[Mb-civic] CAFTA Falls Short on Economic Arguments By Mark Weisbrot

[Michael Butler]

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    CAFTA Falls Short on Economic Arguments
    By Mark Weisbrot
    The Center for Economic Policy Research

    Saturday 16 April 2005

    The proposed Central America Free Trade Agreement (CAFTA) is generating
a political battle over foreign commercial policy that we haven't seen since
NAFTA (the North American Free Trade Agreement) was passed more than a
decade ago.

    As with NAFTA, there is widespread misunderstanding of the economic
issues involved. First there is the label "free trade," which is not an
actual description of these accords but a marketing slogan, like "Lose the
carbs ... not the taste" or McDonalds' "I'm loving it."

    In reality, CAFTA will increase some barriers to trade while lowering
others. One of the barriers it increases is on patented pharmaceutical
drugs. This is the most costly form of protectionism in the world today.

    The benefits from free trade in these goods are much appreciated by the
millions of Americans who cross the Canadian or Mexican border to get their
prescription drugs. But CAFTA will make it more difficult for countries like
Guatemala to get access to affordable medicines - even for life-saving drugs
like those needed to treat people with HIV/AIDS.

    Here in the United States, labor unions and those who care about working
people have made much of the loss of jobs, particularly in manufacturing,
that NAFTA and the WTO have caused and that CAFTA would presumably continue.
But the much bigger impact for most Americans is on wages.

    Over the last 30 years the typical (median) wage in the United States
has hardly grown - only about 9 percent. Productivity - output per employee
- has grown by 82 percent over the same period. Normally we would expect
wages and salaries to grow with productivity. These trade agreements have
helped keep wages from growing here, by increasing competition with workers
making 60 cents per hour and by making it easier for employers to threaten
to move when workers demand their share of rising productivity. The result
is that our society is becoming increasingly divided into the "two Americas"
that Senator John Edwards made his campaign theme last year in the
Democratic presidential primaries.

    The Bush administration has appealed to farmers in the U.S., saying that
CAFTA will help them by opening up foreign markets to their products. But
this argument makes no economic sense: U.S. farmers can sell all the corn
they want at the world market price; the only way that opening foreign
markets can help them is if it raises the world price. Markets in CAFTA
countries - five Central American countries plus the Dominican Republic -
are too small to affect world prices.

    In Washington policy circles, CAFTA is being sold as a boost to economic
development for our neighbors to the South. But we have now had 25 years of
experience with this kind of economic integration, and the results are in:
income per person in Latin America has grown by a meager 12 percent since
1980, as compared to 80 percent the prior 20 years (1960-79). By any
economic measure, these reforms - including NAFTA - have failed.

    CAFTA countries are being promised access to a growing U.S. import
market, but this is about to be reversed. Our trade deficit is now so big
that it cannot be sustained even at its present level. Over the next decade,
the dollar will fall further and our trade deficit will shrink. Measured in
non-dollar currencies, the value of U.S. imports is expected to decline over
the next decade. This means that CAFTA countries are making costly
concessions for a prize that most likely won't be there.

    In sum, the economic arguments for CAFTA just don't hold water. No
wonder its proponents rely on slogans, repetition, and millions of dollars
of lobbying money to make their case.