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The Effects of CAFTA on Democratic Institutions in Central America" (2010)

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The Effects of CAFTA on Democratic Institutions in Central America Claremont Colleges Scholarship @ Claremont CMC Senior Theses CMC Student Scholarship 2010 Free Trade and Free Societies: The ffecE ts of CAFTA on Democratic Institutions in Central America David Nahmias Claremont McKenna College Recommended Citation Nahmias, David, "Free Trade and Free Societies: The Effects of CAFTA on Democratic Institutions in Central America" (2010). CMC Senior Theses. Paper 229. http://scholarship.claremont.edu/cmc_theses/229 This Open Access Senior Thesis is brought to you by Scholarship@Claremont. It has been accepted for inclusion in this collection by an authorized administrator. For more information, please contact [email protected]. CLAREMONT McKENNA COLLEGE FREE TRADE AND FREE SOCIETIES: THE EFFECTS OF CAFTA ON DEMOCRATIC INSTITUTIONS IN CENTRAL AMERICA SUBMITTED TO PROFESSOR RODERIC AI CAMP AND DEAN GREGORY HESS BY DAVID SIDNEY SHAFFER NAHMIAS FOR SENIOR THESIS FALL 2009/SPRING 2010 APRIL 26, 2010 CONTENTS CHAPTER 1. Introduction 1 CHAPTER 2. Theory and Methodology 30 CHAPTER 3. Mexico and NAFTA: A Test of the Democratic Audit 59 CHAPTER 4. El Salvador 91 CHAPTER 5. Costa Rica 138 CHAPTER 6. Conclusions 184 BIBLIOGRAPHY. 191 ABSTRACT During the debate over the ratification of the United States-Central America-Dominican Republic Free Trade Agreement (CAFTA), the Bush Administration argued that implementation of a free trade agreement would help strengthen the nascent democracies in Central America. As a bilateral agreement, CAFTA would not only foment greater trade liberalization by expanding market access and eliminating trade barriers, but also help transform the entire commercial frameworks in Central America and promote economic development. These implications are not just economic – in particular, its provisions on intellectual property and investment rights, government procurement and labor standards affect the political institutions underpinning democracy and rule of law. This thesis assesses the role in which CAFTA has affected democratic institutions in Central America. It employs a methodology known as the Democratic Audit to evaluate consequences to four dimensions of democracy – the electoral processes, open and accountable institutions, civil and political liberties, and civil society. It demonstrates the value of using the Democratic Audit to assess a trade agreement’s political effects with an application to Mexico after NAFTA. Then this work considers the case studies of El Salvador and Costa Rica, the most salient examples of democratic institutional change after CAFTA, by drawing on original research especially into the electoral politics and civil society development in these countries. Ultimately, the thesis argues that the most significant institutional effects of CAFTA have been its role as a political issue, rather than its content, in galvanizing popular opinion and reinvigorating electoral politics and civil society – ironically, not the consequences that the Administration originally had in mind. The research demonstrates that, even if some conclusions cannot be drawn due to the recency of CAFTA, the framework it has employed will be an invaluable tool for assessing future trade agreements. CHAPTER 1 Introduction In a 2005 address at the Heritage Foundation, a prominent Washington think tank, former United States Trade Representative and Deputy Secretary of State Robert Zoellick alleged that the implementation of a trade agreement with Central America would help consolidate democracy in a region beleaguered by a history of political authoritarianism and violence. The United States-Central America-Dominican Republic Free Trade Agreement (CAFTA) offered more than just an arcane debate on tariff levels, rules of origin, and intellectual property rights, a chance to weigh the entire political implications of regional economic integration. Zoellick called the impending agreement “the logical culmination of twenty years of democratic and social progress in Central America, nurtured and encouraged by the United States.” 1 According to Zoellick, CAFTA was an instrument to reinforce the budding democratic institutions in Central America established less than two decades prior. He explained that, “[CAFTA] will strengthen the foundations of democracy by promoting growth and cutting poverty, creating equality of opportunity, and reducing corruption.” 2 As per his reasoning, trade-induced growth would grant citizens a greater economic stake in their society, encouraging them to participate in their democracy. This oft-asserted 1 Robert Zoellick, “From Crisis to Commonwealth: CAFTA and Democracy in Our Neighborhood” (lecture, the Heritage Foundation, Washington, D.C., May 16, 2005). Available at www.heritage.org/research/tradeandforeignaid/hl884.cfm : 3. 2 Ibid., 4. 1 2 theoretical association between market capitalism and liberal democracy supports many of the claims enunciated by free trade proponents, but determining the actual strength of this relationship is far more complicated than they presume. This central argument, posed by Zoellick in the run-up to the U.S. Congress’s approval of CAFTA, is the genesis for this thesis – to what extent has CAFTA strengthened democracy in Central America? The Bush Administration employed the rhetoric of “democracy promotion” throughout the negotiation process. In January 2002, President George Bush announced that he would undertake formal trade talks with Central America, starting a multiyear negotiation process that culminated with the trade ministers of each country signing an agreement in 2004. Pursuant to the 2002 Trade Act that granted the President “fast track authority,” President Bush notified Congress before signing the trade agreement. His letter of intent to formally enter into a free trade agreement with Central America expresses this association again between trade liberalization and democratization: Our Central American partners have made dramatic progress in transitioning from countries wracked by civil war to peaceful, democratic societies. This agreement will write a new page of our history with Central America – one that depicts sustained engagement in support of democracy, peaceful regional integration, economic opportunity, and hope. 3 In this thesis, I will explore the accuracy of this rhetoric by evaluating the results of the Central American Free Trade Agreement on democratic political institutions in Central America. I will construct a methodology through which the influence of an international free trade agreement on domestic politics can be gauged. By considering 3 George W. Bush, Notification of intention to enter into a free trade agreement (FTA) with the governments of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua . Message to the House Committee on Ways and Means, 108 th Cong., 2d sess., H. Doc. 108-159 (February 20, 2004). 3 different dimensions of democracy, this procedure will be able to isolate the factors and elements in CAFTA that have left the greatest impact on democratization in this region. In doing so, it will contribute original research and analysis to investigate a subject untouched by current scholarship. Most of the literature on trade agreements tends to focus on economic and socio-economic factors, and the recency of CAFTA even further reduces the amount of published work on the topic. Based on the theories that link economic growth with democratization and the actual copious language in CAFTA devoted to institutional capacity building, I will hypothesize that CAFTA has had a generally positive effect on democracy in Central America. The remainder of this chapter is devoted to providing context to CAFTA by tracing its roots in the market capitalist reforms of the previous decade and the justifications articulated on both sides to sign such a transformational agreement. A general explanation of the textual content of CAFTA and the negotiation process will follow. Ultimately, this chapter serves as an introduction from which to launch into deeper analysis of the agreement’s political results. Free Trade Agreements Bilateral free trade agreements proliferated after World War II. Despite a coordinated effort to establish multilateral or global agreements through the General Agreement on Tariffs and Trade (GATT) and later the World Trade Organization, many states pursued agreements with specific countries for more than economic reasons. Bilateral free trade agreements create preferences and disparities in the international 4 system while trying to achieve certain foreign policy objectives. They can distort trade if they divert the flow of goods, services and capital to less efficient producers than other countries outside the bilateral relationship. 4 However, countries often employ bilateral trade agreements as diplomatic tools for foreign policy interests, as they can be negotiated to reward partners with economic privileges and to underscore a strategic alliance. Developing countries in particular pursue preferential trade agreements to improve their access to foreign, developed markets and to integrate themselves into the new system of global competition. These agreements also help contribute to domestic growth by promoting foreign investment and expanding the internal goods market. 5 While in some instances trade alone accounts for small changes in the economy, its impact can multiply the effects of domestic fiscal or monetary policy. The economic rationale for free trade is well founded; in fact, support for trade is nearly ubiquitous among economists, no matter their
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