important point to note is that within most El Salvador families, there is at least one or two people who have migrated to the United States and often times the immigrants are hoping to be able to send money back to their families in El Salvador. El Salvador citizens that are able to live and work in the United States are able to do so because of the TPS law supported by George Bush, that allows 20,000 people of El Salvador to be in the United States legally (http://www.cispes.org/english/Updates_and_Analysis/index.html). TPS is most likely an arrangement to keep President Saca on board with CAFTA, despite pressure from his people to question the arrangement. If said arrangement works out correctly, it could be a big boon to the economy of this Central American country. CAFTA is the continuation of El Salvador trying to become a major financial player internationally. In fact in 2001 the U.S dollar became the currency of the country under the leadership of President Antonio Saca. However despite President Saca’s willingness to be a major ally with the United States, the citizens of his country and other areas of management are worried about their freedoms and the ability to compete with major corporations.

Review of Relevant Information

In an interview done last year(http://www.businessweek.com/magazine/content/05_25/b3938082_mz058.htm), President Saca gave many reasons why he supported CAFTA and why it would be a good thing for the economy of El Salvador. Among them were the fact that Central America buys about 16 billion dollars in goods from the United States, which makes the region (El Salvador included) very important in terms of trading with the United States. President Saca also indicated that El Salvador is also an ally of the United States when it comes to national and international security. He also comes up with the reasoning that if the United States and El Salvador are on friendly terms then there is less chance for illegal immigration. Also a friendship between El Salvador and the United States is able to team up against China who will compete with both countries for the exportation of goods. Saca also said when it comes to goods El Salvador is complementary to the United States as opposed to competition like Mexico is. Speaking of being complementary to the United States, there is some thought that El Salvador is in bed with the United States because they sent 380 troops to Iraq, something Saca denied. President Saca and President Bush to this day are still close to the consternation of both other members of the El Salvador government and most citizens of the country. In the past Saca has bragged about spending the night in the White House, showing his closeness to President Bush and the powerful United States. As CAFTA has evolved even some parts of the El Salvador government have started to question the deal because the United States is asking for more out of CAFTA than El Salvador thought they would have to give up, although as you will see later on, El Salvador does conceed most of the request from the United States.

As President Saca indicated, El Salvador is trying to become more of a democracy and more “American” in terms of their finances. As CAFTA was building momentum it was common place for the President George Bush and President Saca to either be seen together or to be quoted saying great things about each other and its countries. The country is using the American dollar for currency, despite the fact that El Salvador is a poor country, especially in comparison with the United States. That is one of the issues that Anti-Cafta groups and/or people go to in attacking the agreement. Can the farmers in Central American countries succeed under laws that are more geared toward richer North American countries like the United States and Canada? If it doesn’t it could lead to farmers losing their crops which means a loss of money for people who can’t afford to lose money. Even with US currency, El Salvador is still one of those countries. Anti-CAFTA people worry that the powerful United States will not be able to provide the assistance needed or even worse won’t care to provide the assistance that a poor country like El Salvador will need if things get too much for their farmers and workers of that light. One of the fears is that larger corporations will buy goods/foods from a country like El Salvador at lower than market value and then sell at a higher value, which means CAFTA is only another version of NAFTA designed only to help countries like the United States. A big problem is according to these organizations is that participating CAFTA countries are only required to follow the existing labor laws of the country and a lot of those laws are not acceptable based on any standards. When it comes to labor laws and the like when CAFTA was going through it’s initial stages, democrats thought that labor laws that protected workers should be more prominent in the language of the agreement. Despite the fact that President Saca is on board with CAFTA, in it’s developing stages there were protests based on health care privatization, concerns that are different from a lot of other countries that are more focused on pure finances and/or what happens to the farmers in the country.

Other big factors when it comes to El Salvador’s finances regards copyright infringment on drugs sold in the United States. El Salvador agreed as part as the deal with CAFTA to have the United States vigoursly protect it’s rights on pharmacuticles (http://www.stopcafta.org/article.php?list=type&type=43). Of course the potential problem with that law is that people with diseases in El Salvador will have more trouble getting help in order to get better from diseases like AIDS. Speaking of copyrights, another agreement as part of CAFTA is that vendors who copyright DVD’s or CD’s will be arrested, in fact it would be treated as a serious offence. One officer said that selling pirated media would be the same as having drugs in terms of being arrested. Last month there was a major protest against these laws (http://www.cispes.org/english/Updates_and_Analysis/index.html), with vendors wondering how they would earn a living with their main source of income being taken away. According to crispes.org, 60,000 people are affected by what the CAFTA agreement does to their business.They asked for an alternative to pirating media, but as of now they still have not received any from President Saca. In fact President Saca has barely acknowledged any of the protest from his poor people who are worried about what CAFTA will do to them.

That is more proof that El Salvador was and is more supportive of CAFTA than most South American countries, as they were one of the first countries to adapt to laws that favor the Unites States in order to get the CAFTA deal done quickly. Another factor that may offset the worries of the Anti-CAFTA factions, at least when it comes to El Salvador at least, is that farming is not as important as it is in other Central American countries, that makes President Saca’s praise of CAFTA make more sense compared to the hesitation of other countries. (that doesn’t mean the farmers that are in El Salvador are not against CAFTA, because many farmers that do work in El Salvador were part of various protests against CAFTA before it was passed – http://www.stopcafta.org/article.php?list=type&type=43).

Conclusion

It appears as if President Saca is going to have a major fight on his hands in trying to keep his people happy in relation to CAFTA laws. Farmers and vendors alike are worried about the agreement, which from their point of view favors the powerful United States and its wealthy corporations. Because of President Saca’s relationship with President Bush, it is unlikely that he will give much credence to the concern of his people, which may lead to violent protests down the line (http://www.cispes.org/english/Updates_and_Analysis/index.html), some of the protests have already gotten out of hand without much response to President Saca. On the other hand El Salvador has potential with this agreement to become a more democratic country and become a richer country both financially and otherwise. Considering the fact that President Bush is anxious for CAFTA to be a major success, one would think he would do everything in his power to please the one country that is somewhat on board with the agreement. It may be possible for CAFTA to be beneficial for all parties if and only if President Saca somehow is able to convince his people that they will not suffer because of CAFTA and they won’t have to live a life of poverty and struggling so President Saca can rub shoulders with the big boys.

The Impact of CATFA on Mexico

Introduction: According to websites such as www.developmentgap.org/rmalcag.html, NAFTA (the North American Free Trade Agreement), the agreement CAFTA is based on has been a disaster for Mexico. Mexican farmers have not been able to compete with the other two countries under the NAFTA agreement, the United States and Canada. The horrible outcome of NAFTA for Mexico is not a surprise to the many who opposed the agreement as it was in its initial stages. Farmers have lost money because of prices going down due to the laws that state that the United States must provide wages to its farmers to supplement their agriculture. In fact according to an article (http://www.oaklandinstitute.org/?q=node/view/182), hundreds of thousands of Mexicans have lost their jobs because of NAFTA (and according to democrats.com some of the people that do work are forced to do so in horribly conditioned sweatshops), which is the most important trade agreement Mexico has made to date. With all of that said according to the World Bank, NAFTA has been good to Mexico for the most part and what Mexico needs to do to make NAFTA more successful is to make some adjustments in order to help the poverty rate, which has not been improved under NAFTA. When it comes to CAFTA, the most obvious connection between it and Mexico is that Mexico is the number one trading partner with the United States. If that relationship is good it stands to reason that for better or worse Mexico will be affected one way or another by CAFTA. Another important thing is that CAFTA will lead to the FTAA (Free Trade Area of the Americas) if the United States has its way. The FTAA would eliminate and/or reduce all tariffs between countries in American continents according to an anti-CAFTA website called StopFTAA.com, the Free Trade Agreement is like “CAFTA on steroids”, that is not a good thing because according to the website, FTAA will slowly rip apart the freedoms of the American people, which would obviously trickle down to Mexico, a country closely aligned with the U.S and a country that would be part of FTAA.

Relevant Information

NAFTA, the agreement that Mexico falls under has cost Mexicans jobs by the thousands and its effects on the economy of Mexico have been mixed. The consensus, if there is one seems to be that NAFTA has helped Mexico in terms of people who already have money or own large corporations have benefited (that is according to World Bank), but poor people and/or farmers are struggling under the agreement. A situation that may occur for better or worse when it comes to the effect of CAFTA on Mexico is if CAFTA is successful enough, the problems that NAFTA causes for Mexico may be ignored. The reason being as any anti-CAFTA website will tell you like StopCAFTA.org, the same pitfalls that can and have affected the Central American countries under CAFTA are the same ones Mexico is undergoing under NAFTA; those pitfalls include job loss, loss of money and the inability to compete with huge corporations that mostly come from within the United States. On the other hand if there is enough consternation shown from the CAFTA countries, then there is the possibility there may be changes in NAFTA.

A problem that Mexico can run into in relation to CAFTA is because of its relationship to the United States, if the Anti-CAFTA sentiment is correct and Americans can lose their jobs because of CAFTA (http://www.themillennews.com/News/2005/0518/Front_Page/003.html, stopcafta.org) then it would stand to reason that Mexicans would also lose their jobs because of the agreement. This means that the two major free trade agreements could end up costing Mexicans millions of jobs. While Mexicans have not been as aggressive in terms of protesting the agreements, as Central American countries have been, it still stands to reason that eventually there will be uprising of some sort because of the fact that it may be that Mexico cannot compete with the United States financially. What Mexico roots for in terms of CAFTA really depends on who is doing the rooting. As stated earlier, Mexicans desperate for reform in NAFTA may root for CAFTA to fail, hoping that the United States will step in and make the changes necessary to CAFTA and then come back and make the same changes to NAFTA in order to benefit Mexico. The rich have benefited from CAFTA, because according to the World Bank, a lot of the financial indicators of Mexico are up. Speaking of the United States in relation to Mexico, according to FoodFirst.org, because of what NAFTA did to Mexican farmers, the farmers are more reliant on United States imports to get by. Right now most of those imports come from CAFTA and the United States trading with countries such as Costa Rica and El Salvador. It’s almost ironic that because of an agreement that was supposed to benefit Mexico from the United States, a lot of the people of Mexico need the other agreement masterminded by the United States in order to get by.

Conclusion

At the end of the day it’s hard to say whether or not Mexico will be directly affected by CAFTA, it depends on a number of factors. Factors such as whether or not concerns over CAFTA lead to reforms in NAFTA, which is the agreement that Mexico is a part of. It’s possible that the poor people in Central America negatively affected by CAFTA will not only migrate to the United States, but Mexico as well. That situation could turn out to make the economy and just the plain comfort level of living in Mexico unbearable. However the people of Mexico are probably a lot more concerned about NAFTA, which is really hurting the poor citizens of the country.

How CAFTA will affect agriculture

Introduction: The effect that CAFTA will have on agriculture may be its most important in any business and/or field. Farmers in every country involved with CAFTA, including the United States are vulnerable if CAFTA does not protect them like it protects people who are already doing well. Farmers who are forced to sell their goods at lower prices could potentially be driven out of business by the lack of funds coming in. The major corporations, like in most instances will survive. A website called epinet.org has a list of promises made in NAFTA, including those made to farmers and then the subsequent reality. The disparity is important because CAFTA is an offshoot of NAFTA and if the same things happen farmers will suffer. Things like millions of farmers losing their jobs and their crops, particularly in Mexico. (Www.pcusa.org/trade/cafta.htm) Farmers who have already been affected by NAFTA were and some still are against the agreement, because they know the disaster that befalls them if things go wrong or if the powerful look the other way (www.theamericanresistance.com/articles/art2005apr18.html).

Relevant information

While CAFTA was still in its initial development, on its website WOLA-the Washington Office on Latin American (http://www.wola.org/economic/brief_cafta_rural_sector_april04.pdf), made its pitch to oppose CAFTA on the theory that poor people, including and especially farmers would suffer under CAFTA. The organization asked for members of Congress to vote against the proposed agreement. When it came to the subject of agriculture, WOLA brought up the point that because of the elimination of tariffs, poor farmers will be able to sell their goods at a fair price, which leaves them with no substantial way to make money. WOLA estimated that 5.5 million farmers in Central America and the United States could potentially lose out because of CAFTA. A reason they could lose out is that the poorer farmers only have a couple of major goods/crops they can sell to make decent money and under CAFTA they would be forced to compete with farmers who have more to offer a potential buyer and that could drive farmers out of business as well (www.citizenstrade.org/pdf/cafta_analysis2). Another potentially alarming with CAFTA when it comes to farmers is that their rights may be overlooked because of the law that says that the countries under CAFTA law only have to follow its own previously enforced labor laws, which in the case of most of the South American countries are not adequate (http://www.stopcafta.org/article.php?list=type&type=2).

The other side of the story is the potential good that CAFTA could do. John Lincoln said in an article (www.nyfb.org/Grassroots/grass0905/nationalide) that CAFTA would be beneficial to farmers in New York, especially upstate New York. As of 2005, New York was supposed to be a boon on both dairy producers and fruit growers among other farmers.
According to an article on the website http://www.fas.usda.gov/info/factsheets/CAFTA/overall021105a.html, the main U.S objective of making arrangements with Central American countries “a two way street”, has been realized. So now the United States now has access to the goods provided by farmers in Central America and Central America vice versa and neither country is taxed. The non-tariff law does benefit the more financially able people in Central America and the United States.

Conclusion

Unless there are major changes to CAFTA it appears that it will continue to negatively affect poor farmers, just like NAFTA affected poor farmers in Mexico and the United States. Because of the support that CAFTA gets from countries such as El Salvador and the middle class of the United States, CAFTA will probably always have enough support to continue, especially with George Bush as President. A key point to remember is that the United States is getting what it wants from CAFTA, whether it comes to agriculture or copyright laws or simply the elimination of taxes on goods produced by Central American workers like farmers. As time goes on the controversy will likely continue with both sides of the CAFTA argument not moving an inch on their beliefs.

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