‘CAFTA Goes Beyond Mere Free Trade Deal,’ Argues Zoellick

by Leroy Baker, Tax-News.com, New York

19 May 2005

In remarks delivered to the Heritage Foundation on Monday, US Deputy Secretary of State Robert B. Zoellick argued that the Central American Free Trade Agreement (CAFTA) is key to the development of democracy, poverty reduction and free enterprise in Central America.

Against a background of opposition from many US lawmakers, business interests and labor unions worried that CAFTA will result in business failures and job losses, Zoellick urged American naysayers to see beyond their own narrow interests and take into account the wider long-term benefits that the trade deal will bring to all nations concerned.

"First, and most fundamentally, CAFTA means economic growth. When a middle class develops and people have a larger economic stake in their society, they demand more of a say in how that society is run. This is profoundly important to the region’s democratic success," Zoellick observed.

Under CAFTA, 80% of U.S. exports of consumer and industrial goods will become duty-free in Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua, and the Dominican Republic, immediately, with remaining tariffs phased out over 10 years.

Key US export sectors will benefit from immediate duty elimination, such as information technology products, agricultural and construction equipment, paper products, pharmaceuticals, and medical and scientific equipment. Tariffs on US autos and auto parts will be phased out within 5 years.

Zoellick went on to add:

"Trade is a vital instrument in the toolbox of transformational diplomacy. CAFTA will encourage the investment of new capital, both foreign and domestic. Improved protection for intellectual property will encourage new creative industries and access to life-saving medicines, as we have already seen in other FTA partners, from Jordan to Singapore.

"CAFTA’s provisions will encourage competitive and modern services industries, which supply the infrastructure of development for telecommunications, financial, distribution, express delivery, or energy services. Without these service networks, countries will have a difficult time integrating into a world of global sourcing, investment, transportation, and information flows.

"CAFTA will promote equality of opportunity in economies long dominated by economic elites. For centuries Central American society has been highly stratified, with a few powerful families controlling the vast majority of economic activity. CAFTA will create opportunities for people from all walks of life. Dealer protection laws, which for decades gave exclusive rights to distribute products to a select few, will be eliminated. Trade capacity-building assistance will be targeted at helping small entrepreneurs to build businesses. Tariffs protecting companies controlled by a small number of powerful families will be swept away.

"CAFTA goes beyond cutting tariffs to require broad changes in the way economies and polities operate, challenging those who have grown corrupt and complacent in captive, uncompetitive markets. The agreement requires fair and open rules in customs administration, government procurement, and services regulation. It criminalizes bribery, casts sunlight on procedures long hidden from public scrutiny, and strengthens the rule of law. Under CAFTA economies will be based on rules, not corrupt relationships.

"Ironically, if economic isolationists torpedo CAFTA over issues such as labor rights, apparel production and other similar industries will move to China. This highlights the inherent contradiction in the position of CAFTA’s opponents. They claim to be concerned about worker rights, yet seem to ignore the devastation for workers that would result from defeating the agreement.

"If CAFTA is voted down, the region's poor will not improve their lot; instead investment will be diverted elsewhere, Central America and the Dominican Republic will grow more slowly, wages will be lower, and a door to upward mobility for the region's poor will be slammed in their face."

Recommended