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POLICY ANALYSIS: Free Trade and Labor Rights

April 2nd, 2008

Free Trade opens up markets by eliminating all taxes and tariffs on products being imported and exported, creating one large economy in which everyone competes. Free trade is part of the neoliberal model that encourages countries to produce for export rather than for their own consumption. Under this model, poor countries like Nicaragua are supposed to use their “comparative advantage” to compete against large economies like Mexico and the United States. Nicaragua’s “comparative advantage” is a cheap, abundant labor force and cash crops. Following in the footsteps of NAFTA (North America Free Trade Agreement), CAFTA (Central America Free Trade Agreement) involves five Central American nations (Guatemala, El Salvador, Honduras, Costa Rica and Nicaragua), and the Dominican Republic. Expanding NAFTA further south through the regional free trade agreement CAFTA is a strategic step towards the hemisphere-wide FTAA (Free Trade Area of the Americas).

CAFTA Background

CAFTA passed in the US Congress by one vote on July 27, 2005. Since then, all participatory countries except Costa Rica have ratified the agreement, despite large and sometimes violent protests by their citizens. Some Central Americans are protesting free trade because for them, CAFTA means food insecurity, increased migration, worker exploitation and less democracy.

On April 1, 2006 CAFTA went into effect in Nicaragua. Witness for Peace plans to continue its campaign against these unfair, unjust free trade agreements by working to monitor the effects of CAFTA and to promote awareness of current bilateral and multilateral free trade agreements being negotiated, specifically the U.S.-Colombia Free Trade Agreement. 

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Racing downwards

Nicaragua, like many developing countries, has spent decades looking for a way to boost its impoverished economy.Under the neoliberal prescription to find a comparative advantage, impoverished countries like Nicaragua have been obligated to offer cheap labor to the global economy. Each developing country should court foreign companies wanting to inexpensively produce a product by offering a cheaper labor force than other countries. In the apparel industry, the cheapest countries will succeed in attracting foreign-owned garment assembly factories (maquilas), which seek to attract orders from the US’s big apparel brand names, which, in turn, seek to attract us, the consumers. This system has spawned the notorious “race to the bottom:” a race of developing countries to be the cheapest option for the multinational corporations that produce and sell our jeans and t-shirts. 

Prevailing neoliberal logic says Nicaragua should strive to win this race. Nicaragua offers maquila investors the lowest wages in Central America, governmental tax breaks, and unenforced labor laws.Such cost savings have attracted dozens of foreign-owned maquilas, boosting the number of maquila jobs from 1000 to over 70,000 in the last 15 years.

Trampling workers’ rights

Such cost savings have also taken their toll on Nicaragua’s workers. Foreign-owned maquilas routinely violate and disregard Nicaragua’s worker-friendly labor laws. The Ministry of Labor does little to enforce the law, knowing that the companies may balk at increased production costs and abandon Nicaragua for a country offering more lax laws. As a result, thousands of Nicaraguan workers are regularly insulted and harassed by superiors, forced to work late into the evenings, fired for pregnancy or illness, and denied legally-entitled pay and benefits.Unions that attempt to halt such exploitation are summarily dismantled by managements’ blatant acts of union-busting. 

Under CAFTA, sold to the Nicaragua public with the promise that a surge in maquila jobs will replace lost agricultural jobs, the country is becoming even more dependent on the maquila system. Given CAFTA’s failure to establish a realistic mechanism for labor law enforcement, more maquilas likely mean more exploitation. Many also question how long these maquila jobs will last. With the recent entrance of bigger and cheaper contenders like China, Nicaragua now faces grim competition in the global race to the bottom. To win, Nicaragua may need to allow for escalated erosion of workers’ rights.

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Witness for Peace remains devoted to educating US citizens about the complex maquila system that breeds such exploitation.Some of the highest-ranked activities on WFP delegations include visiting a free trade zone maquila, talking privately with maquila workers and unionists, and exploring realistic alternatives to the race to the bottom. 

Also, check out what these labor-focused partner organizations are up to!