Tarun Singh

TF: Stephen Donnelly

Briefing on CAFTA

Issue:

The issue at hand at your upcoming testimony in front of the U.S. House Ways and

Means Committee (HWAMC) is regarding the labor rights and standards under the Dominican

Republic- Central America Free Trade Agreement (CAFTA). The HWAMC will listen to your

testimony and choose to vote either in favor or against CAFTA and will not be allowed to amend

the agreement from its current form. The passage of CAFTA will help facilitate trade amongst

member states by reducing tariffs on goods. CAFTA will improve El Salvador’s economy by

immediately opening up trade on 98% of product categories by removing existing tariffs on most

goods (textile and agricultural industry will still be protected).

Chapter 16 of CAFTA delineates labor rights and standards that would need to be met by

signatories. Much debate has arisen over whether these labor rights and standards meet the

International Labor Organization (ILO) standards and whether CAFTA provides for adequate

enforcement. More specifically, concerns over unionization rights and labor conditions in

CAFTA countries along with penalty mechanisms for a lack of enforcement are seen as

roadblocks by opponents. The HWAMC is interested in whether these labor rights and standards

are sufficient given previous international laws and trade agreements.

Relevant Interests:

There are three principle players who have a keen interest in whether CAFTA is passed

by the HWAMC: the United States Trade Representative (USTR), El Salvador and other CAFTA

signatories, and the union the AFL-CIO.

USTR:
 The USTR’s position on CAFTA is largely driven by the economic and political benefits

the US will receive as a result of CAFTA’s passage. It is not as concerned with labor issues that

have been brought up, but still defends labor regulations under CAFTA as being adequate.

Economically the passage of CAFTA will result in more than 80% of US consumer and industrial

exports becoming duty free immediately. Furthermore, according to the United States

International Trade Committee (USITC), US exports will increase by approximately $2.7 billion

while the American Farm Bureau Federation (AFBF) estimates US agricultural exports to

increase by $1.5 billion due to CAFTA. This will cement the US’s role as the primary trading

partner in the Western Hemisphere and will provide economic incentives for stability in Central

America. As for the labor concerns the USTR argues that the labor regulations and enforcement

mechanisms are sufficient as Chapter 16 CAFTA does three things: 1. promotes effective

enforcement of national labor laws, 2. establishes a cooperative program to improve labor laws

and enforcement, and 3. builds the capacity of Central American states to monitor and enforce

labor rights.

AFL-CIO:

Unlike the US, the primary concern of the AFL-CIO, as a union, is that of worker rights

and labor standards. The AFL-CIO believes that CAFTA is in violation of previous international

agreements which call for appropriate labor laws as a requirement for a free trade agreement as

seen in the Generalized System of Preferences (GSP). Restrictions on forming unions and are the

ability for companies to discriminately fire unionized workers in CAFTA countries are seen as

evidence of insufficient worker rights by the AFL-CIO. Further, Chapter 16.1 of CAFTA allows

for countries to develop their own labor standards which is seen is a violation of (ILO) standards.

The AFL-CIO also finds enforcement mechanisms to be inadequate under CAFTA. The language
under CAFTA calls for each country to enforce its labor laws, but provides weak mechanisms

through a $15 million fine from the labor budget to provide for better labor law enforcement. The

AFL-CIO also believes that labor rights can be better demanded by the US in the absence of

CAFTA through government to government talks.

El Salvador:

Like the USTR, El Salvador’s primary concern is the economic gains from CAFTA. El

Salvador has a GDP per capita of $5,525 and according to most recent figures spends only $184

per capita on healthcare. Thus, any improvement to El Salvador’s economy is much appreciated.

CAFTA will improve the economy by creating $2.8 billion in exports from the US according the

USITC. The Country has recently faced civil war and has spent the last 14 years trying to

liberalize through economic and democratic reforms. A trade agreement with the US would allow

for more economic and political stability in El Salvador. However, these newly adopted reforms

also mean that the country is not capable of immediately enforcing changes to labor laws. El

Salvador also cites the differences in societal factors such as the difference in the development of

unions as a reason for some of the legal differences. Ultimately, it is in the interest of the El

Salvador to have CAFTA pass as it would ensure economic and political stability of the country.

Our Position:

Given the interests of the relevant parties, it would be in the best interest of El Salvador

to ask the HWAMC to pass CAFTA as it will allow for political and economic stability in the

country. The economic gains from the agreement will help El Salvador increase quality of life for

its citizens and will also provide it with the economic resources and incentives necessary to

improve working standards.

Recommended Strategic Approach:

 El Salvador should discuss three primary reasons why CAFTA needs to be passed by the 

HWAMC: 1. the effect of CAFTA on the US, 2. the effect of CAFTA on El Salvador, 3. the 

precedence on labor rights under CAFTA.

Effect on the US:

The US will benefit economically and politically from the agreement through increased 

exports to CAFTA countries and will do so at a low cost. Exports to CAFTA countries will 

increase by $2.7 billion while imports will increase by $2.8 billion. The increase in exports 

means the US will be able to profit from this increase in trade while the increase in exports 

provides economic relief in CAFTA countries which are relatively poor. Doing so will make the 

US into the chief trading partner in the Western Hemisphere. The increase in imports will also 

provide economic and political stability in a region that has been plagued with civil wars and 

unrest. Furthermore, the US will lose few jobs to CAFTA countries due to their relatively small 

size and will prevent illegal immigration as NAFTA did by allowing for better working 

opportunities in peoples’ native countries. This strengthening in ties between the US and CAFTA 

countries will provide the US with better leverage in asking CAFTA countries to improve worker 

rights. Thus, the constituents of HWAMC are not adversely affected but the workers of CAFTA 

countries are given a brighter prospectus.

Effect on El Salvador:

El Salvador has the most to gain from this agreement. Opening up trade would help push 

our GDP per capita higher and the gains from trade would allow us to better fund public 
programs like healthcare. Furthermore, it will provide economic incentive to further liberalize 

our economy while providing for economic stability. Economic stability is essential in our 

country considering we are still rebuilding from a civil war. Furthermore, economic incentives 

from trading partners will allow us to better improve worker rights. As a developing country we 

have inadequate means of enforcing and changing labor laws immediately, but economic growth 

through CAFTA will not only increase our incentives to improve labor conditions but will also 

provide us with the resources necessary to do so. 

Precedence:

We acknowledge that we haven’t had a perfect labor record, but there is precedence for 

allowing similar agreements in developing countries like ours. Although CAFTA lacks 

enforcement mechanisms present under the Jordan Free Trade Agreement, the wording under 

CAFTA matches that of Morocco Free Trade Agreement. Like El Salvador, Morocco was also a 

developing nation and therefore the precedence suggests different standards for different 

countries. Furthermore, Chapter 16 of CAFTA requires member states to enforce their labor laws 

and is in accordance with requirements under the Trade Promotions Authority (TPA) bill which 

was passed by Congress in 2002. Chapter 18 Section B of CAFTA even provides for criminal 

punishment for corruption which includes the violation labor laws. Finally, it is important to note 

that El Salvador has ratified six of the eight ILO core conventions while the US has only ratified 

two. CAFTA may not be the optimal solution for labor laws but the precedence shows that it is a 

step forward.
Conclusion:

I urge you to take into consideration the positive impacts of CAFTA on both the US and 

El Salvador, CAFTA’s ability to improve labor standards and the relevant precedence in the case 

to recognize that a vote for CAFTA is better than a rejection of CAFTA.