Posted on 06/01/2004 12:34:21 PM PDT by Willie Green
For education and discussion only. Not for commercial use.
CAFTA – A New Low for U.S. Trade Policy
By Alan Tonelson
May 30, 2004
Talk about great timing. On May 13, U.S. Trade Representative Robert B. Zoellick announced that a free trade agreement between the United States and five Central American countries would shortly be signed in Washington. The CAFTA agreement, Zoellick predicted, "will promote U.S. exports to a large and important market…."
Exactly three days after Zoellick's announcement, voters in the Dominican Republic, scheduled to be added onto CAFTA, threw their president out of office because the national economy had collapsed.
Despite robust textile and apparel exports to the United States, this largest of the CAFTA group's economies has recently seen its growth rate stop cold, its foreign debt balloon to $7.6 billion, it currency lose half its value versus the dollar, its annual inflation rate top 40 percent, its poverty rate hit 67 percent, and its unemployment rate reach 17 percent.
In fact, as a recent ABC News "Nightline" program vividly showed, much of the Dominican market that Zoellick seems so impressed with is fleeing the country for Puerto Rico, in small, overcrowded, barely seaworthy boats.
Here's the real kicker, however – even if times in the Dominican Republic were anywhere near good, CAFTA would be a big loser for the U.S. worker and for domestic companies. The reason? America's CAFTA trading partners are simply too small, too poor, and too broke to serve as major consumer markets for anything made in America. Yet with their 43-odd million desperately poor people, the CAFTA countries are capable of turning out a large volume of labor-intensive products like apparel, which puts them in direct competition with millions of America's working poor (many of whom, of course, have emigrated from the CAFTA countries).
Indeed, U.S. apparel companies and retailers strongly support trade agreements like CAFTA precisely because they pit more and more of these low-income countries in competition with each other to grow by exporting to the U.S. market. Big Apparel and Big Retail are therefore able to hopscotch among them all looking for the cheapest possible workers, and thereby force wages down even further.
The CAFTA countries are such flyspeck markets that even some globalization cheerleaders sound unenthusiastic about the agreement. Referring to the numerous bilateral free trade agreements that President Bush has been seeking with the world's mini-markets, former Clinton administration trade official Lael Brainard recently observed that "the economic benefits to the United States just aren't that big."
Let's be charitable – Brainard was being charitable. If you add up the national economies of the five Central American countries joining Zoellick in the May 28 CAFTA signing ceremony, you get a market the size of Orlando, Florida – about $62 billion. Add in the Dominican Republic, and you get an $85 billion market – slightly bigger than Miami, Florida or New Haven, Connecticut. Expanding trade with these countries will move the growth needle on the $11 trillion U.S. economy? Please!!
U.S. goods exports to the six CAFTA countries have been growing lately – by some 30 percent between 1997 and 2003, and last year stood at $14.3 billion. U.S. goods imports from these countries rose faster during this period – by 32.6 percent, to $16.9 billion – meaning that Central America is yet another region that adds to America's already dangerously large global trade deficit.
Worse, CAFTA will lock the United States into this unprofitable trading pattern. A plurality of U.S. goods exports to the CAFTA countries aren't traditional, U.S. job-creating exports at all – i.e., they aren't consumed in the purchasing countries. Rather, they consist of fabric that's sent down to the CAFTA region, stitched together into final apparel and home furnishings products, and shipped right back to the United States.
Nearly one-third of all U.S. goods exports to the CAFTA region consist of such "round-trip" exports. Another 8 percent are a higher tech version of these fabric shipments – exports of semiconductors and semiconductor parts that are tested and/or assembled at an Intel plant in Costa Rica and then sent out of the country again.
Take away these obvious round-trip exports, and U.S. goods sales to the CAFTA region grew by only about 20 percent from 1997 to 2003, and even this figure undoubtedly understates the problem. After all, much of America's other exports to the CAFTA region are products like industrial machinery or transportation equipment that go into building up the export infrastructure of the CAFTA countries.
Even so, could significant consumption markets emerge in the CAFTA countries in the foreseeable future? Not likely. In particular, the national finances of the Dominican Republic, Honduras, and Nicaragua are so bad that all three are receiving International Monetary Fund bailouts of various types. Such loans are conditioned on these countries accepting austerity programs, which means that importing and domestic consumption have to be limited.
In addition, for the CAFTA deadbeats even to service their foreign debts – much less start repaying them – they'll need to export more than they import. Given continuing protectionism n Western Europe and Japan, the United States is sure to remain their dominant customer.
Yet perhaps the worst feature of CAFTA, and of America's other apparel-centric third world trade agreements, is Washington's stubborn refusal to integrate these agreements into a sensible third-world trade strategy.
Most important, in January, 2005, the quota system that has regulated world trade in textiles and apparel will be abolished. Importing countries will no longer be able to reserve various chunks of their market for especially needy or especially strategic exporting countries. Textile and apparel tariffs will remain, but America's are generally low. And the U.S. government, in the form of a report by the International Trade Commission, admits that huge Asian exporters like India and China will all but throw little exporters like the CAFTA countries out of business.
CAFTA, as a result, is best seen as a bad joke – both on the U.S. workers and domestic companies, which have been sold a bill of goods about major export markets, and on the CAFTA countries, which have been sold a false promise of prospering by exporting to the United States. But if the agreement is passed, only Big Apparel and Big Retail will be laughing.
Alan Tonelson is a Research Fellow at the U.S. Business & Industry Educational Foundation and the author of The Race to the Bottom: Why a Worldwide Worker Surplus and Uncontrolled Free Trade are Sinking American Living Standards (Westview Press).
I guess there are people here at FR who don't like free trade. I find their arguments hard to understand. I'm a fan a free trade -- the more freedom we have in the world, and the more freedom people have to buy and sell things whereever they want at whatever price they want, the better for all of us. I'm a believer in the power of liberty.
This is the first I've heard of the CAFTA agreement, but it sounds good to me.
If you were a true conservative, you'd understand that excessive federal regulation places our domestic businesses and industries at an economic disadvantage in the global market. These "free" trade agreements, that you favor, enable transnational corporations to wage economic warfare against our domestic industries with imported goods whose production is not hampered by similar constraints.
Looks like you win the prize for the most pro free trade cliches in one sentence but seriously, I'd suggest studying the reality of the damage free trade has done to this economy (huge trade deficits, explosion of debt at all levels, loss of whole industries with millions of jobs, increased illegal immigration, etc.) vs. the various theories expounded on by free traders that were supposed to deliver so much yet in actuality has been so little.
You make a good argument for deregulating our private sector as much as we can.
"Liberty" and "freedom" are not cliches, in my humble opinion -- they are fundamental principles, and the more we have, the better.
I've heard lots and lots of people make arguments about how liberty should be curtailed in some way or another -- allegedly for our own good. The left does this constantly, and there are folks on the right who do it from time to time also. I have to respectfully disagree. The problems that come from freedom are not as bad as the problems come from excessive government.
CAFTA preamble says they will promote sustainable development in CAFTA countries. Sustainable development is the statist control of all resources, including private property. Any trade agreement that forces sustainable development as an item of agreement isn't promoting free trade. Any politician or nongovnermental organization that supports sustainable development is supporting the reorganization of the free world into a global socialist world.
Therefore, if you read the trade agreement and understand the terms it uses, you will see that it does not support freedom, but rather is using trade as a means to control freedom.
I think "sustainable development" means different things to different people. It can be a code word for excessive government intrusion into private business -- that's how the left often uses the term. But it has other meanings that are innocuous.
WHAT? Free trade with California? Never!
Only?
This article tries to have it both ways. Trade with CAFTA countries is nothing. And free trade with CAFTA countries is the biggest threat to the US since the Soviet Union.
fed regs and lawsuits are more likely the cause of the manufacturing problem than are either free trade or labor costs. One of my customers is being threatened with their work going to China for price concessions. I would have to tell them to kiss my ass.
Well, even though I dislike the conclusions of this article, I don't think they quite make the point you describe. I think the author is saying that their buying power is very small (since they are so poor) but their ability to make cheap exports to the U. S. is high (since they are so poor and so numerous).
I'm for free trade. I'm not for free trade *agreements*. Free trade can happen without organizations such as NAFTA and GATT (WTO). But free trade agreements force us to trade with others under top-down, once-size-fits-all, judiciated-not-legislated, inflexible rules. They mostly are once congress trying to bind the actions of future congresses, denying the democratic process the ability to respond to situations as they arise, usually fueled by a sense that the great unwashed will probably demand something that "we-who-know-all" won't want.
And don't make any mistake about it: Free Trade Agreements are always the first step to establishing world government. United Europe, a horror we have yet to see unfold, was at first merely a Free Trade Agreement. Now, look how GATT (WTO) is becoming World Trade Agreement. Look at how Congress uses the commerce clause to regulate all areas of American life, and then realize that GATT is, essentially, a global commerce clause.
These little countries need American products, take a look at their housing. We are not exporting cause their governments don't have land ownership rules like in the USA,not because the people are poor. They can't improve where they live cause they can't get loans or sell what they build.
In todays economy it is bad for an unemployed steel worker no doubt. Has anyone here ever explained the steelworkers vacation and leave schedule that caused the loss of 100s of thousands of jobs? Try this on for size. After 5 years you get two weeks leave on top of vacation at full pay. after 10 years it is 30 days. That means that a man with 10 years on the job gets two months off. What is the productivity rate of a company that pays every man with seniority to take off 20% of the year? Union contracts and weak management killed steel. Take a look at the minimills and see what was the real cause of the end of big steel.
CAFTA ends that, so Cingular and Verizon will be able to compete for cellphone customers. State Farm can insure homes if they want. Sears and WalMart can open stores. Costa Rica already looks far more American than Laredo or El Paso, and a much bigger percentage of the population speaks English. You can pick up a bucket of chicken at the drive-thru window at the KFC in San Jose. Taco Bell does a thriving business there today. The guy behind the counter at the Burger King I visited there in February speaks better english than the one I sometimes visit here in Houston.
I want more of that. We are colonizing the world with American industry and making it better. Free trade agreements make it happen faster.
I've never been to Costa Rica but you make it sound very nice -- maybe I will some day.
I'm glad to hear you say that government monopolies will have to cruble (or at least adapt to competition) -- that's good for us, and good for the citizens of other countries that are starting to enjoy more of the blessings of freedom in their economy.
I understand where you're coming from but anyone that thinks these trade agreements are going to promote freedom and liberty is sadly mistaken. NAFTA, CAFTA and the coming FTAA (Free Trade of the Americas) are nothing more than trojan horses for those who wish to integrate this hemsiphere into a solid trading bloc ala the EU. By the time this integration is completed you can kiss your Constitution and Bill of Rights good-bye because the demands will be made for a new constitution to direct the new suprastate (American Union?) and at the same time we'll hear nothing but trash talk about our our legal system as well as Const.
I'd suggest doing a little research on the current battles overseas as they create the EU constitution to get a preview of what's in store for us and I can guarantee that it won't be pretty. To re-iterate, the negatives of our flawed trade policies will continue to de-construct this country as we know it.
Consumers benefit. Workers benefit, too, because the agreements increase trade. Increased trade means more jobs for people making stuff that gets traded.
There are always some near-term dislocations as the respective economies adjust to the new reality. But the economy is always adjusting to new realities.
I disagree that it's political. The socialist euroweenies have long envisioned a united Europe. There is no such movement here in the western hemisphere. Far from it.
So you're saying that lower trade barriers will lead to world socalism? That's quite an alarming statement. But I don't think I agree with that prediction. I think that lower trade barriers simply lead to more trade with fewer tarrifs, which is a genreally good thing.
I agree -- your comments are well put.
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