CAFTA

Bill in Brief

On July 28, 2005 the House squeezed by a yes vote - 217-215 - for the Central American Free Trade Agreement (CAFTA), sending the bill off for the president's signature (which he gave in August). Like NAFTA before it, the battle over the CAFTA pitted free traders - who say it will boost US and Central American economies - against anti-globalists and labor advocates - who argue the pact will hurt workers on both sides of the deal.

What it'll do: CAFTA will immediately wipe out most quotas and tariffs on US exports to CAFTA countries - Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua - while phasing out all other tariffs over time. 80% of factory goods will be tariff-free immediately, with the other 20% phased out over ten years. 50% of farm goods will start off with no tariffs, with the second half phasing out over fifteen years.

Status: The president signed CAFTA into law on August 2, 2005, but the implementation of the treaty is being held up by legal complications. As of April, 2006 the treaty is in effect for Honduras, Nicaragua and El Salvador.

Some facts

  • Comparing economy sizes (size of GDP). CIA

    • The US: $11.8 trillion

    • The CAFTA countries: $216 billion (about 2% the size of the US economy)

  • Total trade between the US and CAFTA countries:

    • $32 billion in 2003 (CATO)

  • CAFTA's economic benefits: Of course it's all guess work, but a widely cited report from University of Michigan has these predictions: CAFTA will add:

    • $17.4 billion to the US economy, and

    • $4.6 billion to the economies of CAFTA countries.

  • CAFTA's job gains and losses: Again - guesswork, but the UMich study predicts (see page 49 for full figures):

    • 17 thousand Americans will lose their jobs - but 17 thousand jobs will be created;

    • about 280 thousand jobs will be created and lost in CAFTA countries (2% of the total workforce in those countries).

The critics

The sugar industry. The sugar and textile industries stood to lose the most if CAFTA passed. To win over its sugar critics - who were not keen on the idea of sugar pouring in from Central America - the US promised to cap sugar imports at 1.5 million tons a year. Above that number, the US would either pay off foreign sugar producers or buy the sugar itself to convert into ethanol.

Labor advocates. Labor activists said CAFTA does little to protect the rights of workers in Central America, even with $20 million the Bush administration has promised those countries to enforce their labor laws. Some critics also say the bill doesn't provide support to American workers - in the form of job training - who may lose their jobs as a result of CAFTA.

Security and immigration concerns - from all sides.
Politicians also had arguments over the immigration and national security impact of CAFTA. Some say the trade treaty will encourage immigration while and others say it will slow it down - by creating jobs in would-be immigrants' home countries. CAFTA supporters also sell the trade pact as a boost for national security because they say it will promote economic growth in young democracies.

Links

  • The US Trade Rep's two page overview of CAFTA.

  • Some thoughts on why it should be passed: from the Washington Post editors, an op-ed from the Institute for International Economics, and an op-ed from a former president of Costa Rica.

  • ...or why it shouldn't: op-eds from Representatives Brown and Levin; and a memo from the Center on American Progress.

  • A University of Michigan study predicts the economic impacts of CAFTA.

  • An International Labor Rights Fund report criticizes the labor conditions in Central America. (ILRF was commissioned by the Labor Department to do the report, but the Department ended up disputing the report. NYT)

Updated April 2, 2006

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