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U.S. Lawmakers Approve CAFTA |
| Published On: 08-07-2005 |
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Credibility for Bush trade negotiators seeking global trade liberalization in the World Trade Organization (WTO) DOHA Round received an important boost July 27th 2005, when the House of Representatives, by a very narrow 217-215 vote, joined the Senate in approving the Central American Free Trade Agreement (“CAFTA”). The close vote reflected not only the dissatisfaction of Democrats with labor and environmental provisions in CAFTA, but also growing bipartisan skepticism of the benefits of trade liberalization.
CAFTA would eliminate most trade barriers between the United States and Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. In their support of CAFTA, Central American leaders have emphasized the expected increases in investment and jobs. But in the United States, passage of CAFTA is being viewed as less of an economic victory and more of a political success. Trade between the U.S. and the Central American member countries is approximately $35 billion per year, just 1.5 percent of total U.S. trade.1
Prior to CAFTA liberalization, 80 percent of United States imports from the CAFTA countries entered duty-free under the 1980’s Caribbean Basin Initiative (“CBI”). But several U.S. export sectors were subject to high Central American tariffs. Opponents of CAFTA pointed to its impact on labor-rights protection in Central America (see discussion below) and on the U.S. textile and sugar industries.
Proponents assert that the American manufacturing industry will substantially benefit from this agreement since American manufactured exports are no longer subject to the high tariff rates in Central America. They claim labor provisions in CAFTA will actually help improve labor rights. Additionally, the American Farm Bureau Federation expects U.S. farmers to benefit from CAFTA, estimating that the pact will boost U.S. farm exports to the region by $1.5 billion annually and create more jobs for U.S. farmers by eliminating tariffs.2
Protection of labor-rights in Central America
Some members of Congress have asserted that CAFTA does not protect the rights of workers in Central America, and that investors will be motivated to move their U.S. operations to Central America to take advantage of weak labor rules. Congressman Benjamin Cardin (D-MD) notes that CAFTA repeals the CBI enacted under President Ronald Reagan in 1984. The CBI included a U.S. right to revoke zero tariffs for goods from beneficiary countries that failed to make sufficient progress on implementation of international labor standards. Under CAFTA, according to Cardin, “if a Central American country does not enforce its labor laws, the CAFTA ‘remedy’ is a very ineffective fine that is paid back to the country that violated the provisions.”3
Supporters of CAFTA contend that the pact incorporates key labor provisions from U.S. free trade agreements with Jordan, Chile, and Singapore that include standards consistent with International Labor Organization (“ILO”) principles. Member countries are required to enforce their own existing laws and to integrate the core labor rights of the ILO’s Declaration on Fundamental Principles and Rights at Work into their own labor laws, including the right to form unions.4
CAFTA also provides for a dispute settlement procedure if a country fails to enforce its laws effectively. If a country fails to enforce its domestic laws, it will be fined, and that fine will be directed to improving protection for workers in that country. One of the underlying purposes of the labor provisions in CAFTA is to prevent member countries from derogating from their own laws to attract foreign investment.5
Central American Farmers
Central American leaders believe that tens of thousands of jobs will be created by CAFTA. Apart from Costa Rica, the CAFTA countries are among the poorest in the Western Hemisphere, with high levels of unemployment and malnutrition. The impoverished region is predicted to receive a surge in foreign investment in the agricultural sector, among others, thus providing much needed jobs for its workforce. The agreement is still awaiting ratification from Nicaragua, Costa Rica, and the Dominican Republic, where opposition to CAFTA is strong, particularly among farmers.
Farmers are concerned that cheap agricultural imports from the U.S. will drive small-scale rice, bean and corn farmers out of business and add to the high levels of unemployment in Central America. However, supporters assert that cheap agricultural imports will help the region’s poor and malnourished citizens to feed themselves.6 They also point to new opportunities for Central American farmers to export sugar, beef, and other farm products to the United States.
U.S. Sugar Industry
CAFTA allows for a modest increase in sugar imports from Central America, which has angered the U.S. sugar industry. Responding to concerns, U.S. Agriculture Secretary Mike Johanns has promised that he will not let sugar imports exceed a level that the U.S. market can absorb. The Department of Agriculture has also agreed to purchase more sugar for conversion to ethanol. This will help maintain higher sugar prices. Currently the U.S. imports 15 percent of its sugar, which could rise to near 20 percent under CAFTA. The sugar industry fears that a precedent is being set that will lead to other sugar import increases in future trade agreements.7
Textile Industry
CAFTA also received last-minute support from many lawmakers in textile-states. They were finally persuaded CAFTA would help the U.S. and Central American textile industries compete against China and other Asian suppliers. Proponents of CAFTA assert that the pact does not allow duty-free exports for all clothing from CAFTA countries, rather only on clothing that contains a certain level of fabric manufactured in the United States.
During Congressional consideration of CAFTA, the U.S. successfully renegotiated this content provision, mandating a higher amount of included U.S. fabric before duty-free treatment would be triggered. The National Association of Manufacturers expects the U.S. manufacturing industry to benefit from CAFTA and increase jobs as a result of the fabric requirement.8
Political Implications
The passage of CAFTA is a political victory for the Bush Administration. President Bush’s trade agenda has focused on liberalizing trade through regional free trade agreements, which includes ongoing talks with Thailand, several southern African nations, and Andes Mountain nations. In addition, the administration hopes that CAFTA will provide momentum to conclude a Free Trade Area of the Americas, which will encompass all countries in the Western Hemisphere, except Cuba.9
The passage of CAFTA was important for the U.S. politically, as international negotiators are seeking a new world-trade agreement in the WTO (the “DOHA” Round). The credibility of the Bush Administration’s ability to obtain Congressional approval of a WTO trade deal would have been damaged had Congress not approved CAFTA. There is hope that the passage of CAFTA will provide momentum for a WTO deal on reducing agricultural tariffs.10
CAFTA also achieves President Bush’s objective of supporting democracies throughout the world through economic integration. Upon passage of the pact, President Bush said that “the agreement is more than a trade bill: it is a commitment of freedom-loving nations to advance peace and prosperity throughout the Western Hemisphere. We have a moral obligation and a vital national security interest in helping the democracies of Central America and the Dominican Republic succeed, and CAFTA furthers that goal.”11
Conclusion
CAFTA’s ultimate success or failure will be judged based on the scope and pace of economic and democratic reform in Central America. Although this agreement will not have a dramatic impact on the U.S. economy, it is a first and necessary step toward achieving the goal of stable and prosperous democracies in the region. Implementation of CAFTA’s labor and environmental provisions will be closely scrutinized, and their perceived success or failure may have a significant effect on future U.S. trade agreements.
Notes
1 Andrews, Edmund L. "How CAFTA passed House by 2 votes". New York Times, July 29, 2005; available online at: http://www.nytimes.com/2005/07/29/politics/29cafta.html?pagewanted=1
2 "Congress Passes Central American Trade Pact", Reuters. July 28, 2005; available online at: http://www.nytimes.com/reuters/politics/politics-trade-cafta-usa.html
3 Cardin, Benjamin. "A trade agreement that undermines workers' rights". The Financial Times, July 28, 2005.
4 For more information on the enforcement of International Labor Organization standards, see: http://trade.businessroundtable.org/trade_2005/cafta_dr/labor.html
5 Id.
6 "Central America Leaders Laud CAFTA, Farmers Worry". Reuters, July 28, 2005; available online at: http://www.nytimes.com/reuters/international/international-trade-cafta-centam.html
7 The sugar industry is protected with a government-set minimum price per pound, which causes Americans to pay double the cost of the world's average for refined sugar.
8 "Bush Secures CAFTA Vote in Last Hours with Renewed Textile Pledge". Inside U.S. Trade, Vol. 23, No. 30 - July 29, 2005.
9 Statement by President Bush. "President Proud of House Action to Pass CAFTA-DR Agreement"; available online at: http://www.whitehouse.gov/news/releases/2005/07/20050728.html
10 "Congress Passes Central America Trade Pact"
11 Statement by President Bush. "President Proud of House Action to Pass CAFTA-DR Agreement" |
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