home > by publication type > backgrounders > What are the main issues in the debate over CAFTA?
Email
| Author: | Lionel Beehner |
|---|
July 18, 2005
The Central American Free Trade Agreement (CAFTA), currently under consideration in the U.S. Congress, would create a free-trade zone by eliminating most tariffs and other trade barriers between the United States and Central America. President Bush and other CAFTA proponents say it will boost trade, help bring stability to Central America by creating jobs, and reduce the $2.3 billion U.S. trade deficit with the region. But CAFTA faces stiff opposition from a coalition of U.S. consumer, labor, and agricultural groups whose members say the agreement will cost the United States jobs, impinge workers’ rights in the region, and do little to close the trade gap.
The United States, Honduras, Nicaragua, El Salvador, Costa Rica, Guatemala, and the Dominican Republic.
On June 30, the Senate approved CAFTA in a 54-45 vote. Some experts say the bill will face tougher opposition in the House, which is expected to hold an up-or-down vote in late July; under the terms of fast-track trade authority granted the White House in 2002, Congress cannot modify trade agreements. If the House fails to ratify CAFTA, the agreement is effectively dead, many trade experts say. CAFTA still awaits ratification in Costa Rica, the Dominican Republic, and Nicaragua, where the agreement is opposed by left-wing political parties and local labor groups.
Economists disagree about the impact CAFTA will have on various sectors of the U.S. economy. Among the U.S. industries with the most at stake are:
The trade agreement would:
A small but generally positive one, most experts say. The combined gross domestic product of the other six CAFTA members is around $81 billion, smaller than the Czech Republic’s and a tiny fraction of the United States’ $10 trillion economy. Moreover, these nations account for just 1.4 percent of the United States’ overall global trade. Still, Central America’s 45 million consumers buy more U.S. products than the 1.5 billion people in India, Indonesia, and Russia combined. The U.S. Chamber of Commerce also predicts the agreement will create some 130,000 U.S. jobs, many of them in agriculture, over the next decade.
It’s unclear, experts say. A June 28 World Bank report predicts that over CAFTA’s first five years, the economies of Central American countries will grow by only 0.6 percent more than they would without the trade agreement. But CAFTA proponents say the trade agreement would create jobs in the region by encouraging foreign investment, which would, in turn, increase demand for labor. This could then give Central American workers more bargaining power and a greater ability to unionize. Others, including President Bush, have said CAFTA would benefit the region’s security as much as its economy; the area is undergoing a resurgence of civil strife, gang-related crime, and drug trafficking. Another added benefit, some CAFTA backers point out, is that the expected job creation would help stem the flow of Central American immigrants, both legal and illegal, into the United States.
Yes. It was hotly debated in all six countries. Opposition was particularly fierce in Costa Rica, Central America’s wealthiest country on a per-capita basis, where telephone and electrical workers feared their jobs would be outsourced if the telecommunications industry were privatized. Similar concerns were voiced by healthcare workers in El Salvador.
Many of Central America’s opponents of freer trade fear a repeat of what they see as the harmful effects of NAFTA. That pact, they argue, greatly reduced Mexican farm-subsidy programs and lifted import quotas on U.S. corn and other commodities. NAFTA critics say, as a result of NAFTA-induced economic upheaval, nearly 1 million small farmers lost their land, and many took low-wage factory jobs along the U.S.-Mexican border. Most economists, however, argue that Mexico was hurt more by the 1994 financial crisis and devaluation of the peso than by NAFTA. Since 1994, on average $14 billion in foreign direct investment—money spent by foreign firms on tangible assets like factories, machines, and buildings—has flowed into Mexico each year from the United States, six times the amount spent in the six years prior to NAFTA.
In the United States, the pro-CAFTA camp is being led by the Bush administration, Republicans on Capitol Hill, and a coalition of free-trade and pro-business groups, including the U.S. Chamber of Commerce. In Central America, CAFTA is being promoted mostly by business leaders and pro-trade politicians, and also is supported by most of the region’s major labor unions.
Many experts say failing to ratify CAFTA would slow the drive to create a larger Free Trade Area of the Americas (FTAA), as well as possibly derail broader efforts to increase free trade globally. The FTAA has been held up indefinitely by powerful anti-globalization forces in Latin America, particularly in Brazil, Argentina, and Venezuela, experts say. “A ‘no’ vote [by the United States] will cast a shadow on future [trade] negotiations, both bilateral and regional,” as well as in the World Trade Organization (WTO), says Daniel T. Griswold, director of the Cato Institute’s Center for Trade Policy Studies and a free-trade advocate. “If the Congress can’t stand up to the measly sugar lobby,” he says, “this will raise serious doubts that [the United States] can negotiate anything at the next round of WTO talks” slated for December in Hong Kong.
Weigh in on this issue by emailing CFR.org.
To order Task Force reports, Council Special Reports, and Critical Policy Choices, please call, fax, or order online from our distributor, the Brookings Institution Press: phone +1.800.537.5487, fax +1.410.516.6998.
For information on other reports that are not for sale, or for general publications information, please call +1.212.434.9516 or email publications@cfr.org.
Start-Up Nation addresses the trillion-dollar question: How is it that Israel—a country of 7.1 million, only sixty years old, surrounded by enemies— produces more start-up companies than large, peaceful, and stable nations like Japan, China, India, Korea, Canada, and the UK? With the insights of geopolitical experts and investors, the authors examine this nation’s adversity-driven culture to answer this question and offer prescriptions for a global economy on the rebound.
In Forces of Fortune, Vali Nasr presents a paradigm-changing revelation that will transform the understanding of the Muslim world at large. He reveals that there is a vital but unseen rising force in the Islamic world—a new business-minded middle class—that is building a vibrant new Muslim world economy and that holds the key to winning the cold war against Iran and extremists.
In Cuba: What Everyone Needs to Know, Julia E. Sweig presents a remarkably accessible portrait of Cuba's unique place on the world stage over the past fifty years, including its internal politics, its often fraught relationship with the United States, and its shifting relationship with the global community.
Complete list of CFR Books
The report of this bipartisan Task Force of distinguished leaders and experts represents a strong consensus on the importance of repairing America's immigration policy. It makes the case that maintaining America's political and economic leadership depends on attracting talented and hard-working immigrants, and on securing the country's borders in a smart, effective, and humane way.
This report finds that nuclear weapons will remain a fundamental element of U.S. national security in the near term, and makes recommendations on how to ensure the safety, security, and reliability of the U.S. deterrent nuclear force, prevent nuclear terrorism, and strengthen the nuclear nonproliferation regime.
About Independent Task Forces at CFR
Complete list of Task Force reports
Identifying international threats and acting on them may be the most difficult job for U.S. policymakers. This report
provides an actionable road map for managing international threats before they erupt into crises and makes a strong case that preventive action is not a luxury but a necessity.
For more than a decade, the United States has mostly watched from the sidelines as Asian countries organize themselves into an alphabet soup of new multilateral groups. In this report, the authors review the relationship between pan-Asian and trans-Pacific institutions and suggest policy guidelines for a new U.S. approach to this new Asian landscape.
Complete list of Council Special Reports
To request permission to reprint or reuse CFR material, please fill out this permissions request form (PDF), referring to the instructions on page 1.
Copyright 2009 by the Council on Foreign Relations. All Rights Reserved.