Bridges Weekly Trade News Digest • Volume 9 • Number 28 • 3rd August 2005
CAFTA-DR Narrowly Wins House Vote, Signed Into Law
The Central America Free Trade Agreement-Dominican Republic (CAFTA-DR) was signed into law by US President George W. Bush on 2 August. The signature concludes months of intense lobbying and a narrow 217 to 215 vote of approval in the US House of Representatives on 28 June. The Bush Administration sees the passage of CAFTA-DR as a much-needed political victory in its pursuit of further trade pacts.
CAFTA-DR locks in and expands existing preferential duty-free access to US markets for Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. The agreement also eliminates tariffs on most US exports to those Central American countries.
Last minute deal secures House approval
Before CAFTA-DR could receive presidential approval, the controversial agreement first had to win the support of the House of Representatives. Throughout the months of lobbying and horse-trading, the Bush Administration had offered many concessions, such as promising to limit sugar imports until the end of 2007, in hopes of garnering support for the deal. On 27 July, Bush and Vice President Dick Cheney made a rare joint visit to the Capitol to lobby for the bill. During the unusually long voting session, House leaders continued to attempt to persuade several of their fellow Republicans to support the agreement.
In the early morning hours of 28 June, Representative Robin Hayes (Republican-North Carolina) switched his vote, thereby securing the agreement’s passage CAFTA-DR. For weeks, Hayes — whose district has lost thousands of textiles jobs over the last four years — had staunchly opposed the bill. He changed his vote after House Speaker Dennis Hastert (R - Illinois) promised to support whatever measures Hayes thought were necessary to protect textile jobs from the recent growth in imports from China.
The accord is expected to have a modest impact on the US economy. US exports in goods and services to CAFTA-DR countries account for only USD 15 billion of the country’s USD 1 trillion worth of exports. The agriculture sector is expected to benefit as the pact is estimated to boost US farm exports to the region by USD 1.5 billion annually.
Beyond the economic gains, supporters touted the agreement as a means of promoting security in Central America. "CAFTA-DR is more than a trade bill — it is a commitment among freedom-loving nations to advance peace and prosperity throughout the region. By strengthening the democracies in the region, [this agreement] will enhance our nation’s security," Bush said at a White House signing ceremony.
Central American leaders embrace US approval, but others worry
Leaders of the Central American nations welcomed the news, saying the pact will bring more foreign investment and much-needed jobs to the region. Tony Saca, El Salvador’s president and an outspoken supporter of CAFTA-DR, said "we woke up today with the certainty of a free trade agreement that has been a dream for the country for many years."
Central American governments hope to emulate what they see as a positive Mexican experience with the North American Free Trade Agreement (NAFTA), that country’s 1994 comprehensive trade and investment pact with the US and Canada. NAFTA boosted investment in Mexico and diversified the country’s market and economy. However, the Washington-based Carnegie Endowment for International Peace argues that NAFTA created a "disappointingly small net gain" of jobs in Mexico. A study conducted by the think tank noted the agriculture sector experienced a sharp decline in employment.
Similar concerns exist among Central American agriculture producers, who fear the elimination of tariffs on US exports will create a flood of new imports, driving small-scale rice, bean and corn farmers out of business. Farmers also worry that they will not be able to compete against heavily subsidised US agriculture goods. To address these concerns, CAFTA-DR exempts several sensitive crops — such white corn and Costa Rican potatoes and onions — from liberalisation commitments. It also permits extended implementation periods of up to 20 years for some goods, such as diary products.
Prior to the vote in the House, international charity group Oxfam urged the lawmakers to oppose the trade agreement. In addition to agriculture-related concerns, the organisation argued that CAFTA-DR would reduce the availability of generic medicines. The international medical humanitarian organisation Médecins Sans Frontières contends the accord goes beyond TRIPS agreed standards by extending data protection for clinical trials — which generic drug makers conduct to prove that their products are safe as well as biologically equivalent to the brand-name originals — for an additional five years once a drug is registered in a new country.
Oxfam trade policy advisor Stephanie Weinberg said the pact will have "serious repercussions for those who are already disadvantaged in these highly unequal societies where most of the poor live in rural areas, rely on income from agriculture, and must pay for medicines out-of-pocket."
Trade pact will enter into force for four countries
El Salvador, Guatemala and Honduras have already approved CAFTA-DR legislation. The agreement will go into effect as soon as they agree on a date with the US. Costa Rica, Nicaragua and the Dominican Republic still have two years to approve the accord, though the agreement has been held up in the Dominican Republic by concerns it may hurt the sugar industry.
The biggest hurdle, however, may be Costa Rica, where President Abel Pacheco hopes to pass fiscal reform packages before addressing the trade deal. In response to the US vote, Pacheco stated "we Costa Ricans have a reputation for taking things slowly, and this has worked for us down through history."
US can now shift its focus to Doha negotiations
The success of CAFTA-DR was an important victory for US trade policy. US Trade Representative Rob Portman stated the passage of CAFTA-DR "sends a powerful signal to the region and the world that the United States will continue to lead in opening markets and levelling the playing field." A vote against CAFTA-DR would have made it more difficult for the administration to negotiate and gain Congressional approval for future agreements. The US has concluded trade negotiations with Bahrain and FTA talks continue with Thailand, Panama, the Andean countries and South Africa.
The conclusion of CAFTA-DR allows the US to shift its attention to the sluggish Doha negotiations at the WTO. Trade analysts have suggested that the US’ distraction with CAFTA-DR has contributed to the slow progress of the talks. Portman, who flew to Geneva immediately following the House vote, attended the 29 July General Council meeting "to take stock of where we go from here." Regarding CAFTA-DR, Portman said it provided "a little more momentum on the American side to be able to knock down barriers to trade globally through the Doha Round."
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