Free traders rally enough votes for CAFTA to pass

SALEM, Ohio – It was a close one.
Pundits couldn’t decide with any conviction which way the House would vote on the Dominican Republic-Central American Free Trade Agreement, or CAFTA.
And they had to lose more sleep before they would find out, as the final tally wasn’t made until after midnight July 28.
The House bill passed by a slim two-vote margin, 217-215, after House leaders held the vote open for an hour.
A similar measure had passed the Senate June 30 by a 54-45 vote.
The president has said he will sign the legislation into law.
Free trade zone. The agreement, modeled after the North American Free Trade Agreement, extends a free trade zone between the United States and the Dominican Republic, and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua.
The U.S. currently exports $1.7 billion in goods to the CAFTA countries, and imports $2.4 billion, most of which come into the U.S. duty-free.
Ready to roll. Many farm and farm commodity groups supported CAFTA passage and quickly applauded legislators’ action.
“House members saw through the critics’ rhetoric and voted for an agreement that will benefit U.S.. agriculture as a whole,” said Bob Stallman, president of the American Farm Bureau Federation.
He called CAFTA a “net positive” for agriculture because tariffs on almost all U.S. products exported will decrease to 0 percent after full implementation.
Import tariffs for U.S. pork and pork variety meat ranged from 40 percent to 53 percent, according to the U.S. Meat Export Federation. Prior to the agreement, tariffs on U.S. beef and beef variety meat were as high as 18 percent.
Not all rosy. U.S. Rep. Marcy Kaptur, D-Ohio, a vocal anti-free trade foe who led the charge against CAFTA, called it “another outsourcing agreement that will ship out more of American jobs while promoting misery and poor labor conditions in Central America.”
She said the current trade policy has “already sucked out a million U.S. jobs.”
The National Farmers Union also opposed CAFTA. NFU’s president, Dave Frederickson, said the agreement continues “a race to the bottom for producer prices.”
“CAFTA trades away American producers’ ability to compete fairly in a global economy,” Frederickson said. “It forces them to compete with producers from countries which have a cost-of-production advantage over the United States because they are not required to meet the same labor and environmental standards.”
Other opposition came from labor unions, and sugar and textile lobbies.
Mostly rural. Of the trading partners, the Dominican Republic stands as the largest Caribbean economy, second largest in terms of population and land mass.
Agricultural commodities in the six countries include bananas, coffee, beef, sugarcane, rice and winter fruits and vegetables.
Although the six countries are making economic strides, the region is still poor. According to the U.S. Department of State, about 80 percent of Guatemala’s population live in poverty, for example, and two-thirds of that number – 7.6 million people – live in extreme poverty.
Infrastructure in many of these countries suffers from lack of maintenance and new investment, according to the U.S. Department of State. Ports struggle to keep pace with growing trade.
Who will gain. According to Baylor University economist Joseph McKinney, certain industries, such as agriculture, information technology, agricultural and construction equipment, and pharmaceuticals stand to benefit substantially from the agreement.
Elimination of trade barriers between the United States and Central America will make further specialization of production processes possible, McKinney said. This will lower costs of production and help to keep United States products competitive in the global marketplace.
What about imports? McKinney downplays adverse effects of additional imports from Central America because Central America accounts for only about 2 percent of total United States trade, less than one-fifth of U.S. trade with Mexico.
More than 80 percent of United States imports from the region already enter the United States duty free, the economist said.
The real impact. The major importance of the CAFTA-DR agreement, McKinney said, lies in the fact that it will benefit the countries of Central America, and the United States will gain in a variety of ways from having more prosperous neighbors.
The countries of the region, many of which were plagued as recently as the 1980s by civil wars and political instability, are now all functioning democracies. But, because of relatively weak political institutions and the other problems inherent in economic underdevelopment, these democracies are fragile.
As these economies grow and become more stable, there will be less incentive for Central Americans to immigrate illegally to the United States. The increased purchasing power in Central America will provide a market for many American goods.
As these countries begin to realize their economic potential, not only will their own people benefit from it, so will the U.S. economy, McKinney predicts.
What’s next. U.S. Trade Representative Rob Portman has called CAFTA a “gateway” agreement, a step toward market-opening trade agreements with other partners that will bring larger economic gains.
In the loop, for example, is the negotiation of the hemispheric Free Trade Area of the Americas, and the Doha round of the latest WTO negotiations.
(Editor Susan Crowell can be reached at 1-800-837-3419 or at editorial@farmanddairy.com.)