CAFTA is Good for America

After months of arm wringing, deal making, and postponements, Congress is finally moving forward on the centerpiece of President Bush’s free trade agenda, the Central American Free Trade Agreement. CAFTA has passed the Senate and awaits a floor vote in the House for final approval. FreedomWorks urges Congress to approve the pact for the benefit of the U.S. and Central American economies.

CAFTA offers dynamic opportunities for key sectors of the US economy. The National Council of Textile Organizations, which traditionally opposes free trade agreements, has come out in support of CAFTA because it may be the last chance for U.S. textile manufacturers to remain competitive in the global market. The textile industry faces competition from India, China, and elsewhere but CAFTA provides a crucial export opportunity for supplying Central American garment producers with U.S. and fabrics and yarns. Establishing a strong commercial relationship with a proximate partner is the best way for U.S. textiles to thrive in an increasingly globalized market.

Important service industries like telecommunications, financial services, and electronic commerce will find new investment opportunities in growing Central American economies. The deal will be a boom for US farmers and ranchers. The American Farm Bureau Federation has determined CAFTA will result in $1.5 billion in new agricultural exports to the region. Sugar farmers remain staunch opponents, but CAFTA concedes numerous restrictions on Central America’s access to U.S. sugar markets. The AFBF estimates CAFTA will have only an $80.5 million impact on a $ 2.1 billion industry. Sugar is already heavily subsidized and protected by hefty tariffs, it shouldn’t hold CAFTA hostage to the detriment of the rest of the U.S. economy.

The growing U.S. trade deficit is an often cited concern, but 80 percent of Central American exports covered under CAFTA including 99% of agricultural products already enjoy duty-free access under the Caribbean Basin Trade Partnership Act passed in 2000. CAFTA makes the trade partnership reciprocal, opening Central American markets to U.S. products. The U.S. International Trade Commission estimates CAFTA will reduce the U.S. trade deficit by $756 million because of new export opportunities opened to U.S. businesses.
CAFTA is equally important to the economic development and democratization of Latin America. Central America has made difficult reforms since the 1980s to move from repressive Soviet sponsored regimes and right wing military dictatorships toward open democracies. According to the Nicaraguan Minister of Development Mario Arana, “expanded commercial relations between the United States and our countries have played a pivotal role in the democratization process of the region.” [1] CAFTA would solidify this transition. Open economies promote growth of the private sector that builds a strong middle class and the civic institutions at the heart of stable democratic systems. Further economic liberalization will limit the coercive power of governments and promote open communication and free exchange of ideas that prevents backsliding on the impressive democratic reforms achieved thus far. Not only does Central American democratization guard against a repeat of the mass suffering that came from instability and oppressive governments in 1980s, it is also decidedly in U.S. interests. Poverty in Central America contributes to crime and illegal immigration in the U.S., and addressing the root of the problem is more effective than beefing up border patrols or passing anti-gang legislation will ever be. And while the Bush administration is criticized for a unilateralist and domineering foreign policy, it is the protectionists in Congress who are turning their backs on our closest neighbors.

Democratic opposition in the House expresses labor environmental concerns, but CAFTA includes strong provisions to protect both. CAFTA includes the Environmental Cooperation Agreement which establishes a high-level Environmental Cooperation Commission and an independent secretariat to review public allegations of violations of environmental laws and dole out fines if necessary. CAFTA also contains market-based incentives to go beyond minimum environmental standards and forbids any weakening of existing environmental laws. According to a 2003 survey by the International Labor Organization, all CAFTA countries meet the general standards of the core ILO conventions and CAFTA expressly prohibits backtracking. Most importantly, CAFTA will provide thousands of new jobs, while the alternative of stagnation and poverty is the worst outcome for Central American workers. The AFL-CIO and their Democratic allies will line up against any free trade agreement off hand, but their opposition to CAFTA bellies the facts. Aside from the specific provisions of CAFTA, economic liberalization is the best way to create a sustainable economy and improve the general standard of living. According to the World Economic Forum’s 2001 Environmental Sustainability Index countries with the highest environmental standards enjoyed the highest levels of direct foreign investment, refuting the overused race to the bottom argument.[2] As noted by former U.S. Trade Representative Robert Zoellick, “The country in Latin America that has dramatically reduced inequality, unemployment and poverty in recent decades while also increasing real wages and pensions for working families is Chile – the country that has most opened its economy to free trade.” [3] The lesson from successful developing countries is that wealth from free trade is the best asset to improve environmental and labor conditions. CAFTA will allow our economic partners in Central America to follow such a path. The House should vote on the facts, not protectionist rhetoric, and promptly approve CAFTA.

[1] Mario Arena, Speech at the Inter-American Development Bank, July 13, 2004. And see “The Case for CAFTA: Consolidating America’s Freedom Revolution”, September 21, 2004, CATO Institute, http://www.freetrade.org/pubs/briefs/tbp-021es.html

[2] “2001 Environmental Sustainability Index,” World Economic Forum, January 2001,
http://www.ciesin.org/indicators/ESI/downloads. html-report.

[3] Zoellick, Robert B., “From Crisis to Commonwealth: CAFTA and Democracy in Our Neighborhood”, http://www.heritage.org/Research/TradeandForeignAid/hl884.cfm.