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CAFTA Continues to Crawl

It’s now been over four years since the Central American Free Trade Agreement (CAFTA) was signed by Nicaragua, El Salvador, Honduras, Guatemala, and Costa Rica (and later the Dominican Republic) in March 2004, and two years since it was to take effect in March 2006. Two years later in March 2008 was the deadline for full implementation of the provisions. Yet countries, especially Costa Rica, have been slow to dive head first into this agreement.

In February of 2007, tens of thousands of Costa Ricans took to the streets to demonstrate the ratification and implementation of CAFTA, but it narrowly passed through a country-wide referendum vote in October 2007. Since then it’s been inching its way through the court system and government. The March 2008 implementation date has been extended several times, and just this past week was extended again til January 1, 2009.

All eyes are on this country, with the most prosperous economy in Central America and the third largest goods export market for the United States in Latin America. So while the US continues to pressure Costa Rica’s implementation of the agreement, the implementation date seems to float farther away as citizens and farmers speak out against CAFTA's lack of labor, environmental and health provisions, among a host of other concerns.

In other news, U.S. corporate takeover of Central America has continued. You may remember that Wal-Mart was able to buy control of Central America’s leading retail chain in 2006 when CAFTA went into place. Once the Central American Retail Holding Company (CARHCO), the retail chain has now been renamed to Wal-Mart Central America. Clever, eh? Guatemala experienced some of the largest Wal-Mart infiltration, with hundreds of stores being sucked into the international Wal-Mart conglomerate and out of the local economy.

Just as CAFTA encourages this sort of foreign investment, it makes sure to transfer plenty of control from the domestic government to the investing corporations.  As part of CAFTA’s Investor Protection Provisions, foreign corporations are able to sue the local governments for any "potential loss of profit" for the company, as already demonstrated in dozens of cases through NAFTA.

Recently this incredibly vague provision in CAFTA began working its way through the Dominican Republic’s energy sector. The French investor Societe Generale sued the DR’s government for $680M in potential losses related to allegations that the government’s mistreatment of the company has led to a diminished value of EDE Este, a Societe Generale power company. More specifically, the company claims “catastrophic losses” due to allegations that the government has failed to prevent the theft of electricity, blamed the company for power blackouts, and encouraged Dominican citizens to forgo paying their electricity bills. That’s a $680 million whine that could transfer millions of taxpayer dollars to the hands of a foreign private corporation.

Take heed Costa Rica, it could get ugly.

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Angry Sam

Seems like the problem here isn't allowing corporations to invest in and buy South American businesses, it's the fact that corporations are being given greater status internationally than they would have domestically.

People making these kinds of treaties need to keep in mind that corporations are inherently profit-seeking, and are legally beholden to do that on behalf of their shareholders. Bad international trade pacts create perverse incentives.

This is, of course, completely secondary to the fact that "free trade" is a nonsensical term so long as the US continues to subsidize agribusiness and employ stringent immigration restrictions.


I wish Senator's Obama and Biden would come out and be much more specific when laying out their agenda on commerce and trade issues. I know Senator Obama did say that if elected he would meet with Canada and Mexico in order to fix NAFTA. What would he do about all of the other horrible trade agreements currently in place? We have to rebuild our manufacturing base here in America so that we are able to produce things once again. Being a totally dependent country that only consumes isn't a path to prosperity or economic security for the United States.

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