Monday, July 25, 2005

A vote in the House of Representatives on the Central American Free Trade Agreement (CAFTA) could occur as early as tomorrow. With House Minority Leader Nancy Pelosi predicting that 95 percent of Democrats will oppose the trade bill, its passage will require support by 90 percent of Republicans. That could be a tall order. Regrettably, more than 20 percent of the Senate GOP opposed CAFTA last month when the measure passed by a 54-45 margin. Given the enormity of the stakes involved, wavering House Republicans must understand that their votes will have immense short-term and long-term consequences far beyond the immediate impact of the trade agreement, whose benefits are unassailable.

Regarding CAFTA itself, if a level playing field is the goal, then it fits the bill. Today, 80 percent of exports to the United States from CAFTA signatories (Costa Rica, Honduras, Nicaragua, Guatemala, El Salvador and the Dominican Republic) already enter duty-free. Most U.S. products imported by CAFTA nations, however, face relatively high tariffs; CAFTA would immediately eliminate these tariffs on 80 percent of U.S. exports to CAFTA partners. The American Farm Bureau enthusiastically embraces CAFTA, projecting an increase in farm exports (wheat, potatoes, corn, soybeans, pork, poultry, beef and produce) of $1.5 billion per year.

On the geopolitical front, it is indisputable that helping CAFTA nations and their neighbors to develop economically in the 21st century would go a long way toward preventing the repetition of the region’s political, military and economic problems that commanded so much U.S. attention during much of the second half of the 20th century.

Opponents of CAFTA understand that this relatively small trade agreement represents far more than the region it embodies. If self-interested protectionists can beat CAFTA, they know they will have delivered a potentially fatal blow to much larger free-trade negotiations being held within the World Trade Organization. The effect of a WTO failure would be enormous. The Institute for International Economics (IIE) has estimated that the cumulative effect of postwar free-trade agreements has been to increase annual U.S. income by roughly $1 trillion, or an average of $10,000 per household. Benefits of future trade agreements, beginning with CAFTA, could add $5,000 to average household incomes, the IIE estimates. CAFTA’s rejection would clearly jeopardize those potential gains, and would also be a major blow to President Bush’s second-term agenda.

Opponents frequently cite the effects of the North American Free Trade Agreement (NAFTA), which was implemented in 1994. Compared to the “giant sucking sound” predicted by NAFTA opponents, however, it is worth noting that U.S. nonfarm payrolls have expanded by more than 21 million jobs since 1993, while U.S. manufacturing output has increased by nearly 55 percent over the same period.

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