2003 FTAA Reality Tour of El Salvador

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Executive Summary of the Tour Report

Background

On October 22-31, 2003 a delegation of Mainers from Penobscot and Hancock Counties traveled to El Salvador to gather information about the impact of free-trade policies on that country.  The sixteen-member delegation represented a spectrum of organizations concerned about Maine jobs, services, and natural resources placed at risk by international trade agreements.  The delegation chose El Salvador because both the Salvadoran and U.S. governments portray this small, Massachusetts-sized Central American country as a free trade “success story" – a model for economic development that its neighboring countries should adopt.  We were also interested in exploring whether this free-trade showcase might provide a window on how our own economy and society are affected by global trade pacts.  In particular, the delegation was concerned about possible impact of the proposed FTAA (Free Trade Area of the Americas) that would extend features of NAFTA to every country in the Western Hemisphere, with the exception of Cuba.

Winners and Losers

Free trade has primarily benefited U.S. and other foreign corporations who export basic goods to El Salvador, as well as a wealthy minority of Salvadoran importers who serve as their middlemen.  Besides these large importers, other Salvadoran winners are bankers; private owners of what were formerly public services, and maquila (garment assembly plant) owners.

The losers have been the rural population, the maquila workforce, unemployed and under-employed members of the “informal economy”, the economic refugees who have had to emigrate to the U.S, and the families they left behind.    

Jobs

The majority of new jobs created are in the maquilas, located in free-trade zones.  While working conditions in these factories range from good to abusive, what remains constant is that the maquila worker's wages are poverty wages.  At $150 per month, a maquila salary provides just over half the cost of barebones necessities of food and housing for a family of two ($250 per month), and roughly 25% of an “expanded basket” of necessities that adds water, electricity, minimal healthcare, and telephone service ($550 per month).  Thus, the notion that Maine manufacturing jobs exported to El Salvador are at least helping Salvadoran workers is not borne out.

Balance of Payments

Free trade policies have created extreme trade imbalances for El Salvador.  Last year El Salvador incurred a $1.9 billion dollar trade deficit importing nearly twice what it was able to export.  This otherwise unsustainable trade imbalance is offset by the $2.3 billion sent home by Salvadorans working in the United States, an average of $1,000 annually per emigrant.  It is these workers’ “off-the books” remittances that balance the trade deficit and keep the Salvadoran economy afloat.

Consumer Advantage

The benefits that free-trade advocates argued would accrue to Salvadoran consumers have not materialized.  Instead, the cost of basic goods have been rising, not falling, due to a value-added sales tax on most items including food, clothes and medicine.  Recently boosted from ten to thirteen percent, this consumer tax was imposed by the government to help offset deep cuts in income, property and corporate taxes.

Impact on Communities

Free trade policies have caused widespread dislocations of families and entire communities.  The rural areas in particular are losing out, as women leave their communities, migrating to the cities, and men illegally migrate to the U.S. – all in search of work.  2.3 million Salvadorans, unable to support themselves and their families at home, have left their country to work in the United States.  One in four Salvadorans now lives in the U.S.

Environment

Free-trade policies adversely affect El Salvador’s environment.  Already the second most deforested country in the hemisphere, after Haiti, El Salvador is courting further environmental damage through (1) infrastructure projects that may destroy remaining aquifers, (2) unregulated development in zones at high risk for natural disasters, and (3) relaxed or un-enforced pollution standards.

Economic Parallels

Salvadoran social and economic trends echo those we see in our own country, including:

Rapidly increasing concentration of wealth

Depletion of the budget through steep tax cuts, followed by deep cuts in social spending and reductions in public services

  Privatization of essential services with resulting lack of access to basic needs

Deregulation of business practices causing the erosion of labor and environmental protections

  Consignment of “less competitive” sectors of the economy to elimination as the price of “development”

A Window on our Future

Having witnessed these parallels, we conclude that we, too, suffer from the same social and economic maladies that we once thought were reserved for poor countries that couldn’t pay their bills.  These phenomena appear to be linked to free trade policies, regardless of which country adopts them.  Salvadorans certainly suffer more than most Americans do; many basic services are out of reach for most Salvadorans and their government has become unwilling or unable to protect them from health, safety and environmental hazards.

However, these twin dangers – the lack of access to basic services and lack of protection from corporate excesses – are trends that the FTAA would exacerbate, propelling our own country toward the same economic and social anguish we witnessed in El Salvador.