(07/03/05) Clyde Prestowitz quoted in the San Francisco Chronicle
CAFTA friends, foes state their case on free trade deal Central America pact goes to House after OK by Senate
San Francisco Chronicle (CA)
Copyright 2005 The Chronicle Publishing Co.
July 3, 2005
CAFTA friends, foes state their case on free trade deal Central America pact goes to House after OK by Senate
A decade ago, after bitter debate, the North American Free Trade
Agreement among the United States, Canada and Mexico passed Congress,
aided mightily by a Democratic president who supported a march toward
ratification that began under his predecessor, George H.W. Bush.
Today, with another George Bush in the White House and mounting public
and congressional unease over outsourcing, offshoring and free trade
itself, another free trade agreement is on the table.
On Thursday, the Senate approved, by a 54-45 vote, the Dominican
Republic- Central American Free Trade Agreement, or CAFTA, a trade
liberalization pact among the United States and six other countries
that would slash tariffs and streamline business laws.
The controversial deal can be approved or rejected but not amended by
Congress. The House will consider the pact shortly after Congress
returns from its holiday break on July 11.
California's Democratic senators split on CAFTA, with Dianne Feinstein voting yes and Barbara Boxer opposed.
The House vote is expected to be very close and contentious.
Congressional observers expect it to cleave largely along party lines,
with Minority Leader Nancy Pelosi, D-San Francisco, energizing the
All seven nations must ratify the pact. So far, El Salvador, Guatemala
and Honduras have approved it. It will also go before the legislatures
of Costa Rica, the Dominican Republic and Nicaragua, where it is
expected to pass.
The toughest fight is expected to be in this country, where defeat in the House is possible.
Should CAFTA go down, it would be Bush's first defeat on trade policy.
It would also slow the administration's fast-track approach to free
trade and perhaps signal to international trading partners that a
weakened president cannot deliver on his ambitious trade agenda.
At home, CAFTA is simultaneously serving as a lightning rod for critics
of globalization -- with which free trade is often wrongly equated --
and a rallying point for free traders.
Globalization takes place with or without formal free-trade agreements.
But trade pacts like CAFTA offer concrete deadlines and codified
details of an often-amorphous globalization process that can be
difficult to grasp. While free trade did not create globalization,
major trade pacts do help to set the pace.
In strictly monetary terms, CAFTA is a modest affair. The United States
exports $15 billion in goods and services yearly to the CAFTA countries
despite fairly high tariffs on U.S. goods, making the CAFTA region this
country's 10th-largest export market. The CAFTA countries export $18
billion a year to the United States, 80 percent of which is duty-free,
thanks to prior, smaller agreements.
All this pales next to the $1 billion a day in trade between the United
States and Canada, partners in the 1994 North American Free Trade
Agreement with Mexico. CAFTA would be a smaller regional counterpart of
the three-nation NAFTA. (Canada and Mexico would remain outside CAFTA.)
But while CAFTA is small economically, it is big symbolically. Friends
and foes see it as a stepping-stone to a proposed, U.S.-backed Free
Trade Area of the Americas, which would unite the hemisphere (sans
Cuba) in a giant trading bloc, and as a rehearsal for this year's
meeting of the World Trade Organization, where many contentious trade
issues are certain to come up.
American trade watchers also see a CAFTA zone as a buffer for the
United States and Central American nations -- most of which host
apparel-making industries -- against China, whose low-cost clothing has
flooded world markets since international quotas expired Jan. 1.
CAFTA would tie Central America and the Dominican Republic to the
United States both economically and politically and would help keep
costs down for U. S. retailers and Latin American garmentmakers, though
whether those costs would be low enough is debatable.
"CAFTA is a minor deal," said Clyde Prestowitz, author of the new book
"Three Billion New Capitalists: The Great Shift of Wealth and Power to
"A country like Honduras needs to rise from grinding poverty,"
Prestowitz said. "But will it (CAFTA) be enough to raise wages there
while keeping costs low, and can Honduras compete with China? I doubt
Most U.S. businesses, especially clothing retailers, high-technology
companies, ocean shippers and agricultural interests (except sugar
producers, who fear competition from cheap imported sugar), urge
passage of CAFTA.
Almond growers back pact
California's Blue Diamond Growers, a consortium of almond growers, "is
strongly supportive of CAFTA," said Susan Breuner, director of public
California grows 85 percent of the world's almonds and exports 70
percent of the annual harvest, she said, noting that almonds are the
state's largest agricultural export.
Blue Diamond sells less than $1 million in almonds annually to the
CAFTA countries, which impose an average 10 percent tariff on U.S.
almonds, Breuner said.
That could grow to $5 million if the barriers come down -- still a tiny
fraction of Blue Diamond's $2 billion in annual worldwide sales, but
growth, nonetheless, and movement in what free traders see as the right
San Francisco's Wine Institute, which represents many state and U.S.
wineries, also backs CAFTA, said Joe Rollo, international director. The
CAFTA region, which bought $3 million in U.S. wine last year, could buy
more with the elimination of tariffs, which average a hefty 30 to 40
percent. He noted that the CAFTA countries already have signed separate
free-trade agreements with the European Union and Chile, both major
"So, if we don't, we are at a disadvantage," Rollo said.
Valleys back CAFTA
Silicon Valley lines up with Napa Valley and the Central Valley to
support CAFTA, according to the Information Technology Industry
Council, which includes Oracle, Hewlett-Packard, Apple and Cisco
High-tech firms would save $75 million per year with the elimination of
Central American tariffs, which range as high as 30 percent on tech
items, said the organization's president, Rhett Dawson.
High tech would also benefit from stronger protection of intellectual
property and the elimination of local dealer protection networks, which
limit direct distribution of high-tech goods by foreign manufacturers,
Critics of the trade deal paint a very different picture.
CAFTA, they say, would ravage the environment, make it easier for
powerful, U.S.-based multinational corporations to exploit low-paid
foreign workers and give unfair advantages to investors who could use
it to trump national and state laws.
Free-trade foes say that NAFTA, the model for CAFTA, is a bad precedent.
They cite Canadian mining company Glamis Gold, which has sued the
United States for $50 million under NAFTA Chapter 11, claiming that
California's attempts to rein in open-pit mining are an unfair
restraint of trade. CAFTA's Chapter 10, they say, replicates NAFTA's
"People have trouble believing that foreign interests can challenge
California and second-guess California's environmental rules and
regulations," said Jesse Colorado Swanhuyser, director of the
California Coalition for Fair Trade and Human Rights. "But they can."
As critics of free-trade pacts see it, overriding the laws of elected
governments by unelected trade courts spurred on by foreign
corporations erodes sovereignty and undermines democracy.
There is also some grassroots opposition to CAFTA in Central America.
Jose Andres Tomayo, a politically engaged Catholic priest from rural
Honduras, said multinational corporations have already created havoc in
his country through logging, some of it illegal, that has destroyed
tropical rain forests, lowered the water table and made life harder for
subsistence farmers. CAFTA would make matters worse, he said.
During a recent visit to San Francisco sponsored by CAFTA opponents,
among them the Sierra Club and Friends of the Earth, Tomayo said that
it is hard to know which CAFTA sections are worst. "CAFTA has not
revealed its rules.
It has been a secret agreement," he said.
Text available online
In fact, the full text of the pact is posted, in both English and Spanish,
on the U.S. trade representative's Web site: www.ustr.gov.
Nevertheless, critics contend the deal-making that produced the pact
was undemocratic. "Negotiations did not include meaningful input from
any of the most impacted communities: workers, conservationists, family
farm interests, and immigrant and human rights promoters," Swanhuyser
This failure to consult the grass roots, CAFTA critics say, will
accelerate environmental damage and agricultural imbalances already
seen in Mexico under NAFTA.
The Sierra Club cites a recent study done for the Carnegie Endowment
for International Peace concluding that cheap imports from huge U.S.
factory farms have forced some small farmers in Mexico off their land
and deepened poverty in already dirt-poor regions.
Additionally, U.S. organized labor blasts NAFTA for supposedly
contributing to a loss of American jobs to Mexico, where environmental
laws are lax and workers have scant protection.
Unions are opposed
"Clearly, the last thing we need is another misguided trade agreement
like CAFTA that will only speed the loss of good jobs at home and
exacerbate inequity in Central America and the Dominican Republic,"
AFL-CIO President John Sweeney said.
Critics' positions were bolstered Wednesday when the U.S. Department of
Labor admitted it had delayed the public release of American studies
critical of labor practices in Central America for a year.
However, companies already engaged in commerce with Central America and
the Dominican Republic are eager to see CAFTA become law.
At Crowley Maritime Corp., founded in San Francisco and now
headquartered in Jacksonville, Fla., chief lobbyist Mike Roberts said
the company, which ships containers from ports on the Gulf of Mexico,
expects more business should CAFTA pass.
It already draws about one-third of its revenue from the Caribbean and Central America, he said.
Beyond the boost in business, Roberts said, passing CAFTA would have
broader, more important meaning: "It would provide a level of
certainty, so investment can continue," he said, helping to lift the
region from poverty.
Pursuing free trade in Central America
With the Central American Free Trade Agreement before Congress,
supporters say the deal will open CAFTA countries to U.S. exports and
help lift the region out of poverty. Opponents say the pact would
ravage the environment, cost U.S. jobs and allow U.S. corporations to
exploit Central American workers.
U.S. trade balance with CAFTA countries, 2004
In millions of dollars
EXPORTS IMPORTS BALANCE
Guatemala $2,548.3 3,154.6 -606.3
Dominican Republic 4,342.9 4,528.4 -185.5
Honduras 3,076.5 3,641.1 -564.6
Nicaragua 591.7 990.5 -398.8
Costa Rica 3,303.7 3,332.9 -29.2
El Salvador 1,867.8 2,052.6 -184.8
Associated Press Source: U.S. Census Bureau, Foreign Trade Division; World Bank; ESRI