• In July 1983, 392 House members voted to approve the original Caribbean Basin Initiative. Only 18 House members voted against it.

• In May 2000, 309 House members voted in support of the Trade and Development Act of 2000, which further unilaterally opened the U.S. market to goods from Central America and the rest of the Caribbean Basin.

Background

Major Provisions

• Agriculture: Provides that over half of U.S. agricultural products will enter Central America and the Dominican Republic duty-free immediately upon implementation of the FTA, with remaining duties on most products phased out over 15 years. Some of the most important U.S. exports that can be expected to gain significantly from the FTA include feed grains, wheat, rice, soybeans, poultry, pork, and beef.
• Manufactured Goods: Provides that more than 80 percent of U.S. industrial exports to Central America and the Dominican Republic will be duty-free upon entry into force of the agreement. All tariffs will be removed within 10 years. That is a substantial improvement over the 2001 zero-duty access level of 70 percent of U.S. industrial exports. Tariff elimination will represent a substantial advantage for U.S. exporters given that Central America’s average applied industrial tariffs are 30 to 100 percent higher than U.S. applied industrial rates.
• Textiles and Apparel: Expands access to the U.S. market through a more flexible and permanent rule of origin in a manner that will promote more vibrant partnerships between U.S. textile, cotton, yarn and other suppliers and Central American and Dominican Republic apparel producers.
• Services: Liberalizes services trade and investment in Central America and the Dominican Republic through a negative list approach with few exceptions. Makes significant progress in opening up to competition Costa Rica’s telecommunications and insurance markets.
• Investment: Expands investment opportunities and incorporates generally strong protections, including an investor-state mechanism, for U.S. investment.
• Intellectual Property Rights: Includes strong protections for trademarks, patents, copyrights, and trade secrets, including stronger penalties, patent term restoration and data exclusivity.
• Dealer Protection: Incorporates for the first time ever in an FTA, innovative provisions limiting the barriers to distribution of U.S. goods and services resulting from dealer protection regimes.
• Information Technology: Provides that the Dominican Republic, Guatemala, Honduras and Nicaragua will join the WTO Information Technology Agreement (ITA), allowing U.S. high-tech exports to enter their markets duty-free. (Costa Rica and El Salvador already are parties to the ITA.) All parties committed to non-discrimination and national treatment of digital products, and they will not impose customs duties on products delivered electronically.
• Government procurement: Includes important new anti-corruption, transparency and non-discrimination rules for government contracting.
• Transparency: Includes state-of-the-art transparency standards, including in such important areas as customs and regulatory rulemaking.
• Labor and environment: Includes commitments by each of the countries to enforce effectively their domestic labor and environmental laws. The parties reaffirmed their commitment to International Labor Organization principles and that it is inappropriate to weaken or reduce labor or environmental protections to encourage trade or investment. The parties also agreed to ensure that their environmental laws provide for high levels of environmental protection.
• Dispute settlement: Provides that obligations in commercial, labor and environment areas are enforceable through a strong and innovative dispute settlement system allowing for monetary fines and other penalties for the failure to meet commitments.

Top Reasons to Support the CAFTA

Big Markets

Leveling the Playing Field: New Opportunities for U.S. Workers and Farmers

Strong Labor Protections and New Opportunities to Improve Working Conditions

Textiles and Apparel: Critical Markets and Expanded Partnerships

Bolstering Democracy and the Rule of Law

Comprehensive, but Sensitive Issues Are Handled with Care

Key Issues

Labor

CAFTA Meets the TPA Objectives

• The view that labor and environmental rules should not be the subject at all of a trade agreement; and
• The view that a country’s failure to adhere to core labor and environmental standards should constitute a violation of a trade agreement subject to trade sanctions.

The carefully constructed compromise represented by the Trade Act of 2002 – that ended an almost 10-year stalemate on renewal of TPA -- reflects movement on both sides that should not be lightly discarded.

CAFTA fully incorporates the TPA standard, with the following provisions:

CAFTA Will Promote Improved Working Conditions Through New Economic Opportunities

CAFTA Has Very Similar, If Not Stronger, Labor Provisions than the U.S.-Jordan FTA

With few exceptions, CAFTA’s labor provisions are essentially the same as contained in the U.S.-Jordan FTA, as shown in the chart below:

U.S.-Jordan FTA	KEY LABOR OBLIGATIONS IN CAFTA AND THE U.S.-JORDAN FTA Actual text is identical for both agreements where checked, with only very minor language differences. Text is italicized for emphasis.	CAFTA
	Reaffirmation of commitment as ILO members and to 1998 ILO Declaration.
	Parties “shall strive to ensure” that labor principles are “recognized and protected” by domestic law.
	Parties “shall strive to ensure that its laws provide for labor standards consistent with the internationally recognized labor rights” and “shall strive to improve those standards in that light.”
	Commitment to enforce effectively domestic labor laws, enforceable through dispute settlement.
	Parties “shall strive” . . . “not to waive or derogate from domestic labor laws as an encouragement of trade.”
	Commitment to ensure access to fair, equitable and transparent tribunals for labor law enforcement and to promote public awareness.
	Recognition that cooperation may enhance labor standards and authorization of Joint Committee to consider cooperative activities.
	Establishment of Labor Cooperation and Capacity-building Mechanism to develop and oversee projects on labor capacity building.
	Establishment of a Labor Affairs Council to oversee implementation of the labor chapter and review progress, including on capacity building.
	Binding panel decisions on country’s enforcement of labor laws with time limits for the establishment of dispute settlement panels.
	Ability to take “any appropriate and commensurate measure” for failure to enforce labor laws where a settlement is not reached. Side letters between the United States and Jordan specifically indicate that parties do intend or expect to use trade sanctions.
	Ability to impose monetary fines and subsequently to take “other appropriate steps,” including trade sanctions, for failure to enforce labor laws where a settlement is not reached.

The key differences between the U.S.-Jordan FTA and CAFTA are:

1. CAFTA Clarifies What Was Implicit in the Jordan FTA. CAFTA includes a provision specifically stating that the only provision subject to dispute settlement is the “enforce-your-own-law” standard. Contrary to the view of some critics, this provision represents a clarification of the fact that this is the only language in the agreement that expresses an enforceable commitment as opposed to a hortatory objective. Indeed, the CAFTA language essentially incorporates into the agreement what former President Clinton said when he transmitted the U.S.-Jordan FTA to Congress on January 6, 2001:

"The FTA joins free trade and open markets with civic responsibilities. In this Agreement, the United States and Jordan affirm the importance of not relaxing labor or environmental laws in order to increase trade. It is important to note that the FTA does not require either country to adopt any new laws in these areas, but rather includes commitments that each country enforce its own labor and environmental laws." (emphasis added).

This statement was obviously not made because Jordan had perfect labor laws. Indeed, as the 2004 State Department Report on Human Rights on Jordan found: “[Jordan’s] [l]abor laws mandate that workers must obtain Government permission to strike. Unions generally did not seek approval for a strike, but workers used the threat of a strike as a negotiating tactic. Strikes are prohibited if a labor dispute is under mediation or arbitration.” (emphasis added).

2. CAFTA Contains a More Developed and Binding Dispute Settlement Mechanism. The Jordan FTA includes an underdeveloped dispute settlement that lacks strict time limits for the appointment of panelists, meaning that complaints can be blocked in perpetuity.

In the case of the CAFTA, the dispute settlement procedures with respect to labor and environmental issues are much more detailed and developed and result in binding panel reports, with strict time limits for the establishment of panels and potentially the imposition of monetary assessments or trade sanctions. Panels are authorized to review a Party’s commitment to enforce its labor and environmental laws as sought by the Trade Promotion Authority negotiating objectives. If a panel finds that a Party is failing to enforce such laws and that the Party does not bring its actions into accordance with the FTA obligations, the other Party is authorized to assess a monetary penalty that will be used for improving labor or environmental conditions in the complained of Party. If that monetary penalty is not paid, the complaining Party “may take other appropriate steps to collect the assessment or otherwise secure compliance . . . [including] suspending tariff benefits under the Agreement as necessary to collect the assessment. . . .”

3. CAFTA Contains a Robust Capacity-Building Mechanism. CAFTA includes the most concrete provisions included in an FTA on labor capacity building, including the establishment of a Labor Affairs Council that will oversee a Labor Cooperation and Capacity-building Mechanism to:

• establish capacity building priorities, including with respect to “fundamental rights and their effective application,” worst forms of child labor, labor administration and inspection systems.
• develop specific cooperative and capacity-building activities.
• exchange information on laws and practices and ways to strengthen them.
• seek support from the ILO, Inter-American Development Bank, World Bank and Organization of American States to advance common commitments.
• seek input from worker and employer representatives and the public.

The CAFTA Countries’ Labor Standards Broadly Incorporate the ILO Core Labor Standards

CAFTA Represents a Stronger Worker Rights Model than Unilateral Preference Programs

• Contains a stronger commitment, “enforce-your-own-laws” versus “to take steps.”
• Includes an institutional framework to support labor capacity building – the very activities that together with economic development are likely to have the greatest impact on improving worker protections in the region.

Sugar

Investment

As discussed above, CAFTA incorporates strong rules to protect Americans investing in these six countries. These investment rules are based on centuries’ old U.S. legal principles -- from the Takings Clause and Due Process and Equal Protection provisions of the U.S. Constitution to strong state and federal laws on the protection of property. NAFTA Chapter 11 and the preceding 45 BITs were modeled after U.S. law, including the Takings and Due Process Clauses of the Constitution.

• Incorporating the test from the landmark Supreme Court case Penn Central Transp. v. New York City on what constitutes an indirect expropriation.
• Defining expropriation in terms of “property rights or property interests” based on the U.S. Constitution’s Takings Clause.
• Defining “fair and equitable treatment” in terms of due process rights.
• Clarifying that non-discriminatory, regulatory government actions designed and applied to protect legitimate public welfare objectives, such as public health, safety, and the environment, only rarely result in indirect expropriations.
• Defining expropriation and fair and equitable protections as reflecting customary international law, defined as the “general and consistent practice of States,” which includes the United States.
• Creating a motion to dismiss process based on Federal Rules of Civil Procedure 12(b)(6).
• Including provisions to ensure the fullest possible transparency and the ability of panels to accept amicus briefs.
• Inclusion of the most concrete language in any FTA on a timeframe for negotiating an investor-state appellate or other review procedure.

Since foreign investors in the United States already enjoy these substantive protections, the CAFTA’s investment provisions are critical to level the playing field.

Economic Development

• “NAFTA has brought significant economic and social benefits to the Mexican economy.”
• “Contrary to some predictions, NAFTA has not had a devastating effect on Mexico’s agriculture. In fact, both domestic production and trade in agricultural goods rose during the NAFTA years.” The report goes on to explain why, citing factors such as increased demand and productivity.
• “In spite of popular perception, there is little ground for concerns that NAFTA, or FTAs more generally, are likely to have a detrimental effect on the availability and/or quality of jobs. . . . . In fact, Mexican firms, as those of the region, more generally, that are exposed to trade tend to pay higher wages, adjusted for skills, are more formal, and invest more in training.”

  CAFTA improves upon the NAFTA model in several respects, by incorporating:

• A concrete capacity-building mechanism, already being used to promote agricultural diversification and other activities;
• More gradual phase-outs of sensitive agricultural tariffs;
• More flexible and commercially meaningful rules of origin for textile and apparel products; and
• Stronger procurement, anti-corruption rules and transparency rules to name a few.

Perhaps even more important is the recognition of the democratically-elected governments involved of the need to build upon the reforms that the CAFTA requires and to make additional domestic reforms that will bolster their economies.

ECAT POSITION: ECAT strongly supports Congress’ implementation of the CAFTA. It is a comprehensive, high standard and commercially meaningful agreement with the United States’ 12th largest export market. In addition to eliminating barriers and creating significant new economic opportunities for U.S. manufacturers, service providers and farmers, the CAFTA is also critical to promote economic development and improved working conditions in a region where nearly half of the population lives in poverty. It is also vital to support stability and strengthened democracy in a region that was characterized not that long ago by communist insurgencies, military dictators and instability. CAFTA is the next step in the United States’ 20-year bipartisan policy of economic engagement. ECAT urges its implementation as soon as possible.

Copyright 1999-2002, the Emergency Committee for American Trade