Congress should approve free trade with Central America

Guest Columnist

  • Friday, October 3, 2008 3:08am
  • Opinion

There are more than 15,000 good reasons for Congress to approve the Dominican Republic-Central American Free Trade Agreement (DR-CAFTA).

That’s the number of U.S. companies that export to the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua – 90 percent of which are small and medium-sized employers – the backbone of our American economy.

The National Association of Manufacturers (NAM) estimates that DR-CAFTA will generate about $1 billion in new exports and production for U.S. firms while creating some 12,000 new jobs. More significantly, NAM says DR-CAFTA could preserve up to another $4 billion worth of existing U.S. exports that would otherwise be lost to Asia.

Labor unions oppose the agreement and want Congress to kill it. They compare it to the North American Free Trade Agreement (NAFTA) negotiated 11 years ago by President Clinton.

Unions claim the U.S. lost nearly a million jobs due to growing trade deficits with its NAFTA partners and the U.S. trade deficit with Canada and Mexico ballooned to 12 times its pre-NAFTA size, reaching $111 billion in 2004. Finally, they say imports from our NAFTA partners outpaced exports to them by more than $100 billion, displacing American workers in industries as diverse as aircraft, autos, apparel and consumer electronics.

NAM counters that NAFTA isn’t to blame – that in reality, several major factors are responsible, including falling domestic U.S. demand, plunging U.S. global exports of manufactured goods, increased productivity, rising nonproduction costs and increased import penetration outside of NAFTA.

Blaming trade agreements distorts the facts and diverts policymakers from addressing the real problem: U.S. production costs. A 2004 NAM study found external nonproduction costs such as energy prices, taxes, insurance and regulatory costs add approximately 22 percent to unit labor costs of U.S. manufacturers (nearly $5 per hour worked) compared to their major foreign competitors. That increases the price of American goods, making it more difficult for U.S. companies to compete in the global marketplace. Congress could fix the problem by enacting lawsuit abuse reform, a comprehensive energy strategy and regulatory reform.

That issue aside, the U.S. Chamber of Commerce says American workers already export $15.7 billion in U.S. products to Central America and the Dominican Republic – more than we sell to India, Indonesia, and Russia combined. Two-way trade surpassed $33 billion in 2004. The Chamber believes DR-CAFTA will create more than 25,000 new jobs in its first year – and more than 130,000 new jobs over the next decade.

The American Farm Bureau Federation also supports the trade agreement. It says that DR-CAFTA will boost U.S. agricultural exports by $1.5 billion a year. American farmers can expect an upsurge in exports of corn ($55 million), wheat ($55 million), rice ($69 million), soybeans ($18 million), poultry ($144 million), pork ($35 million) and beef ($36 million).

Finally, if opponents want proof that trade agreements pay dividends, they only need to look at U.S. free trade agreements with Chile and Singapore implemented at the beginning of last year. The U.S. Department of Commerce data shows American exports to Chile surged by an amazing 33.5 percent in 2004 and by an additional 46.8 percent in the first quarter of 2005. Meanwhile, the U.S. trade surplus with Singapore tripled in 2004 reaching $4.3 billion.

If that isn’t enough to persuade Congress to support DR-CAFTA, consider this: More than 80 percent of the U.S. trade deficit comes from countries that do not have free trade agreements with our nation. Free trade isn’t the problem – it’s the solution.

Don C. Brunell is president of the Association of Washington Business.

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