About Us

  • Eyes on Trade is a blog by the staff of Public Citizen's Global Trade Watch (GTW) division. GTW aims to promote democracy by challenging corporate globalization, arguing that the current globalization model is neither a random inevitability nor "free trade." Eyes on Trade is a space for interested parties to share information about globalization and trade issues, and in particular for us to share our watchdogging insights with you! GTW director Lori Wallach's initial post explains it all.

Contact

« August 2014 | Main | October 2014 »

September 26, 2014

CAFTA and the Forced Migration Crisis

What does a trade agreement have to do with the thousands of unaccompanied children risking their lives to try to cross the U.S. southern border?  

Earlier this month Congresswoman Marcy Kaptur (D-Ohio) hosted a congressional briefing entitled "Economic Underpinnings Of Migration In The Americas," focusing on the role that the U.S.-Central America Free Trade Agreement (CAFTA) has played in contributing to the forced migration crisis.  

Watch Congresswoman Marcy Kaptur and GTW research director Ben Beachy explain how CAFTA has exacerbated the instability feeding this crisis in the video below.  Ben's prepared remarks follow. 

0:00 -- Congresswoman Kaptur introduces the event
4:57 -- Ben delivers remarks
16:40 -- Congresswoman Kaptur answers a question about Fast Track
24:34 -- Ben answers a question on how to achieve a more fair trade model

 

CAFTA and the Forced Migration Crisis

Ben Beachy, Research Director, Public Citizen's Global Trade Watch

I’d like to start with a quote from former Representative Tom Davis, from my home state of Virginia, when he was speaking on the House floor in favor of CAFTA on July 27, 2005.  He said:

“…we need to understand that CAFTA is more than just a trade pact. It's a signal of U.S. commitment to democracy and prosperity for our neighbors. And it's the best immigration, anti-gang, and anti-drug policy at our disposal…Want to fight the ever-more-violent MS-13 gang activity originating in El Salvador but prospering in Northern Virginia? Pass CAFTA …Want to begin to ebb the growing flow of illegal immigrants from Central America? Pass CAFTA.

One day later, the House passed CAFTA, at midnight, by a single vote.

Nine years later, gang and drug-related violence in Central America has reached record highs and the “growing flow” of immigrants from Central America that Representative Davis referenced has surged.

At a minimum, CAFTA failed to stem violence and migration from Central America as Rep. Davis and other CAFTA proponents promised.  But it’s worse than that.  The deal appears to have actually contributed to the economic instability feeding the region’s increase in violence and forced migration. 

I’m not going to argue that CAFTA is singularly responsible for the surge of Central American children trying to cross the southern border into the United States.  The horrific violence in Honduras, El Salvador and Guatemala is the proximate cause of this crisis.  But that violence has been fed by economic instability in those countries.  And it makes sense to examine whether CAFTA has done more to mitigate or to exacerbate that instability. 

The evidence, unfortunately points to the latter.  Under CAFTA, family farmers in El Salvador, Guatemala and Honduras have not fared well, the economies have become dependent on short-lived apparel assembly jobs – many of which have vanished, and economic growth has actually slowed. 

First, let’s look at the situation for family farmers.  A number of development groups unfortunately predicted during the CAFTA debate that the deal could lead to the displacement of the family farmers that comprise significant portions of the region’s workforce.  Indeed, that should have been the expected result if NAFTA, the predecessor to CAFTA, offers any indication. 

NAFTA removed Mexican tariffs on corn imports and eliminated Mexican supports for small farmers but did not discipline U.S. subsidies.  The predictable result was an influx of cheap U.S. corn into Mexico, which caused the price paid to Mexican farmers for the corn that they grew to fall by 66 percent, forcing many to abandon farming.  An estimated 1.1 million small-scale farmers and 1.4 million other Mexicans dependent on agriculture soon lost their livelihoods.  Immigration to the United States soon soared.  While the number of people immigrating to the United States from Mexico remained steady in the three years preceding NAFTA’s implementation, the number of annual immigrants to the U.S. from Mexico more than doubled in NAFTA’s first seven years. 

Under CAFTA, family farmers in Honduras, El Salvador, and Guatemala have been similarly inundated with subsidized agricultural imports – mainly grains – from U.S. agribusinesses.  Agricultural imports from the United States in those three CAFTA countries have risen 78 percent since the deal went into effect.  While these exports represent a small fraction of the business of U.S. agricultural firms, they represent a big threat to the Central American family farmers who do not have the subsidies, technology, and land to compete with the influx of grain.  

And despite promises to the contrary, most small-scale farmers in those countries have not seen a boost in exports of their products to the United States.  The growth in agricultural exports from El Salvador to the U.S. under CAFTA has actually been lower than global growth in agricultural exports to the U.S.  And Honduras’s agricultural exports to the U.S. have been swamped by the surge in agricultural imports.  Honduras went from being a net agricultural exporter to the United States in the six straight years before CAFTA to being a net agricultural importer from the United States in the six straight years after the deal took effect. 

Some CAFTA proponents understood that Central America’s small-scale farmers may not fare well under the deal, but promised that displaced workers could find new jobs in the garment assembly factories, or maquilas, producing clothing for export to the U.S.  These factories are not only notorious for abusing workers’ rights and paying low wages, but for leaving a country as soon as cheaper wages can be found in another low-wage country.  Indeed, this race to the bottom was evident in Mexico under NAFTA.  Maquila employment surged in NAFTA’s first six years. But since 2001, hundreds of factories and hundreds of thousands of jobs in this sector have been displaced as China joined the WTO and Chinese sweatshop exports gained global market share. 

Apparel production in Central America’s factories has faced a similar fate.  Apparel exports to the United States from each of the three countries in question – Honduras, El Salvador, and Guatemala – were lower last year than in the year before CAFTA took effect.  In Honduras, apparel exports to the U.S. have fallen more than 20 percent in CAFTA’s first 9 years.  Guatemala has seen a nearly 40% downfall.  Jobs in the apparel factories of Central America would be expected to disappear even quicker if the controversial Trans-Pacific Partnership would take effect.  The TPP contains Vietnam, where the average minimum wage is 52 cents an hour – a fraction of minimum wages in Central America, and even in China. 

A final promise of CAFTA that I’ll highlight is that the pact would boost Central American economic growth.  This promise was also made for Mexico under NAFTA.  But since NAFTA took effect, Mexico’s average annual per capita growth rate has been just 1 percent, significantly lower than the pre-NAFTA rate. Indeed, Mexico had the third-lowest per capita growth rate in all of Latin America during the first 20 years of NAFTA. 

The outcome has not been much better under CAFTA.  The average annual GDP growth rates in El Salvador, Honduras and Guatemala have all been lower than the overall growth rate in Latin American developing countries in CAFTA’s first 9 years. In fact, the average annual growth rates of El Salvador and Honduras have fallen since the deal took effect, while the growth rate of Guatemala went from being above the regional average before CAFTA to falling below it since CAFTA. 

These aggregate numbers of course represent thousands of individual families who have found themselves facing increased economic instability and greater difficulty in making ends meet.  Thousands of youth more susceptible to the influence of gangs and drugs.  And thousands of children who have decided that a life threatening journey to the United States is better than an even more life-threatening existence at home.  

In sum, representative Davis was clearly wrong, as were the other CAFTA proponents who promised the deal would bring “prosperity” to Central America, thereby diminishing gang and drug-related violence and stemming the need to migrate to the U.S. 

While Rep. Davis is no longer in Congress, his arguments are still here.  Some members of Congress and industry lobbyists are making very similar promises regarding the proposed Trans-Pacific Partnership – which would expand the NAFTA/CAFTA model across the Pacific.  They have argued, essentially, that this time will be different.  That this time, a more-of-the-same trade deal will actually spur prosperity among our trade partners. 

Most members of Congress, thankfully, are not buying it.  Most Democrats have opposed the effort to Fast Track the TPP through Congress, as has a sizeable bloc of Republicans.  For those still on the fence, it would be prudent to consider the failed legacy of past agreements before committing us, and our trade partners, to a new one.  

September 18, 2014

Chamber of Commerce Uses “Weird Facts” to Claim a $106 Billion Trade Deficit Isn’t There

The Chamber of Commerce is a place of magic.  For its latest trick, the corporate alliance tried to make a $106 billion trade deficit disappear.

The Chamber took to its blog last week to highlight for readers “One Weird Fact About the Trade Deficit No One Has Noticed.”  Here’s the claimed “fact”: “in 2012 — for the 20 countries with which the United States has entered into a free-trade agreement (FTA) — the trade deficit vanished.”

A disappearing U.S. trade deficit with our FTA partners?  That’s not just weird – it’s incredible.  As in, not credible. 

Want to know why “no one has noticed” this oddity?  Because it didn’t happen. 

In 2012 the U.S. trade deficit with FTA partners topped $106 billion.  That includes trade in goods and services.  (If you just count goods, the deficit was $178 billion.) 

And that mammoth FTA trade deficit is not “vanishing.”  The estimated U.S. trade deficit with FTA partners in 2013 is exactly the same: $106 billion. 

Indeed, the aggregate U.S. goods trade deficit with FTA partners has actually increased by more than $147 billion since the FTAs were implemented. In contrast, the aggregate deficit with all non-FTA countries has decreased by more than $130 billion since 2006 (the median entry date of existing FTAs).

The Chamber goes on to claim, “The United States has recorded a trade surplus in manufactured goods with its FTA partner countries for each of the past five years.”  The opposite is true.  The U.S. has run a major trade deficit in manufactured goods with its FTA partners in each of the last five years.  The average FTA manufacturing trade deficit during this period exceeded $48 billion. Last year, it topped $51 billion.

How does the Chamber claim to not see glaring FTA trade deficits?  By using some “weird facts” of its own. 

The Chamber distorts the data by counting “foreign exports” as “U.S. exports.”  Foreign exports are foreign-made goods that pass through the United States without alteration before being re-exported abroad.  Along the way, they support zero U.S. production jobs.  And yet, the Chamber includes foreign-made exports alongside U.S.-made exports as if they had the same value for U.S. workers.

Doing so dramatically deflates the size of the actual U.S. trade deficit with FTA partners.  By errantly including foreign exports, the 2012 goods trade deficit with FTA partners can be made to look less than 40 percent of its actual size ($71 billion vs. the true deficit of $178 billion).  The distortion was even worse in 2013, when the actual FTA goods trade deficit was nearly three times as large as the distorted deficit with foreign exports included ($67 billion vs. the true deficit of $180 billion). 

The graph below shows how this single data trick allows the Chamber to claim that a $106 billion FTA trade deficit has disappeared.  As the administration contemplates expanding the old deficit-ridden FTA model via the controversial Trans-Pacific Partnership, it seems that we should be looking at the actual evidence from past FTAs, not illusions. 

Chamber Weird Fact
A footnote on data availability: services data are not available for some FTA countries, particularly the smaller economies.  The missing data were not included in either the Chamber’s figures or those reported above.  Also, while the Chamber did not report figures for 2013 due to a claimed lack of available services data for that year, 2013 services data is actually available for all but two of the FTA partners for which 2012 data were available.  For those two countries, services data for 2013 has been extrapolated based on observed growth trends.

September 17, 2014

Pharmaceutical CEO: This Controversial Deal Will Be Great for Us…And You (Trust Us)

In an op-ed appearing in Forbes on Tuesday, the CEO of Eli Lilly, a U.S. pharmaceutical corporation, paints a glowing picture of how the proposed Trans-Atlantic Free Trade Agreement (TAFTA) would benefit consumers on both sides of the Atlantic – but it’s pure fantasy.

It is not surprising that Eli Lilly is cheerleading this controversial deal. This is the same pharmaceutical firm that is using the North American Free Trade Agreement (NAFTA) – TAFTA’s predecessor – to challenge Canada’s legal standards for granting patents and demand $500 million in taxpayer compensation.

John Lechleiter, Lilly’s CEO, shrouds his arguments under the guise of “free trade,” while in reality Lilly’s TAFTA proposals are a plea for increased government protection for his company and expansion of the monopolistic business model upon which the multinational pharmaceutical industry relies.

This post will take on Mr. Lechleiter’s claims, one by one.

Continue reading "Pharmaceutical CEO: This Controversial Deal Will Be Great for Us…And You (Trust Us)" »

September 12, 2014

Sachs on TPP: "This is a NAFTA Treaty Writ Large"

"These are largely industry- and lobby-driven activities. They are not yet in any way proved to be in the interest of American people, and this is a matter of significant concern.  I don’t understand how something of such vast significance for billions of people could even presume to be treated in this manner." 

That's the take on the controversial Trans-Pacific Partnership (TPP) and Trans-Atlantic Free Trade Agreement (TAFTA) from Jeffrey Sachs -- prominent economist, Columbia University professor, and Earth Institute director.

Prof. Sachs lambasted the proposed deals on Wednesday at a Forum on Free Trade Agreements, hosted by Congresswoman Rosa DeLauro. Other speakers who criticized the pacts and called for a new trade agreement model included Maine Attorney General Janet Mills, K.J. Hertz of AARP, Jared Bernstein of the Center on Budget and Policy Priorities, Thea Lee of the AFL-CIO, and Debbie Barker of the Center for Food Safety.  

Check out this video of their incisive critiques of hte TPP and TAFTA.  Excerpts from Prof. Sachs' remarks follow. 

  

 Excerpts from Prof. Jeffrey Sachs on the TPP and TAFTA (also known as TTIP)

TRANSPARENCY: The fact that the public is not engaged means that we should worry because we do know that when things are managed in secret, as these negotiations have been, it’s the organized and powerful interests that by far dominate the proceedings. These are largely industry- and lobby-driven activities. They are not yet in any way proved to be in the interest of American people, and this is a matter of significant concern.  I don’t understand how something of such vast significance for billions of people could even presume to be treated in this manner. One could imagine that negotiations over very specific tariff rates or very specific numerical clauses in some of these chapters could be held privately. But the idea that the main text around issues as broad as investor protection, dispute settlement, taxation, financial flows, intellectual property, would be done secretly, is shocking actually to me. But we’re talking about the basic rules of the international economy for the three major regions of the world. There is no reason in the world I can see for this text not to be public, not to be publically vetted, and not to be updated over time.

WRONG TRADE AGREEMENT MODEL: [W]hen President Obama talks about TPP and TTIP being 21st century trade agreements, the starting point should be that the phenomena of globalization more generally, the extent of financial crises, the growing environmental catastrophe worldwide of climate change and loss of biodiversity, the crises of international disease (such as we now have with Ebola in West Africa) need to be not only considered as footnotes. And they’re not even that in any way. They need to be in the forefront of our international economic relations…And in that sense I can’t support either of these negotiations with what I see now. I think that they would distract us from the more important global issues. I don’t think they rise close to the standard of being 21st century trade and investment agreements, not even close. They are very much 20th century agreements which were already out of date by the time they were negotiated. This is a NAFTA treaty writ large, or this is the same negotiation that we’ve had in many other cases.

TPP AND TTIP AS INVESTEMT PROTECTION AGREEMENTS, NOT TRADE PACTS: [T]these proposed agreements are mostly investor protection agreements, rather than trade agreements. There are trade elements in them, but this is mostly about investor protection: investor protection of property rights of investors, of prerogatives of investors, of IP of investors, of the regulatory environment of investors, and so forth. Recognizing that, we have some reasons to support some of these issues, but a lot of reasons for worry, because it’s not true that everything that is in the investor’s interest is in the worker’s interest. Its’ not true that everything that’s in the investor’s interest is in the broad interest of the American people or the people in host countries where the American investment may be going, or in the same way, investment that could be coming into this country. So we’re talking about mainly investment rules. And trade, which is already quite liberalized in the straightforward trade manner, doesn’t change all that much from what we know of these treaties. These are basically not trade agreements. They are investment agreements.

INVESTOR-STATE: [T]he whole issue of investor-state dispute settlement:  to my mind, it is quite alarming that the administration seems until this day to be pushing something which more and more observers, participants, legal scholars view as out of control…And the problem with this is that it creates an extra-legal venue for arbitration that has proven in many investment treaties in recent years to be highly deleterious for basic government regulatory processes and especially around issues of health, safety, environment, and other issues. The mechanism proposed here which is already part of many bilateral treaties and some multilateral investment treaties — is giving more and more power to investors to challenge general government regulatory actions. Not breach of specific investment contracts, but general regulatory and legislative actions on the claim that those general regulatory or legislative actions are against the interests of the investors and somehow therefore violate the implicit standards or guarantees that these investors have vis-à-vis the host countries. In other words, standards of general applicability against smoking or for environmental protection, or for taxation of natural resources and so forth are now coming under challenge in these investor-state dispute arbitration panels and forcing governments — the host governments — to back down or rescind or, in the face of a lost arbitration, to cancel laws of general applicability, and therefore to lose the sovereign right to pursue national interest at the face of investor interest. …As far as I know the United States government continues to press this clause today.  I regard that alone as reason to oppose both of these treaties. If this remains in place, it is absolutely in the wrong direction. And, these clauses have proven to be increasingly dangerous and I’ve seen publicly no response to this at all. 

Recent Posts

Subscribe