EU-Central American Association Agreement: A Corporate Bonanza

An “Association Agreement” (AA) between the European Union and Central America is scheduled to take effect on August 1st, and will create a “free-trade area” between the two regions. Activist organizations, like El Salvador’s National Roundtable Against Metallic Mining, or La Mesa, have sharply criticized the AA, which they point out will only exacerbate the conditions previous arrangements helped create.

Under the Washington-backed Central American Free Trade Agreement (CAFTA-DR), for example, Pacific Rim Mining Corp., headquartered in Vancouver, and Milwaukee-based Commerce Group “are suing the Salvadoran government for more than $400m,”Blue Planet Project’s Meera Karunananthan wrote in the Guardian last month. These companies claim their rights were violated when Central American legislators, reviewing the corporations’ miserable environmental records, refused to grant them mining permits.  Both Pacific Rim and Commerce Group laid out their cases by citing protections CAFTA-DR affords investors.  “The broad scope of protection is reflected throughout CAFTA Chapter 10,” the law firm Crowell & Moring explains in a document prepared for Pacific Rim, noting that one of “CAFTA’s objectives” is to “substantially increase investment opportunities in the territories of the Parties.”

The AA should result in a similar corporate bonanza, allowing “European businesses to count on a stable and predictable business and investment environment,” Karel de Gucht, the European Commissioner for Trade, explained.  Last fall, for instance, the European Parliament (EP) approved measures to “establish a general safety-net for all EU [banana] producers to help them adapt to liberalization of trade,” according to an EP press release, and Scotch whisky producers will be able to bank on similar safeguards.  We can note in passing that European officials seem to be using the word “trade” in some technical sense here.  As the Salvadoran economics professor Julia Evelyn Martínez has pointed out, much of the projected “trade” increases will be internal to European corporations with facilities in Central America.  The Spanish tuna company Calvo, for example, opened a factory in El Salvador a decade ago.  Its regional director, Miguel Peñalva, expects the AA “will offer [Calvo] legal certainty to continue investing,” as well as expanded export opportunities.  Only an inveterate cynic could fail to be touched by EU officials’ efforts to nurture these companies, while their austerity policies promote suicide, depression, and the other public health disasters David Stuckler and Sanjay Basu highlight in their recently-released The Body Economic: Why Austerity Kills.
These present-day “free trade” agreements, through which governments enhance corporate profit-maximizing abilities, are right in line with their predecessors, as a quick review of the relevant—thus little-known—history reveals.  Early commentators on these issues were aware much support for liberalized exchange would be pure hypocrisy, for obvious reasons.  Adam Smith, for his part, thought the belief “that the freedom of trade should ever be entirely restored in Great Britain, is as absurd to expect that an Oceana or Utopia should ever be established in it,” since “private interests” would “irresistibly oppose it.”  Smith was hardly the only writer to recognize the chances unrestricted commerce stood in the real world.  Robert Montgomery Martin, the first Colonial Treasurer of Hong Kong following the Opium Wars, ridiculed the “fallacious doctrines of free trade”—meaning “fair terms of reciprocity with other nations”—since he recognized that such measures, “if carried into operation, would speedily ruin a private mercantile establishment.”  Instead, trade terms must favour the powerful, as Britain’s did following its 1839 attack on China, precipitated by Qing Dynasty interference in illegal English opium trafficking.  The victorious British forced the Chinese into a trade relationship beneficial to English merchants, seizing Hong Kong for good measure.

Ireland got the same treatment.  Historian B.J. McCormick explains that the 1800 Act of Union brought the country “into a free trade area” with England that devastated its textile industry, and had entrenched its agro-export economic model by the time of the 1840s potato famine.  In the same vein, the 1825 Anglo-Argentine Treaty of Friendship, Commerce and Navigation guaranteed Argentina would serve as a market for British industrial goods, while exporting meats and grains—its “comparative advantage,” in the mythmaking that too often passes for scholarship.  Back here on Earth, we see that the treaty “devastated local manufacturing” in Buenos Aires, according to Nicolas Shumway’s history, and more broadly ensured that “England, owing to its greater power over all possible competitors, would maintain an essentially mercantilist relationship with Buenos Aires.”  The Irish academic George O’Brien once remarked that the effects of Britain’s ostensibly laissez faire approach “to Ireland might be translated: ‘Having put a country into a most unsatisfactory condition, leave it there,’” an observation with a far broader relevance than he seems to have recognized.

The parallels between these 19th-century examples and the EU’s current arrangement with Central America are obvious.  And while the AA’s advocates claim its “trade” component will be accompanied by efforts to foster political dialogue, cooperation, and democracy, this assertion is about as believable as the notion that Britain sought “friendship” with Argentina in 1825.  Calls for democracy in Honduras these days are likely to get one killed—the government there targets activists with impunity following its victory in a fraudulent 2009 election, five months after a military coup—but Honduran state brutality never deterred the AA’s passage.  And its details were kept secret until March 2011, well after high-level officials first approved it in late 2010, according the El Salvador’s Centre for Consumer Defense (CDC).  So much for dialogue.  Once the CDC had a chance to review the relevant documents, it concluded the passages pertaining to human rights and environmental protections were merely decorative: the AA’s central aim is to benefit major businesses, including those that could profit from water privatization in Central America, where potable water is already in short supply for much of the population.

It’s worth bearing in mind that commodification of such an essential resource was once considered the height of absurdity.  James Maitland, the Eighth Earl of Lauderdale, for instance, wrote an economic treatise in 1804 on the relation between public wealth and private riches, explaining that one could amass the latter via a commodity that was “useful or delightful” and “existing in a certain degree of scarcity.  Yet the common sense of mankind would revolt at a proposal for augmenting the wealth of a nation,” he continued, “by creating a scarcity of any commodity generally useful and necessary to man.”  He asked readers “what opinion would be entertained of the understanding of a man, who,” in order to maximize gain, “should propose to create a scarcity of water, the abundance of which was deservedly considered one of the greatest blessings incident to the community?”  The same sense of revulsion should accompany reflection on current policies, as we consider how ideas that were once too ludicrous to contemplate have come to dominate today’s world.

Nick Alexandrov lives in Washington, DC.  He can be reached at: