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CAFTA expected to narrowly pass in Senate, face a battle in House

WASHINGTON—The Senate may vote as early as Thursday on President Bush's proposed free-trade agreement with Central America, and while it's expected to pass narrowly, victory won't come easily, and Bush faces an even tougher struggle next month in the House of Representatives.

Organized labor leads the opposition to CAFTA, joined by most Democrats, but a surprising number of Republicans oppose the treaty, too, primarily because they come from states where industries from textiles to manufacturing have been battered by foreign competition.

CAFTA itself wouldn't have much impact on the economies of the United States or the six tiny nations it covers: El Salvador, Honduras, Guatemala, Nicaragua, Costa Rica and the Dominican Republic.

Collectively, the six account for just 1.4 percent of U.S. global trade, and a World Bank report this week predicted that they'd see their economies grow no more than 0.8 percent more per year over CAFTA's first five years than they would without the pact.

CAFTA would have even less impact on the United States. Most products from Central America already enter the United States free of import taxes, called tariffs. And while CAFTA would end tariffs on U.S. exports to those six countries, their economies are so small that CAFTA wouldn't boost U.S. sales much. It might produce $1 billion more per year in exports of U.S. manufactured goods, according to the National Association of Manufacturers, only about 0.001 percent of last year's total U.S. exports of $818 billion.

Even so, some U.S. industries—particularly sugar and textiles—probably would lose jobs under CAFTA, and job losses not only are painful but also visible. More important to understanding the politics of CAFTA, opposition to it is grounded more in rising anxiety about free trade and globalization than in the details of the pact itself.

Proponents of the treaty say its benefits—such as boosting the competitiveness of some U.S. industries, slowing immigration into this country and strengthening the rule of law throughout the hemisphere—are indirect and difficult to measure.

"Over a generation, we will see considerably less pressure to emigrate from those countries through Mexico and to the United States," predicted Gary Clyde Hufbauer, a trade expert at the Institute for International Economics in Washington. "The pressures there will ease, but it's going to take a good 15 or 20 years of growth. If you don't start now, when do you start making these countries attractive for capable, hardworking people?"

Take Costa Rica, for example. Investors such as chipmaker Intel have rewarded Costa Rica for good government and trustworthy courts by setting up plants there. Its citizens have an average annual income of $9,600, about twice as high as any of its Central American neighbors.

The Senate Finance Committee approved the agreement Wednesday after the Bush administration satisfied key Democrats with some Central American labor safeguards. It's expected to pass the full Senate on Thursday or Friday, but narrowly.

The outlook is gloomier in the House, where trade deals historically face more difficulty. The House Ways and Means Committee will consider it Thursday and the full House will vote sometime next month.

"I thought they moved too quickly," said Sen. Craig Thomas, R-Wyo., who voted against CAFTA in the Finance Committee. Wyoming grows sugar beets, and Thomas said he was unable to win assurances that the sugar industry had sought.

Sen. Jeff Bingaman, D-N.M., an early CAFTA opponent, said he'd vote for it now since the Bush administration had agreed to support spending $40 million in each of the next three years to monitor labor rights in CAFTA countries and provide them with more aid.

"They obviously want this," Bingaman said of the Bush administration. "They (the concessions) involve commitments of funds in future years. They're obviously reluctant to do that whenever they can avoid (losing)."

The U.S. garment industry would feel CAFTA's adverse impact the most. The pact would relax Buy America rules, programs that are designed to support U.S. products. It also would end a requirement that garment exports from CAFTA countries be sewn exclusively from U.S. yarns and fabrics to escape tariffs.

Instead, the garments could move tariff-free as long as they were sewn from yarns and fabrics made in any CAFTA country, with up to 10 percent made from materials from outside. That would make the region's clothing manufacturers a bit more competitive with low-wage China.

CAFTA's critics see these terms as an invitation to ship American jobs abroad.

"It's just an outsourcing agreement, pure and simple," said Lloyd Wood, a spokesman for the American Manufacturing Trade Action Coalition, which represents textile companies and some small manufacturers.

Added Thea Lee, the AFL-CIO's chief international economist: "What really is the goal is to increase the mobility, flexibility and profitability of multinational corporations, and if that's the yardstick it's worked beautifully"—but to the detriment of American workers.

U.S. sugar producers are dead-set against CAFTA because it would cut back U.S. quotas that block most foreign sugar from the U.S. market. American farmers produce more than 80 percent of the sugar that's consumed in the United States. U.S. farmers whose corn, beets and cane are turned into sugar want to keep things that way, though U.S. consumers pay more for sugar than the global average as a result.

Those who support CAFTA say it would make U.S. industries more competitive.

"The apparel sewing which is already down there may grow, but it will grow by taking orders away from Asia rather than the United States," said Cass Johnson, the president of the National Council of Textile Organizations. "If an apparel order leaves, it goes to Asia. And we lose the textiles order in the United States. It's a double whammy."

The National Council of Textile Organizations considers CAFTA a defensive tool that would help integrate U.S. and Central American production and make both more competitive with China. Garments made in CAFTA countries are more expensive than those made in China, but they cost about half as much as U.S.-made clothing.

While Central America is farm-intensive, most U.S. farm groups support CAFTA because their products would be cheaper to sell in CAFTA countries once tariffs are dropped than products from their competitors in Brazil and Canada. Expected winners are U.S. soybean growers and exporters of beef, chicken and pork products.

"It's a market that does have some benefits. It's definitely not a China, not a Brazil, but it's a market that has the potential to grow," said Chris Garza, a trade expert with the influential American Farm Bureau Federation.

Farm imports to the United States from CAFTA countries already enter free of tariffs. Mostly melons, pineapples and bananas, they totaled $1.9 billion in 2002.

Florida's largest citrus-growers group, Florida Citrus Mutual, backs CAFTA as a defensive move against rival Brazil, the world's largest exporter of orange juice. CAFTA ensures that Brazilian oranges can't be sent to Central America for processing into orange juice that's exported to the U.S. market.

"Our main concern has always been about Brazil," Andy LaVigne, the group's executive vice president, said in a telephone interview from Lakeland, Fla.


(c) 2005, Knight Ridder/Tribune Information Services.

GRAPHIC (from KRT Graphics, 202-383-6064): 20050629 CAFTA GDP

ARCHIVE GRAPHIC on KRT Direct (from KRT Graphics, 202-383-6064): 20050509 CAFTA trade

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