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May 2005   tonelson
CAFTA, Trading Down? By Alan Tonelson

Trading down? By Alan Tonelson Published May 18, 2005

Time to face facts. The proposed Central America Free Trade Agreement isn't foundering in Congress because labor unions and sugar and textile interests oppose it. It's foundering because CAFTA confirms U.S. trade policy has degenerated from a driver of economic growth to a sick joke. And the voters Congress listens to are no longer laughing. The claims and promises made on CAFTA's behalf are so flagrantly inaccurate, so internally contradictory and so transparently absurd even its supporters can't possibly take them seriously. But they keep filling congressional testimony and newspaper editorials anyway. For example, CAFTA's champions contend it will create major new export markets for goods and services, and increase U.S. output, employment and wages. Supposedly, this is why the president made it the centerpiece of his trade policy this year. But has the CAFTA lobby looked at the five Central American countries in question and the Dominican Republic lately? Their populations together total about 45 million -- roughly that of California and New Jersey combined. But about half lives below local poverty lines, and few of the rest fare much better. That's why their economies together total only some $85 billion -- about the equivalent of New Haven, Conn. Anyone who believes opening trade with these impoverished mini-markets can boost growth in the $12 trillion U.S. economy must have bought an elevator pass in high school. CAFTA supporters cite impressive regional import figures nonetheless. Yet the CAFTA 6's biggest imports by far aren't consumed in these countries. They consist of fabric and apparel parts sent down from American mills, sewn together in the region, and re-exported to the United States. Such shipments don't serve new foreign markets and thereby increase total demand for U.S.-made goods. They serve the same old U.S. market -- only with super-cheap Central American apparel workers replacing many U.S. counterparts. In other words, the CAFTA 6 aren't mainly markets for real U.S. exports at all. They're sweatshops. And because they are too poor to create genuine two-way exchange, CAFTA isn't really a trade agreement at all. It's an outsourcing agreement. Yes, American consumers will get slightly cheaper clothing. But legions of the working poor in America will lose their best hope for jobs in industries like apparel that pay decent wages. This is a way to raise U.S. living standards? After 15 years of similar trade agreements, no wonder U.S. spending is increasingly financed by massive foreign borrowing, not wages and salaries. Even so, the CAFTA lobby insists, the agreement will help the region, U.S. textile companies, and at least some of their American workers compete with Asian rivals -- whose garments use little American fabric. Unfortunately, such production-sharing arrangements have long been easily foiled by the Asians' willingness to do whatever it takes to protect and even increase market share -- including subsidizing exports and manipulating exchange rates. Nothing about CAFTA will change these practices. Worse, CAFTA's numerous loopholes will allow mountains of Asian fabric and garments into the U.S. anyway, unless Central Americans lower their own wages and other costs even further. Either way, U.S. apparel, textiles and similar imports will continue soaring and these industries' remaining U.S. workers -- often women and minorities -- will move from work to welfare or to much lower-paying service-sector jobs. Only multinational apparel companies and mega-retailers like Wal-Mart will benefit. American farmers, meanwhile, are being told that with lower Central American tariffs, U.S. agricultural exports will surge under CAFTA. Yet even if these markets contained significant purchasing power, many agricultural tariffs will be phased out over 10, 15, and even 20 years. Budget and tax policy promises made in Washington with 20-year payoffs are all but worthless. Why believe similar tariff promises made by foreign governments? Finally, there's the overarching argument CAFTA will increase U.S. net exports to Central America because the CAFTA 6's tariffs overall are much higher than U.S. tariffs. Unfortunately, the CAFTA proponents then turn around and insist the agreement will expand Central America's net exports to the United States, and spur its economic development. Both claims, of course, cannot be true simultaneously. CAFTA supporters have the nerve to dismiss the critics and a skeptical public as protectionists. But Americans clearly will support serious trade policies that deal effectively with the real challenges posed by globalization. So give them a meaningful response to predatory Chinese trade practices. Give them trade deals with regions where consumers can actually afford American-made products. Give them realistic ideas for reducing skyrocketing U.S. trade deficits and resulting international debts, and for strengthening the scores of major domestic industries losing ground to imports. Just don't waste time on thinly disguised outsourcing shams like CAFTA. Alan Tonelson, research fellow with the U.S. Business and Industry Council, is a columnist for Web site and author of "The Race to the Bottom."