FTZs and EPZs in Nicaragua

            Neoliberalism, or extreme free market policies, has become the economic strategy for an increasing amount of countries in a globalizing world. Free trade zones (FTZs) and export processing zones (EPZs), which are often established in developing countries, embody neoliberalism to its fullest extent. In such areas, trade barriers such as tariffs, union activity, and minimum wages are usually removed. In doing so, countries create a good investment climate and attract foreign investment as well as jobs for factories established in the zones. This creates an interesting paradox of economics and the exploitation of people, as such jobs rarely pay living wages and often circumvents workers’ rights.

            Nicaragua is among many other countries that have embraced FTZs as a means of economic development, though they have not always held such policies. Like many other countries in the region, Nicaragua used to practice protectionism (McCallum, 2011), which focused on protecting domestic markets and manufacturers. However, in the 1970s, “fledgling free trade zones” arose (McCallum, 2011), which propelled the country to modern neoliberalism. Despite this, Nicaragua remains the poorest country in Central America and the second poorest in the Western Hemisphere (U.S. Central Intelligence Agency, 2016). Additionally, it boasts the lowest minimum wage in Central America (“Nicaragua”), leaving Nicaraguan workers especially vulnerable to exploitative multinational corporations.

(GDP - Per Capita, 2016)

            In an attempt to bolster regional economics, Nicaragua, Costa Rica, El Salvador, Guatemala, and Honduras began negotiations in 2003 with the United States for the Central American Free Trade Agreement, known as CAFTA ("Policy Analysis”, 2009). CAFTA mirrors the widely known NAFTA in that it removes tariffs and allows FTZs in the participating countries ("Policy Analysis”, 2009). Unlike previous trade agreements, CAFTA is not required to abide to international labor standards (“Debating the Central American Free Trade Act”). Instead, multinational corporations are responsible only for adhering to the labor laws of the country they are operating in, allowing them to take full advantage of Nicaragua’s horridly low minimum wage (“Debating the Central American Free Trade Act”). This does, however, attract many multinational corporations, which explains how since CAFTA’s passage, Nicaragua’s gross domestic product has exponentially increased, illustrated in the graph (GDP - Per Capita, 2016). In addition to an increase in GDP, exports to the United States have increased by approximately 70% (Embassy of the United States). Furthermore, duty free imports facilitate an increase in diversity of goods for consumption. However, duty free imports also open the market to competitors (Wahlberg, 2004), which can flood the market and cripple local producers. Intuitively, poverty has declined since the passage of CAFTA, though some evidence shows that it may be due to displacement of the poor rather than a change in economic mobility (Ravnborg and Gómez, 2015). As one might imagine, CAFTA has been quite controversial in Nicaragua. First, negotiations for the agreement were done behind closed doors (Wahlberg, 2004), which fostered skepticism from the beginning. Some see it as an American attempt to gain a foothold in the region, shown in the political cartoon in which Uncle Sam declares 

(Bilaterals, 2012)

“No, not in separate plates!” (Bilaterals, 2012). Numerous nongovernmental organizations were involved from the beginning, such as the labor union “CST,” (Wahlberg, 2004) seen below celebrating international workers day.

(Trucchi, 2015)

The National Federation of Agrarian and Agro industrial Cooperatives, known as FENACOOP, combined with CST to form “Iniciativa CID,” an initiative which sought to engage in the negotiation process and “develop broad-based grassroots proposals on CAFTA” (Wahlberg, 2004). On January 12, 2003 many environmentalists and unionists gathered outside the National Assembly in Nicaragua to protest CAFTA and call for public participation (Hansen-Kuhn, 2004). In response to such protests, the government invited the Nicaraguan Civil Society to voice their opinion on CAFTA. The Nicaraguan Civil Society did just that in a statement against CAFTA, citing grievances such as a loss of sovereignty, violation of the Constitution, destruction of the environment, and skepticism regarding the privatization of public goods (Nicaraguan Civil Society, 2004). At the same time, farmers groups such as the Federation of Central American Agricultural Producers were desperately lobbying for separate negotiations pertaining to agriculture (Ricker, 2004). Both of these pleas were disregarded and negotiations continued until passage as if there were no opposition. Today, unionization is low; some employers fire workers for joining unions or speaking to union leaders (“Nicaragua”). In spite of this, unions remain a relevant actor in the controversy. For example, “workers at all seven banana plantations in Nicaragua’s Chinangeda region… are now covered by collective bargaining agreements with FETDECH and the Association of Rural Workers” (“Nicaragua”). On May 10, 2007 over one hundred employees for the Nicaraguan Water Company initiated a strike demanding overtime pay (U.S. Department of State, 2008). In retaliation, however, the government responded by declaring the strike illegal (U.S. Department of State, 2008), once again highlighting the conflicting views held by nongovernmental organizations and the government regarding economic policy.

More recently, the government has been coordinating the construction of a 172-mile Nicaraguan “Interoceanic Grand Canal” (Serrano, 2015) with Chinese billionaire Wang Jin (Gracie, 2015). The canal has been pegged as “the largest engineering endeavor in history” (Serrano, 2015) and will most certainly provide many jobs for Nicaraguans. Wang Jin, a telecom tycoon, is coordinating the development through his company “HKND” (Gracie, 2015). President Ortega of Nicaragua sees the canal as necessary for economic growth, as it will provide jobs and hopefully establish Nicaragua as a regional powerhouse (Gracie, 2015), even going so far as to personally invite Jin to Nicaragua. In addition to the canal, “the 50-year concession allows HKND to build… free trade zones,” (Serrano, 2015). This has been overwhelmingly negatively received. Some see it as a new era of colonialism, arguing that the Chinese are attempting to push into the United States’ backyard (Serrano, 2015). Members of the FSLN, Ortega’s political party, think that he is dismantling the Sandinista revolution, to which he somewhat dismissively responded: “the Chinese have not arrived in Nicaragua with occupying troops” (Serrano, 2015). Among such lines. “Mónica López Baltodano, an environmental lawyer and the head of Fundación Popol Na, a Nicaraguan nongovernmental organization, told local media in December” that they’re “going to have to initiate a struggle for national liberation, much like Sandino” (Serrano, 2015). This, once again, reflects the stark contrast of government and nongovernmental organizations, which could possibly escalate to conflict. Baltodano, along with other canal opponents reportedly “filed a constitutional complaint with the Inter-American Commission on Human Rights, based in Washington, D.C.” on the grounds that it wasn’t “approved by all the municipalities affected and all representatives on indigenous lands” (Serrano, 2015). In further display of opposition, in December of 2014, protesters gathered and blocked main passage ways to Managua, Nicaragua’s capital (Serrano, 2015). Controversy was fueled when the government held some protesters as detainees for several days. Human rights groups in the area brought attention to their detention and dubbed it a “kidnapping,” blaming President Ortega for the repression (Serrano, 2015).

With statistically proven economic growth, one might argue that free trade zones and export processing zones, especially as a result of CAFTA and potentially in the wake of the Nicaraguan Canal, are positive caveats of Nicaraguan society. However, overwhelming protest throughout Nicaragua’s civil society brings such policies to question. Indeed, there are economic benefits, yet paradoxically these benefits perpetuate an exploitation of Nicaragua’s poorest people. When one considers the fact that Nicaragua remains among the poorest in the hemisphere, an alternative path seems favorable.

References

Bilaterals. 2012. Retrieved on April 24, 2016 from (http://www.bilaterals.org/?-US-DR-CAFTA-).

“Debating the Central American Free Trade Act” Retrieved on April 24, 2016 from (http://www.pbs.org/now/politics/caftadebate.html).

Embassy of the United States. “United States – Central America – Dominican Republic Free Trade Agreement (CAFTA-DR)” Retrieved on April 24, 2016 from (http://nicaragua.usembassy.gov/econ_cafta.html).

GDP - Per Capita. 2016. Retrieved on April 24, 2016 from (https://healthtopic.wikispaces.com/Nicaragua).

Gracie, Carrie. 2015. “Wang Jing: The Man behind the Nicaragua Canal Project” BBC. Retrieved on April 24, 2016 from (http://www.bbc.com/news/world-asia-china-31936549).

Hansen-Kuhn, Karen. 2004. “Central Americans Demonstrate against CAFTA” Alliance for Responsible Trade. Retrieved on April 24, 2016 from (http://www.citizenstrade.org/ctc/wp-content/uploads/2011/05/art_cademonstrates_april2004.pdf).

McCallum, Jamie. 2011. “Export Processing Zones: Comparative Data from China, Honduras, Nicaragua and South Africa” [Electronic Version] International Labor Organization. Retrieved on April 24, 2016 from (http://www.ilo.org/wcmsp5/groups/public/---ed_dialogue/---dialogue/documents/publication/wcms_158364.pdf).

“Nicaragua” Solidarity Center. Retrieved on April 24, 2016 from (http://www.solidaritycenter.org/where-we-work/americas/nicaragua/).

Nicaraguan Civil Society. 2004. “Nicaraguan Civil Society Statement Against CAFTA” Retrieved on April 24, 2016 from (http://www.citizenstrade.org/ctc/wp-content/uploads/2011/05/nica_civilsocietystatement_06022004.pdf).

"Policy Analysis: CAFTA Weakens Nicaragua's Immune System" 2009. Witness for Peace. Retrieved on April 24, 2016 from (http://www.witnessforpeace.org/article.php?id=739).

Ravnborg, Helle Munk, and Ligia Ivette Gómez. 2015. "Poverty Reduction Through Dispossession: The Milk Boom and the Return of the Elite in Santo Tomás, Nicaragua." World Development Vol #73. Retrieved on April 24, 2016 from (http://www.sciencedirect.com/science/article/pii/S0305750X14002502).

Ricker, Tom. 2004. "Competition or Massacre? Central American Farmers' Dismal Prospects under CAFTA." Multinational Monitor Volume #25. Retrieved on April 24, 2016 from (http://nuncio.cofc.edu/login?url=http://search.ebscohost.com/login.aspx?direct=true&db=edsgao&AN=edsgcl.118278882&site=eds-live&scope=site).

Serrano, Alfonso. 2015. “Titanic Canal Project Divides Nicaragua” Al Jazeera America. Retrieved on April 24, 2016 from (http://projects.aljazeera.com/2015/04/nicaragua-canal/).

Trucchi, Giorgio. 2015. Nicaragua Celebrates May 1. Retrieved on April 24, 2016 from (http://www.hondurastierralibre.com/2015/05/fotos-nicaragua-celebra-el-1-de-mayo.html).

U.S. Central Intelligence Agency. March 2016. "The World Factbook" Retrieved on April 24, 2016 from (https://www.cia.gov/library/publications/the-world-factbook/geos/nu.html).

U.S. Department of State. 2008. “Nicaragua” Retrieved on April 24, 2016 from (http://go.usa.gov/3pGdR).

Wahlberg, Katarina. 2004. “CAFTA from a Nicaraguan Perspective” Global Policy Forum. Retrieved on April 24, 2016 from (https://www.globalpolicy.org/component/content/article/220/47242.html).