Wednesday, July 07, 2004

CAFTA and our discontents

I've been waiting for Project Syndicate to post in English a column by Georgetown professor Manuel Orozco, who posted a comment on this site after the March elections. Noting that "it is unclear whether the new rules will strengthen or weaken Central American producers," he goes on to provide some basic arguments against CAFTA, and points to the development potential of remittances as being a better alternative. It's finally online, and worth a look. A few excerpts:

Under CAFTA, 80% of US exports will be duty-free as soon as the treaty is ratified, and all tariffs will expire in 15 years. Until recently, the region maintained a trade surplus with the US, but with liberalization, the region will increase imports of more affordable goods, thereby turning the surplus into a deficit....

Moreover, trade in agricultural products will benefit US exporters more than Central American farmers. The US, for example, agreed to sugar imports that equal 1% of the total US market. That figure can grow only to 1.4% over the next 15 years.

At the same time, the agreement eliminates most import tariffs for commodities like rice, yellow corn, or dairy products. This will force small and medium producers to become more competitive, but they must do so on an uneven playing field.

Unlike their counterparts in the US, Central American producers lack access to the capital and technology needed for them to expand and innovate. So, instead of improving their competitiveness, the agreement is likely to increase the number of displaced workers and producers. For a glimpse at the future, look at what has happened to Mexican corn farmers since NAFTA.

Central American textiles were also caught in a CAFTA snag. The US textile lobby insisted that knit fabrics exported north come from Central America. The trouble is that Central America relies on third countries for knit fabrics.

Finally, CAFTA fails to address labor issues in any significant way. The agreement only stresses that labor rights are to be respected, highlighting that a party to the agreement "shall not fail to effectively enforce its labor laws, through a sustained or recurring course of action or inaction, in a manner affecting trade between the Parties." In a region with weak enforcement and few mechanisms for redress, protection restricted to prevailing labor standards amounts to no protection at all.

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