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Back | Programme Area: Markets, Business and Regulation (2000 - 2009)

Trade, Regionalism and the Politics of Policy Making in Nicaragua

Power differentials play a ubiquitous role in international trade negotiations. This is apparent not only between trading partners, but also among non-state actors, such as business and civil society, which influence public policy-making processes. Indeed, the proliferation of non-state actors in trade policy making has turned trade bargaining into an intricate process in which gains and losses among actors are directly correlated to the amount of power they wield at the national level.

Yet traditional international relations literature and much of the contemporary analysis of the political economy of trade negotiations often ignores these power dynamics. The paper addresses this information gap by examining dynamics of trade policy making in Nicaragua. In particular, it considers:
  • How does a small and low-income country like Nicaragua use its negotiating space, that is, the ability to shape outcomes in a trade agreement? What are the trade-offs and developmental implications?
  • How do non-state actors shape trade policy making and national preferences in the context of a regional trade agreement like the Dominican Republic–Central American Free Trade Agreement (DR–CAFTA), signed with the United States? How does social mobilization impact the trade policy-making process?
  • What happens to free trade regimes and regional integration policy when there is an apparent shift to the Left in national politics?

To address this, the paper also explores the emergence of alternative integrationist regimes like the Bolivarian Alternative for the People of our Americas (ALBA) that are concerned not only with trade but also common identity and South-South cooperation. It concentrates, specifically, on two aspects: the role of ALBA in dealing with the structural constraints ignored by DR–CAFTA, and the apparent paradox between ALBA’s founding principles (such as solidarity and equity) and the marginalization of non-state actors in the policy-making process.

The political economy of DR–CAFTA shows that low-income countries like Nicaragua can and do use their negotiating space in the creation of international trade regimes. However, their strategies and tactics, as well as the power differentials in relation to other players, have a profound impact on the boundaries of this negotiating space. Moreover, the increasingly direct involvement of non-state actors in international trade negotiations has blurred the distinction between both the levels proposed by the two-level bargain model. Indeed, in DR–CAFTA, Nicaraguan business was strengthened vis-à-vis civil society actors like the Anti-CAFTA movement and the Iniciativa CID regional network that proposed a “complementary (social, regulatory and productive) agenda”. The expertise of business groups, their close ties with and access to key negotiators, and their increasing regional and transnational links conferred them with a structural power that eluded civil society actors in the negotiations. Ultimately, Nicaraguan business influence was forced to face limitations vis-à-vis the US trade representative and key US industry and agroindustry lobby groups (such as textiles and clothing, and the “extra-official” DR–CAFTA negotiations). This resulted in trade-offs having to be made.

Indeed, bilateral and regional trade agreements like DR–CAFTA offer enhanced market access to developed countries in exchange for more stringent commitments to intellectual property rights (IPR), investment rules, government procurement and services than those agreed at the World Trade Organization (WTO), with serious implications for inclusive development. In the case of IPR, DR–CAFTA further limited the definition of what constituted a national health threat in relation to the trade-related intellectual property rights (TRIPS) agreement, potentially curtailing the autonomy of Central American governments to allow parallel imports of generic drugs in case of need. Regarding investments, DR–CAFTA illegalized the policy tools—which have been key to early and late developers—such as local content (the ability of host governments to demand a certain percentage of locally produced inputs in the production process of foreign investors), performance requirements of foreign direct investment (FDI) in order to receive incentives, and tax breaks granted to national economic actors.

Moreover, DR–CAFTA negotiations left out crucial issues for Central American countries such as US agricultural subsidies, and supply-side and productive constraints that affect the majority of Nicaraguan small and medium enterprises. Discursively and conceptually, alternative integrationist regimes like ALBA embody issues of fair trade, solidarity, and regional and national asymmetries, which could address the structural constraints ignored by DR-CAFTA. However, for ALBA to become an instrument for inclusive development, its national implementation needs to become more participatory and transparent to ensure that it does not undermine its core purposes by turning into a scheme that narrowly selects its “beneficiaries”.

A “macro complementary agenda” geared to address the structural limitations and strengthen the potential losers from trade liberalization is needed to ensure a more equal distribution of costs and benefits between business and civil society actors. Furthermore, in the context of current and future international trade negotiations, it will be essential to establish effective mechanisms to access both negotiators and the technical knowledge required to balance the different levels of power among national, regional and transnational non-state actors. Likewise, a series of innovations in governments’ negotiating strategies (such as strengthening and transcending the market access pillar, and the use of sustainable development negotiating indicators and benchmarks) could be introduced in order to generate tangible strategies to defend countries’ policy spaces. Last, it will be crucial that Central American governments tackle national and regional supply-side disparities and constraints to promote access to credit, foster innovation and reduce social inequalities. Without the capacity to connect trade regimes with inclusive and sustainable development policies, linking to the world economy on better terms will remain an elusive challenge.

This project was coordinated by the Department of Sociology of the University of Geneva and UNRISD.
  • Publication and ordering details
  • Pub. Date: 15 Jun 2009
    Pub. Place: Geneva
    ISBN: 1991-9921
    From: UNRISD