TOPICS > Economy

The Battle Over CAFTA

July 27, 2005 at 12:00 AM EDT


RAY SUAREZ: Hours before a hotly contested vote, President Bush went to Capitol Hill today to urge fellow Republicans to pass the Central American Free Trade agreement, or CAFTA. After meeting with the president, House Majority Leader Tom DeLay was optimistic about CAFTA’s passage.

REP. TOM DE LAY: We will pass CAFTA tonight. It will be a tough vote, but we will pass CAFTA tonight. We will honor our commitments to our neighbors to the south. We will protect our national security and we will do it all with very few Democrats on board.

RAY SUAREZ: The controversial trade deal involves five Central American countries: Honduras, Nicaragua, El Salvador, Costa Rica, Guatemala and the Caribbean nation of the Dominican Republic. The six represent a relatively small percentage of American trade.

CAFTA would remove or reduce tariffs on consumer industrial and agricultural goods, lift restrictions on investment, guarantee the protection of intellectual property, and require that all member states uphold their national labor laws. Most Democrats, including Javier Becerra of California oppose CAFTA.

REP. JAVIER BECERRA: I’ve been a very strong supporter of trade agreements in my 13 years in Congress, but this is an agreement that just opens the flood gates. This is giving license to those who are willing to compete against us on unfair terms and then sell us those same goods. It’s bad for American workers and it’s bad for American small business because there’s no way we can compete against industries that are paying 60 cents an hour.

RAY SUAREZ: The Senate approved CAFTA last month in a 54-45 vote that was largely along party lines. The House is expected to begin debate on the agreement later tonight.

RAY SUAREZ: Now, the case for and against the passage of CAFTA from two interest groups, which have been actively involved in this fight. John Murphy is vice president of western hemisphere affairs at the U.S. Chamber of Commerce, and Lori Wallach is the director of Public Citizen’s Global Trade Watch.

John Murphy, why do you support the Central American Free Trade Act?

JOHN MURPHY: Well, first two reasons, Ray. First of all, we already have free trade with Central America, but it’s one way: coming in. About 20 years ago, the Congress voted with nearly 400 votes in the House of Representatives to eliminate most tariffs on imports from Central America and the Dominican Republic. That’s why today 99 percent of foreign goods come in duty-free from these countries and 80 percent of manufactured goods. By contrast when American companies are selling into this large and growing market, we face tariffs that are in the 7-11 percent range. That’s like going into a basketball game 11 points down from the tip-off.

The second main reason why we’re strongly advocating this agreement is because it’s a helping hand to some emerging democracies that are some of our closest neighbors, our staunchest allies, and our best economic partners. Remember the last time that Washington debated Central America; it was in the ’80s when wars were raging in the region. They’ve come a long way. CAFTA will help them generate jobs and growth so that they can stay on the right path.

RAY SUAREZ: Lori Wallach, why are you against the passage of the Central American Free Trade Act?

LORI WALLACH: CAFTA would expand NAFTA, the North American Free Trade Agreement, to six more countries, and the broad-based public opposition to CAFTA in Central America and in the U.S. is based on the actual track record of NAFTA because CAFTA is NAFTA expansion. It’s the same model. We can predict the results.

For instance, in the United States during the decade of NAFTA, we saw one in six U.S. manufacturing jobs disappear. We saw our trade deficit skyrocket. We had a surplus with Mexico until the NAFTA agreement. Then we had a large deficit. We also saw real wages for U.S. workers pressed down by competing with very low-wage workers who weren’t given proper labor rights in Mexico. And in Mexico, after ten years of NAFTA, 1.5 million campesino peasant farmers were displaced with their livelihoods destroyed. First they went to the border industrial zone, pushed wages down there 20 percent. Undocumented immigration increased with many people dying in the desert on their way across. Generally there was growing economic and social instability in Mexico as a result of this economic disruption.

And so we say we’ve seen the data, we’ve seen how this model works. Why would we try to expand this failure to more countries? It would be against the economic and national security interests of the U.S., but also stopping this proposal, which is pushed by a large pack of corporations against the public interests in many countries, would send a sign to our neighbors in Central America that we’re not going to abandon their hopes for a better future to corporate greed. We want to trade with them, but not under these rules of the failed NAFTA.

RAY SUAREZ: John Murphy, how do you respond to that: This is just a larger NAFTA and NAFTA hasn’t worked according to Lori Wallach?

JOHN MURPHY: Well, if you look at the record of the past 11 years under NAFTA, we’ve seen 21 million jobs created in this country; we’ve seen unemployment fall to 5.0 percent today, which is lower than it’s been in decades. We’ve seen manufacturing output in this country grow by 44 percent. We’ve seen real hourly compensation for workers in this country grow by 15 percent. That’s a pretty good track record. And if you look at Mexico half of the job creation in that country has come from NAFTA and from exports. And those jobs actually pay 40 percent above the average in that country.

But CAFTA, when you look at it, you can see that we’re starting from a different starting point. As I said earlier, our market is open. This market that we’re talking about here, Central America and the Dominican Republic, is relatively closed. This is a chance to level the playing field once and for all for American workers, while helping some of our closest neighbors.

RAY SUAREZ: Well, Lori Wallach, John Murphy makes the point that a lot of the things that we’re talking about already are crossing borders duty free, and that these are small partners to begin with and all the effect of CAFTA is, is to open up the other side of hopefully the two-way street to get American goods more effectively into those markets.

LORI WALLACH: Oh, that it were so. In fact, I have in front of me the CAFTA. It’s a thousand pages of international law; literally about 40 pages of it has to do with trade proper. And if all that CAFTA contained was to try and create parity between the tariff treatment between the U.S. and the Central American countries, I doubt that you would see much opposition either in Central America or the Dominican Republic or in the U.S.

Rather, it’s the other provisions, the provisions that, for instance, in Central America would expand the power of big Pharma — of the pharmaceutical companies to limit the production of generic drugs and raise the prices of essential medicines for poor people. Or, it’s the rules on foreign investor protections that provide new special rights for foreign investors when they operate inside one’s country.

It allows, for instance, for a foreign investor to have rights not under the U.S. Constitution and not to go to our courts to decide how they ought to be treated when they’re operating in the U.S., But rather to have international property rights superior to the U.S. business next to them and to be able to sue the U.S. for damages for violating their CAFTA foreign investor rights in U.N. and World Bank tribunals where our tax dollars would be decided.

Under NAFTA a whole string of zoning, health, and environmental laws have been ruled against under those provisions. And there’s a whole set of other non-trade issues.

RAY SUAREZ: So, John Murphy, this is not just a free trade agreement. Talk about those other provisions that involve things like the ability of American pharmaceutical giants to have an impact on the prices charged in Guatemala for various drugs.

JOHN MURPHY: Ray, in the last days of this campaign to see CAFTA approved we’ve heard a lot of curious charges. We’ve heard that it will put dentists in North Carolina out of work. We’ve heard Americans won’t be able to buy dietary supplements in their health food stores. A lot of these things are simply not true.

When we look at the pharmaceutical provisions, for instance, the CAFTA text is absolutely explicit that nothing in the agreement will impede the Central Americans’ access to generic drugs or to the life-saving HIV/AIDS medications that are an important part of —

RAY SUAREZ: So what do those provisions say then? If they don’t say what Lori Wallach just submitted they say, what are they in there for?

JOHN MURPHY: There are provisions for intellectual property that shore up in the same way that our patent and trademark laws do in this country intellectual property rights. See, intellectual property is the lifeblood of the modern economy. And by the same token, the service economy, which is two-thirds of our economy, has to be addressed in a trade agreement these days. Services, exports, are a booming part of our trade. So a modern free trade agreement needs to go beyond just talking about tariffs.

RAY SUAREZ: How do you respond to that?

LORI WALLACH: Well, it depends what rules you have. For instance you have all the generic manufacturers in the Central American countries but, more importantly, Doctors Without Borders, Oxfam, the Central American Council of Churches. Calling this agreement immoral, many of these groups calling it for to be opposed by the U.S. Congress explicitly because in fact it would impose on these poor Central American countries new monopoly rights that, number one, don’t exist in their law but that, two, go beyond even what’s in U.S. law, and the particular trick that’s in that area is a rule that keeps the data that you need to get marketing approval for a drug to get it on the market, a pharmaceutical, let’s say, generic; to get access to that information as a generic producer, under this agreement, you’d have the permission of the original brand name drug holder who is not going to give you the information so you can compete. That one’s not an open question.

On the services area, for instance, as far as causing national security problems or instability in Central America, what John is calling a “new service opportunity” is commitments that the Central American countries were pushed to make to privatize their drinking water systems or their health care systems, their transport, their electricity.

In Costa Rica, the telecommunications system that made that country one of the few in the whole hemisphere that guaranteed access to consumers, not just to telephones but to the Internet, that’s to be privatized now. Why is that in trade agreement? That’s a democracy issue. The people living in those countries should decide. If we want to have friends in our hemisphere, imposing a model that’s already not been seen to work on them is not the way to go.

JOHN MURPHY: There’s nothing in this agreement that obligates countries to privatize their public services. Look, there’s a lot of angst in this country right now about trade and issues generally, for instance, about the trade deficit, about China. We’re optimistic that we’re seeing movement towards support of this agreement in the Congress because the facts are coming out about those issues.

The trade deficit, for instance, CAFTA according to the U.S. International Trade Commission will cut our trade deficit by three quarters of a billion dollars. On China, we see that CAFTA will help us to compete against Chinese manufacturers.

For instance, apparel, when you import a shirt from China, it has less than 1 percent U.S. content. When you import a shirt from Central America, it has about 70 percent U.S. content. That shows that we already have an economic partnership with these countries, where cotton growers in our country, fabric makers in this country, partner with apparel operations in Central America to be more competitive globally.

RAY SUAREZ: Well, the debate continues tonight in the House of Representatives. Guests, thank you very much.

LORI WALLACH: Thank you.

JOHN MURPHY: Thank you.