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Proposal to Open Central American Markets Spurs Debate Over Free Trade

Part One of Three on the CAFTA clash

by Michelle Chen

Lawmakers consider an expansion of the corporate trade agenda while opponents work to stop what they see as a key to industry’s broader goals for international market control.

Part II of this series, addressing CAFTA's impact on farmers, appeared on Monday, May 23.

May 20, 2005 – As the US Congress weighs a plan to stretch the country’s domain in the global economy, the debate has spread beyond Capitol Hill to farms, corporate boardrooms and factory floors across the Western hemisphere.

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The Dominican Republic-Central American Free Trade Agreement (DR-CAFTA), which would weave together the markets of the United States, El Salvador, Guatemala, Honduras, Nicaragua, Costa Rica, and the Dominican Republic, represents to critics and supporters alike a concept of free trade that has shaped US foreign policy for over a decade.

The governments of El Salvador, Honduras and Guatemala have fully ratified CAFTA, but Congress has just begun officially deliberating on the issue. The Bush administration, business interests and other free trade proponents promote the agreement as a crucial formula for economic development in the region. Organized labor, fair trade advocates and human rights groups, on the other hand, denounce CAFTA as a recipe for the erosion of workers’ rights, the gutting of regulatory protections, and deeper inequality throughout the CAFTA region.

Predictions about the social and economic impacts of the agreement range from devastating poverty to unprecedented prosperity. Yet at the core of the issue is not so much the immediate results, but rather CAFTA’s potential to pivot the public debate over how "free" trade should be.

NAFTA’s Lessons Loom Large

CAFTA opponents are also pointing legislators to evidence that NAFTA failed to deliver on its original promises of prosperity

If ratified, CAFTA would advance the free market agenda that drove the controversial North American Free Trade Agreement (NAFTA), passed in 1993 amid promises of breakthrough economic development in the US, Mexico and Canada. CAFTA would effectively eliminate most tariffs and other trade barriers that protect the agricultural and manufactured goods markets of Central America and the Dominican Republic. About 80 percent of imports from the region are already duty-free as a result of existing preferential trade policies designed to encourage market development.

Supporters of CAFTA in the US have pushed the agreement as a way to give the US more "level" access to Central American markets for US products.

Neena Moorjani, a spokesperson for the US Trade Representative Office, predicted that new exports through CAFTA "would benefit Americans across the board." In response to concerns about the outsourcing of US jobs, she explained that with unfettered market access, "the US can sell more products to Central America, therefore not harming American workers and in fact… supporting US jobs."

Hosting Central American leaders last week at a White House event, President Bush declared, "For American farmers, businesses and workers, CAFTA would create a more level playing field" by allowing two-way market access, while the other member countries would benefit from "new investment that means good jobs and higher labor standards for their workers."

Activists believe that squashing CAFTAwould break a key link in the administration’s so-far unsuccessful effort to push forward other free trade agreements

Linking trade liberalization to political progress, Deputy Secretary of State Robert Zoellick said in a recent speech that the growth precipitated by CAFTA would "strengthen the foundations of democracy" in the region and ultimately make the US more secure.

These claims of the benefits of greater market access contrast starkly with the opposition’s arguments that CAFTA would at best lead to insignificant gains for the domestic economy, would actually hurt workers in the US manufacturing and agricultural sectors, and could decimate the economies of the other member countries.

Human and labor rights advocates take issue with the view of free trade as a cure-all for social ills. The Washington Office on Latin America (WOLA), a think tank that tracks political developments in the region, argues that in Central America, trade barriers have been steadily lowered over the past twenty years, but this has not dramatically raised living standards or led to sustainable infrastructure improvements. Rather, rural poverty and economic inequality have increased markedly.

Elsa Falkenburger, a policy analyst with WOLA, said that in the case of the rural sector in particular, by enabling multinational agribusiness corporations to wipe out small-scale farmers in poorer countries, the "opportunities" created by free trade "have really gone towards the businesses, and not towards the communities."

CAFTA opponents are also pointing legislators to evidence that NAFTA failed to deliver on its original promises of prosperity -- a major reason why public support for aggressive free-trade policies has waned in recent years.

According to an analysis by the Economic Policy Institute, a progressive think tank, in the seven years following NAFTA’s implementation in 1994, the new trade policy contributed to an almost 380 percent increase in US trade deficit with Mexico and Canada.

The researchers also linked NAFTA to the elimination of an estimated 766,000 US jobs -- including those they predicted would have been created had the policy not been enacted -- along with rising economic inequality and a shift in the labor force toward lower-wage jobs. In Mexico, the first several years under NAFTA saw the massive displacement of farmers, a decline in wages, and a general deterioration of working conditions and employment opportunities.

"There’s no doubt about what this kind of free-trade logic leads to," said Larry Weiss, executive director of the fair-trade advocacy group Citizens Trade Campaign. He admitted that in statistical terms, NAFTA has led to an expansion of trade among member countries, but questioned: "Did that produce anything good for any people, other than the large stockholders and CEOs of the transnational companies that were able to drastically slash their labor costs? … [T]he answer is no."

CAFTA Opens Door to Fundamental Free Trade Debate

Despite the political clamor, some involved with the debate concede that CAFTA will not have as dramatic an impact as NAFTA has had, largely because the economies of the other member countries are much smaller than Mexico’s. But in some ways, they see the agreement as part of a war of ideas.

According to Robert Stern, an economic policy analyst with the University of Michigan’s Ford School of Public Policy, CAFTA would yield noticeable but relatively minor changes for the US economy. He predicted the agreement would contribute to the displacement of 19,000 manufacturing jobs -- much less than the disruption that occurred under NAFTA -- and would also produce slight job growth in other sectors.

The CAFTA will thus have comparatively negligible effects on US sectoral output and employment," he predicted.

Stern speculates that, given the small domestic economic gains under CAFTA, proponents probably have their sights set on an ideological victory. He views the agreement as "part of a desire to extend American political interests," he said. "And in order to do this, of course, they have to get support from particular companies that would benefit from these agreements."

Enlisting the backing of business interests, noted Stern, is one of the lesser challenges the administration faces in selling CAFTA. When it comes to helping officials draft free trade legislation that feed their profits, he said, "The companies are right at the door."

Activists, for their part, believe that squashing CAFTA in this legislative session would break a key link in the administration’s so-far unsuccessful effort to push forward negotiations for the Free Trade Area of the Americas FTAA. That far more comprehensive trade pact, currently deadlocked due to conflicts among potential member countries and massive international grassroots opposition and protest, would encompass the entire Western hemisphere. Its opponents say it would be the administration’s ultimate free trade trophy.

Calling the showdown in Congress "a surrogate for a much bigger fight," Weiss said CAFTA is now "a question of political momentum. It is the question of whether this country wants to pursue the NAFTA model further or wants to bury it once and for all."

Groups ranging from human rights advocates to environmentalists to trade unions have launched campaigns highlighting the hardships that CAFTA would bring to farmers and industrial workers in all of the member countries. Underlying their message is the hope that the CAFTA question will compel Congress and the public to rethink the principles driving US trade policy.

"Trade is not the way to reduce inequality," said Stephanie Weinberg, a trade policy advisor with humanitarian organization Oxfam America, "but the rules of trade have to be such that they don’t limit other policy mechanisms, and … that they ensure that benefits can and will be broadly distributed, and not only benefit a few."

An alternative agenda for international commerce, argued Weiss, should prioritize strong labor protections and the strengthening of internal markets -- crucial aspects of improving quality of life that critics say are often ignored in free-trade rhetoric. Conventional free trade policies, he said, aim only "to create the climate where these transnational corporations can scour the globe for the cheapest labor, or the most lax environmental enforcement. And that logic only drives living standards down everywhere."

Editors' Note: Due to limited resources, TNS’ scope of coverage is primarily domestic and thus this series focuses mainly on US perspectives, even though CAFTA’s primary impact is expected to be in Latin America. We hope to expand to cover global economics from an international perspective later this year.

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Michelle Chen is a staff journalist.

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