WorldCity Business Magazine

CAFTA: Let the battle begin

by Jeffrey Sparshott

The Central American Free Trade Agreement will be an important, and difficult, test of U.S. trade policy during the second Bush administration. The congressional vote on the treaty—which is likely in the first half of the year, but not yet definite—will indicate to other nations whether or not the United States is a serious partner that can negotiate and then implement a high-profile freetrade agreement with poorer developing nations.

CAFTA, also called DR-CAFTA, includes five Central American countries—Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua—plus the Caribbean Dominican Republic. The agreement would immediately eliminate tariffs on more than 80 percent of U.S. exports of consumer and industrial products to a region that, taken as a whole, is a significant source of imports and destination for U.S. exports. But CAFTA will deeply affect very few industries, and the pact is not make-or-break for U.S. business. It would have “minimal to no impact on output or employment for most sectors in the U.S. economy,” according to a report by the U.S. International Trade Commission.

Rather, the significance is largely political and symbolic. After a string of successes in a first term first Trade Promotion Authority, then the Singapore, Chile and Australia free-trade agreements the administration now may face its most difficult fight on trade policy. A failure to vote on CAFTA or a defeat on a CAFTA vote would be a clear message from Congress to the 33 other nations negotiating the FTAA (Free Trade Area of the Americas), to three Andean nations involved in separate freetrade talks with the U.S., and to Panama, also trying to seal a bilateral deal. More broadly, failure may dampen enthusiasm for the current multilateral round of negotiations at the World Trade Organization, dubbed the Doha Development Agenda. The WTO talks are, at least in name, specifically geared toward boosting the economies of poor nations.

In the Western Hemisphere, CAFTA countries count as poor. More than half of all Guatemalans, about 6.4 million people, live in poverty and roughly 16 percent in extreme poverty, unable to meet daily nutritional requirements, according the World Bank. The Central American five were all at least peripherally part of the Cold War battleground and involved in civil wars through the 1980s.

The five governments argue that the trade pact will help spur their economies while also locking in place a political transformation that has led to democratic elections and relative stability. The administration agrees. “CAFTA will put the U.S. relationship with Central America on a more solid mutual foundation, firmly grounded in our shared commitment to democracy, free markets, free people and hope,” Robert B. Zoellick said in May when, as U.S. trade representative, he signed the agreement.

But organized labor and Democrats say the pact does not do enough to protect worker rights or the environment. Without such protection, they argue, wages will suffer and land will be despoiled, leaving the poorest even worse off than before. “This agreement will leave workers, family farmers, the environment and communities more vulnerable, while enriching and empowering corporate elites,” AFL-CIO President John J. Sweeney said.

The administration needed 25 House Democrat votes back in July 2002 to pass TPA, the legislation that allows the president to negotiate trade agreements and submit them to Congress for a yes-or-no vote, without amendment. While Republicans have increased their majority, it has come at the expense of some protrade Democrats, such as California’s Cal Dooley and Texas’ Charles Stenholm. Representative Sander Levin, a Michigan Democrat and leading party voice on trade issues, in January said the administration does not have anything like 25 votes from his party, at least not on CAFTA.

Meanwhile, Republicans are sensitive to two industries that are rallying against CAFTA textiles and sugar. The two groups, which have supported other trade openings, are trying to lead opposition to the deal, and working closely with traditional free-trade skeptics.

Despite the uphill fight, the administration wants to get CAFTA on the congressional agenda, and passed, before Social Security legislation starts filling the calendar. The same committees that would hold hearings on CAFTA—the House Ways and Means committee and the Senate Finance committee—also have jurisdiction over Social Security and tax issues. Administration officials have mentioned Memorial Day as a target, while House aides have said their bosses want a vote before the August recess.

First, the administration has to send the CAFTA legislation to Congress. Senator Christopher Dodd, Connecticut Democrat, asked Condoleezza Rice at her confirmation hearing to be secretary of state if the administration considered CAFTA a priority. Miss Rice, who tapped Mr. Zoellick to be her deputy, said the administration would work with Congress on the pact. Then she added, for emphasis: “But we obviously would like to see these agreements [sent to Capitol Hill] sooner rather than later.”