Thank you very much.
I appreciate the opportunity to participate in this session. I will speak about the topic from the perspective of someone who studies the political economy of trade and investment.
I'll start with the question of whether the expansion of trade and foreign investment, and more broadly economic integration, can bring about sustained improvements in human development in a developing country that has two-thirds of its population living in poverty.
If I had to summarize in two points what I know about this topic, I would say the following. First, trade and investment arrangements are important policy tools that can contribute to sustained, broad-based processes of economic growth and expanding prosperity. Second, those broad benefits will be obtained only if trade and investment are not seen as goals in themselves, but as part of a larger institutional policy framework, a national development plan that places at the centre the needs of the poorest and most disempowered sectors of the population, as well as ecological sustainability.
I will argue that the Canada-Honduras FTA, although certainly providing benefits for a few specific business interests, does not meet this broader test. I will explain briefly why, and would be glad to expand later on. I will also argue, time permitting, that the FTA is not a good idea for Canadians.
Trade and investment create economic benefits, but who ends up with those benefits? In Honduras the answer seems clear. It is now the country with the most unequal distribution of income in Latin America, and 43% of the labour force is working full time without receiving even the minimum wage. A study by the Centre for Economic and Policy Research in Washington found that in the two years after the 2009 coup, over 100% of all real income gains went to the wealthiest 10% of Hondurans, and the per capita income of the other 90% went down, despite the economic growth.
Why do we trust that the benefits from the FTA will be distributed any differently, or that it will help nudge the country into a more humane model of development? What measures are included in the agreement to make sure that's the case? The answer is none.
For starters, the FTA is designed to limit the policy space available to policy-makers who wish to expand services, improve infrastructure, and promote well-being if doing so may affect business interests. No doubt the most powerful contribution of the FTA to a policy strait jacket is the investor-state lawsuit mechanism. You've heard about the lawsuit in a World Bank tribunal against El Salvador originally launched by Vancouver-based Pacific Rim Mining under the terms of the CAFTA-DR. Although Pacific Rim was Canadian, it moved its subsidiary from the Cayman Islands to Nevada, which it used to sue El Salvador under CAFTA-DR, demonstrating one of the troubling aspects of investor-state jurisdiction shopping. The legal process is now continued by the purchaser of this company, the Australian-Canadian company OceanaGold. Since jurisdiction shopping didn't work, it continued litigation based on an outdated El Salvador investment code, now revoked, which allowed companies recourse to an international tribunal. Although Pacific Rim never fulfilled the requirements to obtain a mining permit under Salvadorian law, it has continued for over a decade to try to get at the El Dorado gold deposit, ignoring the democratic expression of El Salvador's people who have repeatedly asserted that they're not interested in more open-pit mining, particularly cyanide-laden gold mining.
Perhaps during the discussion we can touch on the also-revealing case of the Infinito Gold lawsuit against Costa Rica under the terms of the 1999 Canada-Costa Rica FIPA, the bilateral investment treaty.
I’ll move to my next point.
The FTA does not enhance the fiscal capacity of the state to capture rents from foreign investors. Actually, its purpose is the opposite; to lower the cost of foreign investors. By eliminating barriers to the movement of capital and eliminating performance requirements on investors, it diminishes bargaining power vis-a-vis foreign investors and the ability to tax them. That fiscal capacity is crucial if there is going to be investment in education, health, social services, and the like. It is revealing that social spending as a share of GDP decreased from a high of 13.3% in 2009 to 10.9% in 2012, whereas in the prior period, 2006 to 2009, it had increased.
Free trade arrangements such as for the export processing zones already demonstrate such fiscal effect. In the case of Gildan and other companies located in those zones, we've heard how they're exempt from paying any taxes to the Honduran government and that the beneficial economic effects through wage income are small, as there are two legal minimum wages in the country and the companies are required to pay the lower one. For Gildan, often workers are paid by production not by hour, which makes a mockery of minimum wages altogether.
There is also a long history linking Gildan factories and suppliers to verbal, physical, and sexual abuse of workers, forced pregnancy tests, labour rights violations, blacklisting of troubling workers and, most recently, allegations of tacit approval or collusion by management, with threats of violence and other forms of intimidation and harassment against union leaders. Needless to say, such threats need to be taken seriously in Honduras. Make no mistake. Labour-intensive investment, such as in textiles and garments, is very important for Honduras and should be encouraged. However, there's nothing in the FTA that addresses the serious developmental shortcomings of this sector.
A key ingredient for sharing the benefits of trade and development is the political will to bring it about. The current political regime in Honduras lacks that will. There is much to suggest that an underlying motivation for the military coup in 2009 was discontent among elite sectors who saw their economic interests threatened by reforms brought about by President Manuel Zelaya. Before the coup, the discussion about changes to the mining code that would give greater voice to affected communities and to environmental concerns, thus creating potential restrictions on investment, was certainly an area of concern.
After the coup, Canada’s partnering with the government of Porfirio Lobos to change the mining code so as to achieve a change in the opposite direction stands out as a sad chapter in Canada's relations with the Latin American region. Lobos was elected while his predecessor Manuel Zelaya was in house arrest at the Brazilian embassy and the elections were ruled as highly irregular by credible international observers.
By entrenching investor rights in an international instrument, the FTA amplifies the harm on those human rights that are not entrenched, such as respect for basic labour rights, access to clean water and a clean environment, to prior and informed consent among affected communities and, more generally, the ability to make democratic choices.
The experience with the San Martin mining operation by Goldcorp in Honduras between 2000 and 2009 provides some light. Although Goldcorp claims high praise for the way it has closed this mine, a report from Oxfam paints a different picture, asserting that the mining project caused excessive social conflict, criminalization, and persecution of environmentalists, and that affected communities were not consulted on decisions before or during the operation of the project or during the closing phase.
One of the issues highlighted is health impacts, such as a 2007 forensic medicine report that confirmed that at least 62 community members in the neighbourhood of the mine had heavy metals in their blood. The results of this medical report were given to the affected people four years after the exams had taken place, in 2011, when the mine had already closed its operations. Furthermore, it claims that over a five-year period the inhabitants of San José de Palo Ralo drank water from a source contaminated with cyanide.
This brings me to the question of CSR, corporate social responsibility, which in the view of industry and government in Canada really stands for “corporate self-regulation”. There's little doubt that if Canadian investment in Honduras is going to have beneficial impacts, it needs to be driven by CSR principles, ethically conducted, respectful of human rights, and nurturing of the environment. But if CSR is going to be more than a branding and public relations exercise, it requires enforceable standards and regulations, independent monitoring mechanisms, and appropriate filters on investment approval. Any effort to bring this into reality would face an additional barrier in the FTA. If, for example, a future Government of Honduras decided to assess the human rights or environmental record of foreign investors prior to the approval of their projects, that might be interpreted as a contravention of the terms of the FTA.
My time is running out, so I'll summarize.