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August 02, 2005

Call it Mouse-FTA
Posted by Heather Hurlburt

Isn't anybody going to call the Bush Administration on its claim that CAFTA marks "a major success?"

The six CAFTA countries (Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua) together make up the US's 13th-largest export market, absorbing $15 billion of US exports annually.  (The booster website comes up with the marvelous stat that this is more than the US exports to Russia, Indonesia and India combined -- a great example of totally irrelevant demonstration of addition skills.)  Nice, but not exactly earth-shattering.

OK, what's the potential for growth?  Their combined GDP comes in at less than half of Argentina's, one-sixth of Brazil's, and less than one-tenth of India's -- to name a few other places where we don't yet have free trade agreements.  So again, let's rein in our enthusiasm.

And what about the national security argument that President Bush apparently used to peel off enough Republican doubters?  Well, almost 80 percent of the region's products were already being admitted to the US under other trade preference systems.  So we may all hope (except the garment and sugar industries...) that the final 20 percent drives an export boom that lifts Nicaragua, for example, out of its competition with Haiti for poorest country in the hemisphere.  But I, for one, will not be holding my breath.

The truth is, and it would be nice to see someone other than Michael Barone point this out, that CAFTA was an important win for President Bush because he needed a win, NOT because of its earth-shattering impact on US and Central American economies.  Likewise, a loss for CAFTA might have put a final end to Administration hopes of driving through the becalmed Free Trade Area of the Americas on its watch.  Or reviving the current round of WTO talks -- where possible tariff reductions in areas such as agriculture could happen on a large enough scale to make a significant difference for US producers (some for the better and some for the worse) and for the developing-country producers we claim to want to help politically (e.g. Africa and South Asia.)

It might also be pointed out that Administration strong-arm tactics both in negotiating and ratifying this agreement may have done as much to harm as to help the cause of free trade.  But to know that, you'd have to ask the Brazilians, the Argentines, the Indians...

**Update -- Ed Gresser of the Progressive Policy Institute suggests that this 80% figure is unreliable and likely an overstatement.  He adds, "the CAFTA countries weren't getting off as easy as many people think."  Point taken.

Ed's own case for CAFTA predicts "modest" trade benefits and describes the agreement as part of the foundation for a wider hemispheric strategy for the next Administration.  I give Ed credit for honesty and creative thinking, both of which are in short supply.  He is always worth reading.  But I counter that part of the strategy for maintaining a good open trade policy is showing that you can create a discriminating open trade policy.


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