The global trend towards the freeing up of trade and other economic relations between countries has now become the most dominant and pervasive global economic model. The argument that more trade is better than less has taken such firm control on modern economic and industrial thought, that the practice of free trade has now become second nature for most countries. The Post World War period has been the era of greatest growth and expansion in trade relations between and among countries. This era has been characterised by an almost 12-fold increase in world trade flows. Simultaneously, the period has given birth to even higher levels of foreign direct investment (FDI), as trans-national and multilateral corporations move vigorously to find new markets for their products and services.

These perceived gains have led supporters of the free trade model to call for the removal of all existing barriers to trade and investment, including the removal of all tariff and non-tariff barriers, investment controls and even the unimpeded movement of capital across the world. It is argued that only through increased trade and investments will all countries be able to create the type of economic growth that will allow them to successfully challenge underdevelopment and poverty. While this has been the professed intent of greater global free trade the evidence has proved otherwise, particularly for the small and vulnerable economies.

Despite a growth in regional trade over the last two decades profits have failed to trickle down and an environment for long-term stable economic growth has not emerged. Indeed, in spite of obvious economic expansion in their respective countries, the Americas have witnessed a marked increase in the extent of poverty and consequentially a widening of the gap between rich and poor.

The UNDP Human Development Report for 2000 states that while world exports of goods and services expanded rapidly between 1990 and 1998, global exports for the least developed countries actually declined between that same period from 0.5% in the 1990s to 0.4% in 1998. Further while FDI have boomed reaching more than $600 billion in 1998 these flows have been very concentrated with less developed countries receiving less than $3 billion a mere 0.4% of the total.

The 1999 World Bank Economic Report for Latin America and Caribbean (LAC) point to the fact that while FDI expanded to record levels (US$89 billion) in 1999, and economic growth continued at an average annual rate of 3.5%, the plight of the poor worsened. The report states:

It also identified massive unemployment, poor physical and social infrastructure, corruption, violence and crime as the major obstacles standing between the poor and a good quality of life. To this can be added, a general decline in the access to quality education, basic health care, and appropriate social safety nets to mitigate economic dislocation. Growing marginalisation among vulnerable groups in society, and overall environmental degradation are also salient features of the “newly entrenched poverty” in Latin America and the Caribbean.

The critical issue therefore is not whether the region of the Americas should pursue greater economic integration through free trade systems and liberal investment regimes, but rather, how and if, the major actors in this process can design a system which seeks to:

• Reduce income poverty and inequality through the creation of higher quality and better paying jobs for the poor;
   

• Increase high-quality educational attainment and improve health outcomes;
   

• Eliminate social exclusion, and gender and ethnic discrimination;
   

• Increase participation of marginalised groups in the political and decision-making process; and
   

• Prevent crime and violence in all of our societies;

It is for these reasons that the Caribbean Policy Development Centre (CPDC) believes that the FTAA needs to be refashioned and it priorities more closely interwoven with the other goals of the 1^st Summit of the Americas. In this context we have outlined what we believe should be the overall concerns of the FTAA.

THE FIVE CRG OVER-ARCHING CONCERNS

Policy makers must seek to establish specific poverty reduction and social development targets aimed at reducing poverty and social exclusion as well as bridging the massive gap between rich and poor in the Americas. The achievement of these targets must be supported by the establishment of appropriate mechanisms, which not only measure performance in the respective countries but also more radically ensure that the benefits, which are derived from free trade are shared equally among all.

The CPDC believes that failure to prioritise poverty reduction, rather than increased trade and investment flows as the end product of regional economic integration in the hemisphere will result in the further marginalisation of the regions poor. Every economic and financial target that is set, every good that is sold or service provided, every resource that is tapped in an FTAA, must be done with the sold purpose of reducing poverty, enhancing democracy and empowering the poor.

The CPDC abhors current efforts by hemispheric policy makers to totally separate social development concerns from those associated with the proposed Free Trade Area of the Americas. While we appreciate that trade processes in the FTAA have to be given certain focus, we strongly believe that in the overall context of the development of an economic integration movement for the region, that social development concerns should benefit from a close linkage to economic matters.

The CRG takes this argument a step further and posits that hemispheric policy makers should bridge the gap which they created between the economic and social development concerns that were discussed in the first ever Summit of the Americas. Further, in an effort to recreate the original spirit of the Summit process, that a decision should be taken to go one step beyond the existing boundaries of the proposed FTAA to create a Social and Economic Development Pact of the Americas (SEDPA). This Pact should consist of a genuine free trade area, which emerges from the on-going discussions on trade and investment, together with a social development platform, which should be simultaneously negotiated between the social development policy makers and civil society in the Summit of Americas process. The two agreements should tend to be enjoined to produce the SEDPA, which cover all areas from trade and investment to poverty reduction and governance.

LABOUR

The CPDC recommends that a full FTAA should include a broad social clause similar to those proposed by the ILO conventions on the treatment of labour in FTAs. Specifically the CRG supports the recommendation of the ILO for the insertion of a “Workers Rights Clause” in the FTAA that calls on all employers and governments alike to establish mechanisms to protect basic worker rights and deploy sanctions against breaches of the same. The specific provisions referred to here are covered in the fundamental rights provisions of the core ILO Conventions adopted between 1919 and 1998. These include:

It is the firm view of the CPDC that all signatories to the FTAA agreement must be required to ratify these Conventions where they have not already done so and to vigorously enforce them where they have. Further that ascension to the proposed FTAA must be conditional on the acceptance and implementation of these Conventions. The CPDC also believes that given the very poor history of governments in the hemisphere in honouring and safe guarding the spirit and letter of these and similar Conventions, as well as the numerous instances of unprincipled behaviour on the part of investors in the treatment of workers that appropriate sanctions be introduced for breaches of the proposed Workers Rights Clause.

Additionally, that a separate Labour Standards Protection Panel be established with investigative and adjudicative responsibilities to examine and report to the appropriate body within the management structure of the FTAA. This body should consist of a variety of representatives from the key sectors within the FTAA process including the private sector, government, labour and the NGO sector in the hemisphere.

Finally that in its efforts to offset the expected dislocation of several smaller economies and by extension millions of workers, with the introduction of fully liberalised trade, hemispheric policy makers must urgently agree on the establishment of a Regional Integration Fund (RIF) that will serve to finance orderly transitions to a fully liberalised market system with particular emphasis on the training and retaining of workers to re-enter a more competitive work force.

WOMEN

Relative to Women’s issues and the impact of the FTAA, the CPDC believes that a separate Consultative Committee on the enhancement of women’s concerns in the FTAA should be created. This Committee should be specifically mandated to work with women’s organisations throughout the hemisphere to determine the actual and potential impact of trade liberalisation on women and how best to avoid these problems in a new FTA.

The Committee should also seek as a matter of priority to develop and input recommendations to the Working Groups on ways to create guaranteed equal access of women to quality jobs, training, micro credit, land as well as protection from exploitation, discrimination and marginalisation from the mainstream of economic activity. Ultimately the CPDC holds fast to the view that the FTAA should as a matter of priority seek to immediately implement the salient provisions of the Beijing Platform and provide supporting financial and technical support to countries to ensure effective implementation.

With respect to the environment the CPDC believes that as a matter of priority the FTAA must establish clear and permanent basic environmental protection clauses in the agreement that set standards for trans-national corporations and governments alike. These basic standards should conform to the internationally agreed principles contained in the Rio Programme of Action and the Agenda 21 of Plan Of Action from the Bridgetown Accord of SIDS. The FTAA should also establish an independent Hemispheric Environmental Protection Agency to oversee the implementation and maintenance of the basic environmental standards agreed upon by FTAA negotiators.

INVESTMENT

Caribbean NGOs agree that the issue of investment is of critical importance to smaller economies like those in the CARICOM region, including Haiti and the Dominican Republic. These countries use a variety of measures including performance requirements to channel the benefits of foreign investment to national development objectives. However, within recent times CARICOM countries have seen a real decline in the flows of Foreign Direct Investment (FDI) in the region as the ongoing process of liberalization has increased competition and opened up new markets for investors.

In this context, the Caribbean Policy Development Centre (CPDC) is concerned that the direction of the present FTAA negotiations on Investment will severely hamper the ability of smaller states within the region to benefit substantially from foreign investment. While, most of the text is currently bracketed, the proposals within the draft suggests that the negotiations will provide foreign firms and trans-national companies with the maximum ‘leeways’ to the detriment of regional governments and their societies. The current proposals will undoubtedly increase the quantity of investors in the region, but the real question is ‘Will it qualitatively increase the benefits to smaller economies?’ In development terms, good quality investment transfers skills and technology and creates dynamic linkages with local firms.

In this light, critical questions emerge as to the overall aim of the FTAA. If increased liberalizaton is supposed to bring economic growth, which will then fuel social development, how can the FTAA be proposing measures that will inhibit the ability of smaller economies to use such mechanisms like investment to support national objectives? What will be the benefit of investment to these countries under the proposed conditions?

International charity Oxfam in its publication Rigged Rules & Double Standards (2002) notes that the benefits of FDI have been ‘wildly exaggerated’. Oxfam estimates that for every $1.00 transferred to a developing country in FDI around $0.30 leaves in the form of repatriated earnings. Additionally, Oxfam also shows that cost of imports of goods and services associated with FDI can have destabilising effects on a country’s economy. ‘In Mexico, imports by foreign investors in the period leading up to the financial crash at the end of 1995 are estimated to have increased the current-account deficit in the balance of payments by an amount equivalent to more than 2 percent of GDP. Similarly the rapid increase in Thailand’s import to GDP from 25 to 49 percent between 1990 and 1997 was largely due to the rise in import dependency associated with FDI. Foreign investment projects were importing more than 90% of their machinery, and more than half of their raw materials.’ Oxfam goes on to state, referencing an UNTAD (1997) report as indicating that in both cases the high import costs and profit remittances associated with FDI had a negative overall effect on the balance of payments. ‘In both Mexico and Thailand, the balance of payments pressures generated by import-intensive FDI added to the financial pressures that culminated in financial collapse. ‘

It is in this context that Caribbean NGOs are extremely concerned with the proposals in the draft to prohibit performance requirements on foreign investment. Some of these proposals go much further than the WTO negotiations on TRIMS in relation to investor rights. Such a prohibition radically minimises the ability of small states to direct the benefits of foreign investment, nothing in the proposals on exceptions suggests that the draft has taken into consideration the impact on smaller economies. Without the ability to enforce performance requirements smaller economies will be exposed to the kind of financial instability indicated above. The CPDC is calling for exemptions for smaller economies to be included in Article 7. This exemption should allow smaller economies to enforce performance requirements restrictions on foreign investment for a period of up to seven years after the Agreement comes into force.

Of similar concern to the CPDC are the proposals restricting government’s control on capital flows, Article 9 on Transfers. This clearly upsurp’s the authority of national Central Banks and threatens the very economic independence and stability of a country if it cannot control capital flows. The proposal that countries be allowed to temporarily limit transfers in cases of ‘exceptional’ or ‘grave’ or ‘severe’ balance of payment difficulties will offer little assistance to smaller economies. Would it not be more prudent to be able to control capital flows before in order to prevent such instances of exceptional or grave or severe balance of payments problems?

Further, proposals in Article 15 provides ‘leeways’ for businesses to sue governments for compensation. Although the Article sets out three options available to parties if an Agreement cannot be reached, the experience from NAFTA suggests that most investors chose international arbitration, bypassing national legislative processes. It would seem that the FTAA is bent on incorporating the most intrusive parts of NAFTA into the Agreement on Investment. Under NAFTA’s Chapter 11 corporations were able to sue democratically elected governments for regulations they felt affected their profits including, regulations to protect public safety and the environment. Relatedly, the CPDC is calling for the adoption of bracketed text in Article 11 {1} which would provide smaller economies with the ability to delay payment to meet national development objectives, {investors of a party who suffer losses because their investment or returns on the territory of another Party …………… Such compensation as may be granted shall be reinvested in the host country. Smaller economies may delay payment of compensation for balance of payments reasons and may prioritise payments to meet national development objectives.}

Caribbean NGOs also have grave concerns around the labour practises of trans-national corporations who establish free -trade zone in the region. There has been an increasing tendency in these zones to depress wages and employ mostly women in un-skilled and low paying jobs. Further, such trans-nationals do not encourage vibrant trade unions; this leaves workers with no protection from any excesses. According to Oxfam Women workers in El Salvador earn less that $5 a day or $0.60 an hour- less than one third of the estimated subsistence costs for a family of four. The current FTAA draft on Investment while conferring numerous rights to investors does not include any binding commitments for investors in relation to workers rights and protection of the environment.

In this context the CPDC recommends the following:

• The negotiations on investment should be based on a bottom -up positive list approach

• The agreement should allow small and vulnerable economies to enforce performance requirements on foreign firms for no less than seven years after the Agreement comes into force with the ability to request an extension according to what is agreed upon criteria.

• The adoption of ILO conventions

• 29 and 105 on the abolition of forced labour

• Conventions 87 and 98 on the rights of freedom of association, to collective bargaining and Trade Union action and involvement

• Conventions 100 and 11 on equal pay for equal value and the prevention of discrimination in the work place.

• Convention 138 and the prevention of child labour and the establishment of minimum age working standards.

• The CPDC is calling for the adoption of bracketed text in Article 11 {1} which would provide smaller economies with the ability to delay payment to meet national development objectives, {investors of a party who suffer losses because their investment or returns on the territory of another Party …………… Such compensation as may be granted shall be reinvested in the host country. Smaller economies may delay payment of compensation for balance of payments reasons and may prioritise payments to meet national development objectives.}

• Article 9 on Transfers should preserve the right of Central Banks to control transfers to protect the economic stability of economies within the Americas

• The FTAA should establish a mechanism to closely monitor and evaluate the real economic and social benefits of FDI resulting directly from the Hemispheric Agreement, with a view to instituting corrective measures where needed.