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CAFTA in Costa Rica would cause deepening inequality

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Americas Program, Center for International Policy (CIP)

CAFTA in Costa Rica Would Cause Deepening Inequality

Maria Eugenia Trejos | September 24, 2007

Translated from: TLC en Costa Rica: Profundización de la desigualdad
Translated by: Tony Phillips

In Costa Rica the Central American Free Trade Agreement (CAFTA) with the United States ran up against a huge opposition movement. The opposition stems from the fact that Costa Rica has developed extensive social services and the public knows that they have a lot to lose. Some of the nation’s influential intellectuals have also dedicated themselves to study the agreement and share the analyses with the rest of the population. Finally, our somewhat effective democratic institutions have worked to delay the process in the Legislative Assembly, opening up more spaces for citizen involvement.

A popular referendum has been called for Oct. 7 to decide the future of the agreement. There are serious questions as to how it is being conducted, including doubts about the impartiality of the Electoral Tribunal, which instituted voting rules that do not guarantee fair participation in the vote. For example, there is no fiscal control of media outlets, most of which have expressed a clear bias in favor of the agreement’s approval; nor are there rules as to the use of the president’s and ministers’ time and resources in producing propaganda in favor of approval. Efforts have been made to silence opposition from the public universities but no mechanism has been created to give media access to those sectors opposed to the agreement.

Nevertheless, there is a large social movement opposing the agreement. Diverse in nature, it is composed of a wide range of organizations and has created many ways of disseminating opinions. The strong presence of the movement against ratification of CAFTA will not end with the approval or rejection of the agreement, but could well be the seed of broader social transformation.

The following paragraphs analyze what CAFTA would mean for Costa Rica.

Main Negative Effects of CAFTA

Put succinctly, CAFTA hands Costa Rica over to the multinational corporations. This is evident throughout the entire text of the agreement, but the following aspects illustrate the overall effect of the agreement:

- Biodiversity: Chapter 15 on Intellectual Property permits patenting the genes of living organisms, and Chapter 10 on investment prohibits, among other things, requiring knowledge transfer from multinational companies, thus making it possible for the multinationals to conduct research into our native species and maintain any knowledge they might acquire in secrecy. The benefits of these rules go to the huge pharmaceutical and the cosmetic industries and Costa Rica loses control over its own resources.
- Water and Natural Resources: Chapter 10 on investment, Chapter 17 on the environment, and Chapter 20 on dispute resolution, taken together and in the best of interpretations, enable multinational corporations to sue the Government of Costa Rica should it take measures they might consider "equivalent to expropriation" or that "affect their earnings" (Article 10.7.1, appendix 20.2). With this, businesses’ access to the water and natural resources, and their "right" to profits take precedence over any measure (whether human or social) that might be taken by the government or municipalities.
- Culture and Knowledge: Chapters 15 on Intellectual Property and 10 on investment also enable multinationals to take ownership of seeds and of traditional knowledge of plants and animals.
- The Markets: The first chapters of CAFTA allow the importation of subsidized products from the United States, without requiring import tariffs in Costa Rica. This will be the last straw for the already damaged food production industry, and along with it put an end to any hope of food sovereignty. Mexico is a good example of this, as nearly two million agricultural jobs have already disappeared since Mexico signed NAFTA with the United States and Canada, replaced by food imported from the United States. [1] Nevertheless, this has not guaranteed lower national food prices; in fact the price of essential foodstuffs has risen while ruining the livelihoods of rural workers. [2]
- Current Public Investment: CAFTA would open up the Costa Rican telecommunications and insurance industries, as well as involvement in other public services, such as water, electricity, and education. For the same reasons as with water and natural resources (above): in the least unfavorable interpretation, multinational companies maintain the right to sue the state for means which they may consider "equivalent to expropriation" or which "affect their profits"-restrictions or regulation in those areas thereby preventing the state from maintaining them under public dominion (see Annex II Non-Conformant Measures, Costa Rican list).
- Abundant and Cheap Labor Force: The right to work does not appear anywhere in CAFTA. To the contrary, the agreement negates any right to require minimal employment levels in transnational companies. Neither does CAFTA guarantee labor rights; except in five specific instances, the country is committed to prevent violations "if commerce is affected" (see Chapter 16 on Labor). That is to say, if it harms the transnational companies and not if it harms the workers.
- National Sovereignty and the application of legislation (use of law and regulations). The ability to legislate is handed over because CAFTA puts itself above all national laws so no new law can be approved-nor can those in place retain their vigilance-where they contradict CAFTA. The ability to apply laws is affected by the right of the transnational companies to take their demands before a court of arbitration. Judges in these tribunals, ignorant of Costa Rican laws, jurisprudence, or legal interpretation, could modify both the decisions of internal courts and of state organisms at any level, taking into account only that which is stipulated in the agreement and not the Costa Rican Constitution and laws. The ability of the State to regulate the activities of multinational companies would be affected by the aforementioned stipulations when it comes to public services and natural resources.

The damage done by the whole agreement is the hand-over of the country to the multinationals. The essence of this is found in Article 9.14 (repeated in 10.9.3.c), which says that measures can be taken to protect health and life, as long as they do not affect commerce.

Impacts on the Poor

The impact of the above on the poor majority and on workers is evident. Nothing in CAFTA favors any sector of the economy except the multinational corporations. What is more, Costa Rica is the only Central American country that did not make any provisions to protect its most vulnerable sectors, i.e. small producers, impoverished women, native peoples, low-income sectors, etc.

Furthermore, given that women already constitute a disadvantaged sector, a treaty that does not protect its most vulnerable sectors particularly affects women. For example, female small farmers, who are responsible for the evolution of the genetic variety of foodstuffs and traditionally charged with feeding their communities, may now encounter obstacles in the continuation of their traditional practices, not only because the Intellectual Property stipulations in CAFTA enables the multinational companies to patent plants and animal species, but also because the treaty reinforces multinational property rights on their seeds. Rural women farmers would also be affected if CAFTA were approved because it would permit the entrance of subsidized farm products from the United States, without tariffs to compete with their production.

It is also clear that this is bad news for wage-earning women workers, since the treaty reduces work opportunities in general and closes doors to women in particular. Women already have a higher unemployment rate and a greater presence in the "informal" employment sector in Costa Rica.

We are told that CAFTA increases exports and increases Foreign Direct Investment (FDI) and that this will increase employment. Nevertheless, none of this reasoning is true. On the one hand, CAFTA does not guarantee an increase in exports nor in FDI. In fact, last year Guatemala, Honduras, and El Salvador, with the agreement in place, actually saw their exports to the United States decrease. [3]

No increase in foreign investment is guaranteed. Last year foreign investment in Costa Rica, without the treaty in place, was greater than that which was invested in all of the other Central American countries put together. [4] Also, an increase in exports and in FDI does not guarantee that employment rates will rise. Between 1994 and 2006 in Costa Rica FDI rose by 500%, exports by 300%, and nevertheless unemployment also rose. This is because FDI displaced national production, and in doing so sometimes generated more unemployment than employment. [5] This also was a result of an increased rate of displacement of national producers and employees. All such effects would be exaggerated if the agreement were to be approved.

Protection of labor rights are also not taken into account, as member countries only commit to support a few labor rights and even then only when commerce is not affected (see article 16.2.1.a). As with the right to health and life, not to mention labor rights, all are subordinate to commercial interests.

CAFTA would affect domestic workers and housewives in particular because of its negative impact on public services and on those dependent on basic foodstuffs. As far as public services go, in Costa Rica the telecommunications and insurance industries would be opened up, which will affect access to telephone services (which have clearly become more expensive when they pass out of state control into the hands of multinational companies). Nor are these the only services; water, electricity, and education will be subjected to its rules.

None of these three cases are exempt from the application of the norms of the treaty; either the service is subject to the agreement as is the case with electricity, or the supposed exclusion is conditional only for so called "social services" (see Annex II Non-Conformant Measures, Costa Rican list), not guaranteeing water or education. In this way multinational companies could use CAFTA to prioritize foreign investments above national interests.

For example in the case of water, it might mean that priority is given to suppliers of golf courses or hotels rather than prioritizing community use. In education it might mean sharing the education budget as currently happens in Chile. Yes, health services are excluded from some general norms, but, neither health nor any other service is absolved from the right given to multinationals to sue the state, in a court of arbitration for "measures tantamount to expropriation" or "measures that affect profits."

Simply put, in all cases the ability of the state to regulate services for public interest is diminished, and the treaty encourages multinational control, therefore encouraging profit making rather than the provision of universal public services.

Greater multinational control of services is thereby encouraged, and international experience has shown that this control does little to improve the quality of services but does lead to an increase in prices. A recent local example can be seen in Nicaragua, where electricity was put in the hands of a Spanish multinational, which in turn has lead to blackouts.

As for basic consumption, by opening the national market in basic foodstuffs, leading to possible displacement of national production, the effects will extend not just to producers, but affect the consumer as well. The experience of Mexico, as we have said above, is that once local producers are displaced from the market, the prices to the consumer increase, and furthermore all profits remain in the hands of intermediaries or the companies exporting from the United States. [6]

CAFTA and the Women of Costa Rica

Women in Costa Rica are mainly domestic workers. If we add in those who work in the "informal sector," [7] which is not a stable source of employment but really a last recourse for those who have little other choice, the resulting group encompasses more than 80% of all Costa Rican women over the age of 15. [8]

As to those who work outside the home in more formal settings, the majority work in assembly plants (maquiladoras), largely in the clothing sector; some also work in education and as domestic servants. The clothing industry has awful labor conditions: entailing extremely intensive piecemeal work, the dangers of injury and shift-work, little protection, and no freedom to form unions. On top of this, the way wages are set leads to more intensive work and an increase in the length of the workday while overtime goes unrecognized.

In education, workers in the public sector have full workers rights, although wages are low and the work intense.

We can predict negative impacts all-around in the sectors mentioned above if the trade agreement is approved. In the clothing industry, we can already see effects in the industrial sector with or without CAFTA, by the way in which the industry has been restructured on an international level. The multinationals control the chains of production and the sales and marketing. Countries such as Costa Rica only work the seams and finishing work, all of which is performed under the control of the multinationals. It really doesn’t matter from the point of view of the multinationals if the production is done in Central America, India, China, or Vietnam. They can move production plants or change contractors from one country to another.

With the 2005 global elimination of the import quotas approved at the World Trade Organization (WTO), competition from clothes originating from Asia has displaced Central American and Mexican production. CAFTA doesn’t protect clothing made in these countries and it remains obvious that this pattern will continue. In fact, just this last year clothing exports into the United States fell from all countries in Central America except Nicaragua. [9] The same is true of Mexican clothing exports. [10]

In the education sector it is expected that CAFTA would lead to a growth in private education, where wages are lower and labor rights are not respected; among such rights is the right to organize, which might otherwise offer some protection.

Above all one finds Nicaraguan migrants working in the domestic service sector. The agreement stipulates that member countries do not further their commitments with respect to migrant workers (Art., so their current lack of protection will no doubt continue.
Public Services and CAFTA

When it comes to public services, one of the principal policy aims of CAFTA is expansion of multinational activity in public services. This expansion changes the way Costa Rica has traditionally provided these services, moving from a philosophy of solidarity and concern for the people, to the profit motive and a lack of regard for human necessity. Services cease to be considered a means to attend to the needs of the population or a way to provide for human rights, and instead public services are treated like any other merchandise-they are provided only to those with the means to pay for them.

If this happens, more sectors of the population will find themselves excluded from access to such services. In this case, the women, domestic workers entrusted with the survival of their families and access to services, will be further burdened trying to find alternatives to that which, until now, has been provided-medical attention, public education, drinking water, electricity, and telephones.

To sum up, CAFTA is a legal instrument that favors multinational expansion without limits, leaving the most underprivileged sectors of our population totally unprotected, among them women and the poor.

Translated for the Americas Program by Tony Phillips.

Maria Eugenia Trejos is an economist specialized in labor studies, member of Pensamiento Solidario, a group formed to analyze the Free Trade Agreement and create public awareness about its contents. She is an analyst with the Americas Policy Program at Translated by Tony Phillips.


[1Source INEGI, available at

[2Vargas, Oscar René. ¿Qué es el CAFTA? Un tratado entre desiguales Centroamérica-Estados Unidos, UPOLI, Managua, 2003.

[4CEPAL, Estimate based on official data available 24 April 2007.

[5COMEX based on numbers available in the BCCR and PROCOMER found at; INEC: Home polling.

[6See footnote No.2.

[7These are the domestic servants whose workers rights are most often violated, beginning with recognition of the minimum wage.

[8INEC 2006, main results Home polling, multiple choice 2003 en and OIT: Labour panorama 2004 pages: 98-99, in, revisado en noviembre de 2006.

[9CEPAL (Comisión Económica para América Latina y el Caribe) 2007. Istmo Centroamericano: evolución económica durante 2006 y perspectivas para 2007, 16/04/2007.

[10INEGI 2005: Industria maquiladora de exportación . Economic Statistics, monthly publication, September, p. 25.

 source: IRC Americas Program