Trade
Definitions
Neo-Liberalism
– an economic theory based on
the idea that governments should intervene as
little as possible in the market. The tenets
of neo-liberalism are the rule of the marketplace,
deregulation, privatization, and cutting of
public expenditure for social services. The
latest wave of free trade agreements, including
CAFTA, is steeped in neo-liberal ideology.
Trade Liberalization –
the process by which all rules that obstruct
trade between a group of countries are eliminated.
The final result of trade liberalization is
“free trade,” i.e. all impediments
have been lifted. CAFTA will push Central American
countries toward almost complete trade liberalization;
the US, however, will be able to keep many of
its trade impediments (barriers to trade).
Barriers to Trade – any
and all mechanisms that artificially increase
the price of foreign goods. The most common
barriers to trade are tariffs, which are taxes
on goods imported into a country. Another common
barrier to trade is a subsidy, in which a government
gives a domestic producer money so that it can
keep the price of its product lower than foreign
competitors. CAFTA calls for the elimination
of some barriers (esp. tariffs), but allows
others to remain (e.g. subsidies). This format
unfairly benefits wealthy countries.
Privatization
– the selling off of public services.
Though not traditionally tied to free trade
agreements, privatization requirements have
had a central part of recent free trade agreements,
including CAFTA. Forced privatization is often
achieved at the expense of Central American
constitutional guarantees that entitle all citizens
to basic services, such as health, water, and
electricity.
Fast
Track – the legislative arrangements
that allows the President of the United States
to present treaties to Congress for a yes or
no vote. Traditionally, Congress has had the
power to amend treaties before accepting them,
but in 2003 Fast Track legislation was passed
by a narrow vote in Congress. Fast Track also
limits the amount of debate over a treaty to
20 hours. The result is that legislators are
forced into a corner to accept a treaty even
if they disagree with large parts of it.
GDP
Growth – The gross domestic product
(GDP) measures the amount of money circulating
within a country. As an indicator of economic
growth it is only superficially helpful: it
tells nothing of income distribution or productive
capacity. As was the case in Mexico during NAFTA,
it is altogether possible for GDP to increase
even while poverty and inequality continue to
grow.
Foreign Direct Investment (FDI)
– money spent by a person or business
from a foreign country to establish or increase
production. For example, if a US apparel company
sets up a sewing factory in El Salvador, this
is a foreign direct investment. CAFTA eliminates
a country’s ability to regulate the way
international businessmen invest within its
borders.
NAFTA Chapter 11 (investor-to state)
– a clause in NAFTA’s environmental
chapter. The clause states that a company is
allowed to sue any government that passes a
law which cuts into the company’s profits.
This includes environmental laws that force
companies to lower pollution levels. California,
Boston, and many other US, Mexican, and Canadian
local governments have been successfully sued
under this clause.
Maquiladoras – also called sweatshops,
are factories that do not pay taxes. Maquiladoras
allow foreign companies to take advantage of
cheaper labor without having the disadvantage
of paying taxes. Poor labor conditions are widespread
in these factories.
Agricultural
Subsidies – The US government
gives the US agricultural sector (farmers, buyers,
processors, etc.) large amounts of money to
keep it competitive. Because the subsidies received
increase in proportion to farm size, they overwhelmingly
benefit large “agribusinesses.”
In 2001, 10 percent of recipients– most
of whom earn over $250,000 annually –
received 73 percent of all farm subsidies. This
allows agribusiness to flood foreign markets
with products priced as low as 46% below cost
of production.
Remittances
– money sent home to families
from workers who have emigrated to another country.
Every year $5.5 billion is sent to Central American
families from relatives in the United States.
Remittances have become El Salvador’s
largest source of income.
Food Security – a country’s
attempt to be self-sufficient in its ability
to feed its own citizens. Historically, countries
have reserved the right to maintain barriers
to trade in order to achieve this, though recently
free trade agreements have overridden these
attempts.
Forward
and Backward Linkages – connections
between different stages of production. This
term evokes the image of a chain as a way of
describing the process of making a product.
In the case of making pencils, one stage of
production is getting wood, another is getting
lead, a third is refining the two inputs, and
a fourth is combining them. Each stage is a
link in the chain. When one speaks of creating
backward linkages with the local economy, it
means that the link prior to the one achieved
by an international company would be done locally.
In our example this would mean that the international
pencil company would use locally produced wood
or lead, rather than bringing it in from another
country.
Intellectual Property Rights (IPRs)
– the system of copy-right and patent
laws that reward companies a temporary monopoly
on their inventions. Since these laws limit
who is allowed to produce certain goods, they
are considered another type of barrier to trade.
However, IPRs are often different in different
countries and are therefore a contentious point
in free trade agreements. When countries trade,
whose patent laws should be abided by? The US
has tried to include its patent law standards
in its free trade agreements, which would make
it illegal for poor countries to provide their
citizens with cheaper generic goods. The most
common example of this is medicines: the US
grants pharmaceutical companies long patents
on their new drugs, which keeps the price of
these drugs too high for poor people to afford
them. At the moment, poor countries do not have
the same laws, so generic versions can be produced
within their borders.
FTAA – is the proposed Free Trade
Area of the Americas, a free trade zone spanning
the entire Western Hemisphere. FTAA negotiations
stalled in 2003 when Brazil led several Latin
American countries in opposing stipulations
in the treaty that favored the US. Following
this setback, the US has settled on a strategy
of signing bilateral trade agreements with Latin
American countries in order to achieve its goal
piecemeal. This process was started with the
Chilean trade agreement and will be furthered
by CAFTA.
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