U.S. Strong Arming Costa Rica

I have reprinted in full down below a three-part exchange between Mary Anastasia O’Grady, a member of the Wall Street Journal editorial board, a response from Senator Bernie Sanders of Vermont, and an unsigned Wall Street Journal editorial responding to Sanders’ response. The Journal is subscription-based, so I can’t link, but I thought this exchange well worth a read if you’ve got time this weekend.

At issue is CAFTA – the Central American Free Trade Agreement. CAFTA is an expansion of NAFTA to five Central American nations (Guatemala, El Salvador, Honduras, Costa Rica and Nicaragua), and the Dominican Republic. Five of the six have approved it. Public opinion in those countries that approved it is strongly against such approval. In the one country where the issue will actually be put up for a vote, Costa Rica, the U.S. is putting direct pressure on the voting public by means of threats and duress. Costa Ricans are being told that if they do not approve CAFTA, they will lose access to the U.S. markets for their products. It’s strong-arming, pure and simple; democracy, American style.

I prefer “free trade” by its old name: imperialism. Those countries that have approved CAFTA are now learning that they have to alter many of their domestic laws to accommodate it. They gave up a good deal of their sovereignty when their leaders approved the initiative. And that is the essence of free trade agreements: Domestic laws of developing nations are set aside to favor American corporations. Democracy takes a back seat.

Senator Sanders recently went to Costa Rica to reassure the people there that they could reject CAFTA and still operate under the Caribbean Basin Initiative, which assures mutual access to markets. This angered O’Grady, and prompted her piece chastising Sanders. She reasserted the threat to Costa Ricans that they will indeed lose our markets if they don’t buckle under.

This prompted the response from Sanders, which the Journal printed on its letters page. But letting Sanders have the last word was out of the question – the Journal answered with another editorial, this one again reasserting the threat to Costa Rica to knuckle under.

This is how it is done – threats and intimidation. This is why CAFTA has won support in Guatemala, El Salvador, Honduras, Nicaragua and the Dominican Republic despite opposition of the people of those countries (According to this source: Costa Rica: 58% say renegotiate or reject. Dominican Republic: 60.8% oppose. El Salvador: 76% say CAFTA doesn’t help or makes situation worse. Guatemala: 65% say will harm country. Honduras: 77% say their pro-CAFTA government is corrupt.) The U.S. can exert pressure at the critical organs of those societies to get its way, public opinion be damned. Costa Rica, a functioning democracy, is different. There we have to convince the public to vote our way. The pressure being exerted is oppressive, but even so passage is not guaranteed. Enter Sanders.

(By the way, just as an aside, I’ve got to highlight this passage from O’Grady’s piece – it’s priceless:

If [CAFTA] is killed in Costa Rica, it will be a victory for Venezuela’s Hugo Chávez, who is trying to drive a wedge between Latin America and the U.S. and help Iran put down roots in America’s backyard.

Push any buttons lately? I’m surprised she didn’t invoke the T-word – terrorism. If this were 1987 instead of 2007, she’d be talking about how the evil Soviets are interfering in our backyard. Want to know who the enemies in vogue are? Consult the Wall Street Journal editorial page.)

NAFTA has been a disaster for Mexico. Free trade agreements in general are an extension of our old habits of imperialism. The U.S. has always wanted access to the cheap labor and resources of Latin and Central America – nationalist forces in those countries have always seen protection of domestic markets as a way to grow and prosper. The U.S. got wealthy and strong by means of protectionism. Now that we’ve got ours, we want others to drop barriers to their markets. In the only way it knows, the U.S. has used threats and intimidation to bludgeon them into compliance.

In the meantime, NAFTA and CAFTA contain a mountain of protectionism for us – in the form of protection of “intellectual property” rights. Example: U.S. pharmaceuticals will be protected form competition based on their proprietary ownership of U.S. drug patents, and will able to gouge Central Americans just as they do Americans. The sauce of protectionism is for the goose, not the gander.

It will be an interesting referendum on Sunday. I suppose, if things are not going their way, that the U.S. could help in the voting process by supplying them with Diebold machines. That way we’d be sure to get our way.

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Democrats vs. Central America
By MARY ANASTASIA O’GRADY
October 1, 2007; Page A22

America’s only socialist senator traveled to Costa Rica last week, but it wasn’t to work on strengthening ties between our two nations. Vermont’s Bernie Sanders went to San José with Rep. Mike Michaud (D., Maine) to aid the local opposition to the U.S-Central American Free Trade Agreement, which has not yet been ratified by that country.

The congressional visit was strategically timed. As one of seven signatories to Cafta, and the only one that hasn’t made it official, Costa Rica has only until Feb. 29 to adopt the legislation necessary to join the pact. But first it must be ratified and time is running out. The Costa Rican Congress has been gridlocked on the matter, so on Sunday there will be a national referendum asking the electorate to decide directly.

Messrs. Sanders and Michaud were invited by the leader of the country’s anti-Cafta movement, Ottón Solís. Their role was to boost the “No” campaign by declaring that the rejection of Cafta will not affect the preferential access to U.S. markets for a variety of Costa Rican products that now exists under the Caribbean Basin Initiative. Reps. Charlie Rangel (D., N.Y.) and Sandy Levin (D., Mich.) sent a similar message, by letter, to Mr. Solís in January; Harry Reid and Nancy Pelosi sent a letter last week to the Costa Rican ambassador in Washington telling him the same. The idea is to undermine the reciprocity argument that might help get Cafta approved.

It is odd that U.S. legislators are going out of the way to discourage the opening of markets for U.S. exporters. But egging on Costa Ricans to defeat Cafta also runs contrary to U.S. political interests. Cafta is an essential tool for strengthening democratic capitalism in Central America. If it is killed in Costa Rica, it will be a victory for Venezuela’s Hugo Chávez, who is trying to drive a wedge between Latin America and the U.S. and help Iran put down roots in America’s backyard.

According to the latest polls, the race is a statistical dead-heat. Anti-Cafta strength is partly explained by the country’s powerful and well-organized labor unions, led by the union for the government’s monopoly electricity and telecommunications company (known by its Spanish initials as ICE). The union resists Cafta because it would force competition in wireless and Internet services — though it would do nothing to disturb the ICE monopoly in fixed-line telephony and in electricity.

The ICE union is joined in its opposition to Cafta by other public-sector unions — notably teachers — as well as by intellectuals, the university set and a surprising number of radicalized Costa Ricans whose most important political issue seems to be anti-Americanism. The anti-Cafta campaign has been marked by violence and intimidation.

Costa Rica is often held up as a model for tolerance and democracy in the region, and if nothing else, the fight over Cafta reveals just how far left this nation has tilted. The hard left might not be a majority, but it is certainly a force that threatens the nation’s civility. A Cafta defeat is likely to pull the country further in the direction of the anti-globalization extremists.

There are also enormous economic costs associated with rejecting Cafta: Costa Rica would be the only country in Central America without an institutionalized commitment to open trade and investment with its neighbors and with the U.S. This would inflict grave damage on its investment profile. Things could get even worse if Panama’s FTA with the U.S. is ratified by the U.S. Congress, as is expected. Import barriers in Costa Rica would be likely to divert trade and capital flows to more open markets.

In that case, efficiency, productivity and growth will almost certainly suffer. In telecom, for example, Costa Rica is already falling far behind its neighbors because of the ICE monopoly. Many of its services are unreliable and modern technology that other countries take for granted — hand-held wireless devices such as BlackBerries, for example — are but futuristic dreams for Costa Ricans. At some point foreign investors, comparing Costa Rica to its neighbors, are bound to respond negatively to the country’s declining competitiveness in a sector so tied to productivity.

In a sense, Sunday’s vote is a referendum on whether Costa Rica should move forward by integrating with the modern world or cling to its closed economy and nanny-state traditions. Mr. Solís, a losing presidential candidate in last year’s election, wants to preserve the past, though it is hard to see how he can make it work. Wages, pensions, debt service and higher education drain 80% of the budget every year; law enforcement, the judiciary, roads and ports are being starved. The government simply doesn’t have the money to build a modern telecom network.

Two weeks ago the pro-Cafta campaign took a big hit when a leaked memo revealed that a member of President Oscar Arias’s cabinet had been counseling the use of hardball tactics as a way to win votes. Then Messrs. Sanders and Michaud arrived to shore up the Solís agenda. That’s when the free-trade side bounced back up in the polls.

The visit from the gringos seems to have widely insulted the Costa Rican nation, not least because it doesn’t appreciate U.S. politicians meddling in its internal affairs. But there may have been something else that angered the locals: Here were two protectionists promising to leave the U.S. market open for Costa Rican goods even after the death of Cafta. They smelled a rat.

Within days Costa Ricans learned just how protectionist these “friends” of Mr. Solís are. Mr. Sanders always votes against free trade and as recently as last year he and Mr. Reid voted against the Caribbean Basin Trade Partnership Act which provides duty-free access to the U.S. for Costa Rican textiles. Mr. Michaud’s Web site boasts of his opposition to Cafta in defense of Maine jobs. These notorious protectionists would champion trade preferences or a new FTA for Costa Rica after Cafta? That was perceived as an insult to Costa Rican intelligence. One local politician called them “wolves in sheep’s clothing.”

The fact is that CBTPA expires in September 2008 and the Caribbean Basin Initiative can be terminated by the president if beneficiaries don’t make an effort to liberalize. Moreover, protectionist sentiment is growing on Capitol Hill and trade preferences for countries that refuse to open their own markets are coming under scrutiny. Both Sen. Charles Grassley (R., Iowa) Sen. Max Baucus (D., Mont.) have suggested they might not continue. In other words, if Costa Rica rejects Cafta, it should be prepared to lose its preferential U.S market access. That’s a price that even Mr. Solís’s followers may not be prepared to pay, which is why he invited his friends down from Washington.

Write to O’Grady@wsj.com.

Free Trade Treaties Mean Impoverishment
October 4, 2007; Page A17

In response to Mary Anastasia O’Grady’s Oct. 1 Americas column “Democrats vs. Central America”:

While I strongly disagree with The Wall Street Journal editorial page’s right-wing ideology, I’ll give you points for persistence. Year after year, despite all of the evidence, you continue to be a cheerleader for the unfettered free-trade policies that, while benefiting multinational corporations, have caused so much economic pain for working families here in the U.S. and our trading partners abroad.

Ms. O’Grady is telling the people of Costa Rica how wonderful passage of the Central American Free Trade Agreement will be for them. The Journal said the exact same thing to the people of Mexico during the 1993 debate over the North American Free Trade Agreement. And what happened with the passage of Nafta? In Mexico, the agricultural sector has been decimated by cheap exports from American agribusiness. Poverty has increased, the middle class has declined and people are literally dying in the desert trying to flee Mexico for the U.S.

Working families in Mexico suffer, the rich have gotten richer and we now have the obscenity of the wealthiest person in the world, Mexican Carlos Slim Helu, coming from a country in which millions of families struggle to feed their children. This may be the kind of economic development championed by you, but not by me. We can have trade policies that can do better, that must do better.

It’s not only Mexico and other developing countries that have been hurt by these unfettered pro-corporate free-trade agreements. It’s also the working families in the U.S. who are now engaged in a horrendous “race to the bottom.”

Despite an explosion of technology and a huge increase in worker productivity, poverty in America is increasing, the middle class is shrinking, and the gap between the rich and the poor is growing wider. In the past six years, millions of good-paying jobs in the U.S. have been lost as companies shut down here and move to China and other low-wage countries. During that same period, median household income for working-age families has declined by about $2,500, 8.6 million Americans have lost their health insurance, three million have lost their pensions, and millions are working longer hours for lower wages. Meanwhile, the gap between the rich and the poor in the U.S. is now the highest of any industrialized country and greater than at any time since the 1920s.

On Oct. 7, Costa Rica will become the first country where citizens have the opportunity to vote for or against a trade agreement. Despite being heavily outspent by the moneyed interests, despite opposition from the Costa Rican government and the U.S. ambassador, despite an extremely hostile media, the latest polls have the election as a toss-up. Incredibly, just the other day, in a nation of only four million people, well over 100,000 marched in opposition to the treaty — a sign of the deep grassroots opposition there to Cafta.

Notwithstanding Ms. O’Grady’s assertions, my recent trip to Costa Rica was not about telling the people there how to vote. That’s their business, not mine. The trip that Rep. Mike Michaud and I made was to help counter the lies being spread in Costa Rica that suggested that if the people there, exercising their democratic rights, voted “no” on Cafta, the U.S. government would punish them by excluding them from the Caribbean Basin Initiative as well as other punitive actions.

The Journal and I may disagree on the merits of unfettered free trade, but there should be no disagreement that when the people in a free, democratic and independent country like Costa Rica vote their conscience they should not be punished by the world’s superpower. That is not what democracy is about.

Sen. Bernie Sanders (I., Vt.)
Washington

Weekend With Bernie
October 4, 2007; Page A18

For today’s recommended reading, allow us to suggest the letter from Vermont Senator Bernie Sanders on the preceding page. It’s as pure a distillation of the case for protectionism as you’ll find anywhere outside the pages of Nation magazine, and it’s a notable sign of the times on Capitol Hill.

We’re happy to give the Senator his say against open markets, but the purpose of his weekend trip to San José, Costa Rica, two weeks ago is another matter. He says it wasn’t to lobby against Sunday’s referendum that will decide whether that country joins the Central American Free Trade Agreement (Cafta). But why else go to the tropics in the middle of the rainy season? And what about his press conference with the local leader of the anti-Cafta movement, during which he told Costa Ricans that they could kill Cafta and it wouldn’t affect U.S. market access for Costa Rican goods? Don’t worry about opening your markets, the Senator said, ours will remain open to you.

We doubt U.S. exporters appreciate that argument. But in any case, Mr. Sanders doesn’t have the authority to make that promise. Under U.S. trade law, the President must certify that Caribbean and Central American countries that already have unilateral preferential access to the U.S. are making a good-faith effort toward reciprocity. That would be a hard case to make about a country that had rejected a free- trade agreement. Costa Rica might very well lose its access to the U.S. market.

If Costa Ricans kill Cafta this weekend, it will harm those who make and sell things to the U.S., Americans seeking new markets for their goods, and consumers in both countries. It will mean more poverty in Central America, not less.