The CAFTA Conundrum: Critics say Treaty Offers Too Little in Return for U.S.
05/01/2005
Dean Calbreath,
San Diego Union-Tribune
Imagine a place with a population nearly the size of England but with only half the economic clout of San Diego County. And in this place almost half the people make less than $2 per day.
Now imagine some of the highest-paid lobbyists in Washington, D.C. – representing labor unions, textile mills, beef ranchers and sugar growers – filing into the Capitol to fight over whether the United States should establish a free-trade agreement with that deeply impoverished land.
Once you have that picture firmly in mind, you have an idea of the debate that's shaping up over the Central American Free Trade Agreement, or CAFTA, which would eliminate most tariffs between the United States and Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, plus the Dominican Republic.
Together, the six Central American countries have a population of 46 million but a gross domestic product totaling $85 billion, half the size of San Diego County's $170 billion economy.
Nevertheless, the Central American nations have become one of the most hotly contested battlegrounds in President Bush's long-standing campaign to forge trade deals with foreign countries.
By the end of this month, House Majority Leader Tom DeLay plans to bring CAFTA to a vote, relying on so-called fast-track procedures that enable trade bills to move quickly through Capitol Hill.
Already, the debate has begun in the Senate Finance Committee and in the House Ways and Means and International Relations committees. Opposition is mounting.
Two weeks ago, 150 legislators – Republican and Democrat – announced their opposition. And last week, Rep. Walter Jones, R-North Carolina, joined with Rep. Sherrod Brown, D-Ohio, to form a caucus aimed at defeating the pact.
"CAFTA would take away American jobs and further deepen our trade deficit with Central America," Jones said.
For businesses, the stakes are high. Manufacturers see a low-wage work force close to U.S. shores that could handle factory jobs for as little as 90 cents an hour – potential competition to Chinese workers who average 64 cents an hour. Farmers and ranchers hope to sell more of their products in the region once tariffs are reduced.
Peter Allgeier, the acting U.S. trade representative, vows that the agreement will "create new opportunities for U.S. workers and manufacturers" and will "deepen and strengthen democracy" throughout Central America.
Critics complain CAFTA will lead to a further erosion in the U.S. labor force, already hemorrhaging from an exodus of factory work.
"It's really a misnomer to call CAFTA a trade agreement. The markets in Central America are so tiny they're not capable of the kind of two-way export-import activity that the word 'trade' applies to," said Alan Tonelson, research fellow at the U.S. Business & Industry Council, a manufacturing association that opposes CAFTA.
"Essentially CAFTA is the latest in a series of outsourcing agreements," Abelson said. "It's designed to make it easier for U.S. companies to go into Central America and produce things that are not for Central American market, but us."
Other critics charge that if CAFTA works like most other trade pacts: It will worsen the United States' record $617 billion trade deficit. The United States is already running trade deficits with the five CAFTA nations and that could worsen if more U.S. factories relocate in the region.
"Our goal these days should be to expand our markets in a way that will build a trade surplus, but instead we keep signing deals that increase our deficit," said Ernest Baynard, executive director of Americans for Fair Trade, a group representing a broad range of farmers, manufacturers and labor groups.
Since President Bush took office four years ago, he has signed free-trade agreements with Singapore, Australia, Chile, Morocco and Bahrain. Each of those agreements sailed through Congress, because they were in faraway countries with little direct impact on the U.S. labor force.
CAFTA, which was completed in December 2003 but has not been submitted to the Congress for ratification, has been more problematic.
Some of the primary proponents of CAFTA are U.S. clothing manufacturers, many of which have been shifting factory work into low-wage plants in Central America.
Under the Caribbean Trade Initiative, signed in 2000, textile mills in the United States can ship raw materials to factories in Central America without paying tariffs. Those factories then use the materials to make clothing, which they ship to the United States duty-free.
Because the trade initiative is slated to expire in 2008, clothes makers have been the loudest voices pushing Congress to enact CAFTA, which would extend the duty-free relationship indefinitely.
"Without CAFTA, there would be increasing turmoil and instability in the textile and apparel sector," Jerry Cook, who oversees international trade at Sara Lee Branded Apparel, told a congressional panel last month. Sara Lee has a number of clothing plants in Central America.
Juan Carlos Pereira, who works for ProNicaragua, a government agency promoting investment in Nicaragua, said CAFTA will encourage other industries to move factories into the region. In anticipation of CAFTA being signed, he said, factories making automotive components and medical equipment have moved into the region.
"Will CAFTA improve lives for everybody throughout the region? Unfortunately not," Pereira said. "But it's a critical piece of the puzzle."
But Mark Levinson, chief economist of Unite Here, a union of U.S. apparel, textile and other workers, questioned how much benefit the average Central American will see from CAFTA. Levinson likens CAFTA to the 1994 North American Free Trade Agreement, or NAFTA, between the United States, Mexico and Canada.
"NAFTA was also sold as an agreement that would raise wages and alleviate poverty in Mexico," Levinson said. "But real wages in Mexico today are actually lower than they were when NAFTA began. The poverty rate is higher than before NAFTA began, particularly in rural areas. More than a million small farmers in Mexico have lost their lands to floods of agricultural imports."
Other economists say the 1994 devaluation of Mexico's peso and not NAFTA was responsible for the decline in that nation's standard of living.
Beyond outsourcing, some U.S. companies hope to boost exports to Central America if CAFTA passes.
San Diego's PriceSmart, which has 12 warehouse-style retail stores in the CAFTA region, said the deal could smooth operations by harmonizing the trade regulations in the region, so the company would not have to contend with a half-dozen widely divergent regulatory systems.
Equally important, said Ernesto Grijalva, who oversees PriceSmart's legal affairs in Central America and the Caribbean, CAFTA will immediately reduce the price tags on nearly all U.S. imports, which should boost sales, creating more jobs in the United States.
Grijalva concedes that any jobs created would be "hardly noticeable" and that the effect on the U.S. work force would be "minimal." But he adds that CAFTA should improve living standards in Central America by making imported products more affordable.
The National Cattlemen's Beef Association, for instance, notes that CAFTA will immediately eliminate tariffs on quality prime and choice cuts of beef, which should help boost U.S. beef exports from their current level of $12.5 million per year to $41 million.
Even if the tariffs drop, most people in Central America will not be able to afford high-priced beef imports from the United States, said Karen Batra, spokeswoman for the association. "But a lot of Americans like to travel to Central America and enjoy steaks on vacation. So that's where our growth potential is at the early years of the agreement – targeted at tourism."
Critics of CAFTA are fearful that an influx of beef and other food products from the United States will swamp the largely agrarian Central American economies.
"Our farmers are hardworking and will continue to find ways to compete with their northern neighbors," Guatemala's Bishop Alvaro Ramazzini, president of the Secretariat of Central American and Panama Bishops, told the House International Relations Committee last month. "But they cannot compete against the U.S. Treasury and the $170 billion subsidies granted in your Farm Bill."
Ramazzini added that if the farmers are squeezed off their lands by cheap imports, many of them will try to migrate to the United States to seek a better living. "Trade discussions begin by asking how policies will be good for business and economic growth, but we need also to ask how trade policies will be good for those who live in poverty," he said.
Because of all of the arguments and counter-arguments over CAFTA, trade-watchers are split over whether the agreement will make it through Congress.
"So far I haven't seen any effort to reach out to Democrats, so I imagine the White House will try to whip the Republicans into line," said Richard Feinberg, an international political economy specialist at the University of California San Diego who served as a trade adviser in the Clinton administration. "If it passes, it seems like it's going to be a party-line vote."
"I am unaware of any event that the president has participated in to urge passage of the agreement," said Sen. Max Baucus of Montana, the leading Democrat on the Senate Finace Committee. "I don't believe that he has lobbied Congress on the agreement. He has certainly never raised the issue with me."
Baucus said he feared the White House would push the debate to the last minute.
"The administration pushes for trade agreements faster every time," he said. "That may be fine when the agreements enjoy broad support, and no one objects. But when they are controversial, we need to leave time for a full debate."
