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CAFTA friends, foes state their case on free trade deal
Central America pact goes to House after OK by Senate

David Armstrong, Chronicle Staff Writer

Sunday, July 3, 2005

Workers at the Confecciones Internacionales Manufacture i... Sen Dianne Feinstein, D-Calif., voted for the Central Ame... Sen. Barbara Boxer, California's other Democratic senator... Persuing free trade in Central America. Associated Press ...


A decade ago, after bitter debate, the North American Free Trade Agreement among the United States, Canada and Mexico passed Congress, aided mightily by a Democratic president who supported a march toward ratification that began under his predecessor, George H.W. Bush.

Today, with another George Bush in the White House and mounting public and congressional unease over outsourcing, offshoring and free trade itself, another free trade agreement is on the table.

On Thursday, the Senate approved, by a 54-45 vote, the Dominican Republic- Central American Free Trade Agreement, or CAFTA, a trade liberalization pact among the United States and six other countries that would slash tariffs and streamline business laws.

The controversial deal can be approved or rejected but not amended by Congress. The House will consider the pact shortly after Congress returns from its holiday break on July 11.

California's Democratic senators split on CAFTA, with Dianne Feinstein voting yes and Barbara Boxer opposed.

The House vote is expected to be very close and contentious. Congressional observers expect it to cleave largely along party lines, with Minority Leader Nancy Pelosi, D-San Francisco, energizing the opposition.

All seven nations must ratify the pact. So far, El Salvador, Guatemala and Honduras have approved it. It will also go before the legislatures of Costa Rica, the Dominican Republic and Nicaragua, where it is expected to pass.

The toughest fight is expected to be in this country, where defeat in the House is possible.

Should CAFTA go down, it would be Bush's first defeat on trade policy. It would also slow the administration's fast-track approach to free trade and perhaps signal to international trading partners that a weakened president cannot deliver on his ambitious trade agenda.

At home, CAFTA is simultaneously serving as a lightning rod for critics of globalization -- with which free trade is often wrongly equated -- and a rallying point for free traders.

Globalization takes place with or without formal free-trade agreements. But trade pacts like CAFTA offer concrete deadlines and codified details of an often-amorphous globalization process that can be difficult to grasp. While free trade did not create globalization, major trade pacts do help to set the pace.

In strictly monetary terms, CAFTA is a modest affair. The United States exports $15 billion in goods and services yearly to the CAFTA countries despite fairly high tariffs on U.S. goods, making the CAFTA region this country's 10th-largest export market. The CAFTA countries export $18 billion a year to the United States, 80 percent of which is duty-free, thanks to prior, smaller agreements.

All this pales next to the $1 billion a day in trade between the United States and Canada, partners in the 1994 North American Free Trade Agreement with Mexico. CAFTA would be a smaller regional counterpart of the three-nation NAFTA. (Canada and Mexico would remain outside CAFTA.)

But while CAFTA is small economically, it is big symbolically. Friends and foes see it as a stepping-stone to a proposed, U.S.-backed Free Trade Area of the Americas, which would unite the hemisphere (sans Cuba) in a giant trading bloc, and as a rehearsal for this year's meeting of the World Trade Organization, where many contentious trade issues are certain to come up.

American trade watchers also see a CAFTA zone as a buffer for the United States and Central American nations -- most of which host apparel-making industries -- against China, whose low-cost clothing has flooded world markets since international quotas expired Jan. 1.

CAFTA would tie Central America and the Dominican Republic to the United States both economically and politically and would help keep costs down for U. S. retailers and Latin American garmentmakers, though whether those costs would be low enough is debatable.

"CAFTA is a minor deal," said Clyde Prestowitz, author of the new book "Three Billion New Capitalists: The Great Shift of Wealth and Power to the East."

"A country like Honduras needs to rise from grinding poverty," Prestowitz said. "But will it (CAFTA) be enough to raise wages there while keeping costs low, and can Honduras compete with China? I doubt it."

Most U.S. businesses, especially clothing retailers, high-technology companies, ocean shippers and agricultural interests (except sugar producers, who fear competition from cheap imported sugar), urge passage of CAFTA.

Almond growers back pact

California's Blue Diamond Growers, a consortium of almond growers, "is strongly supportive of CAFTA," said Susan Breuner, director of public affairs.

California grows 85 percent of the world's almonds and exports 70 percent of the annual harvest, she said, noting that almonds are the state's largest agricultural export.

Blue Diamond sells less than $1 million in almonds annually to the CAFTA countries, which impose an average 10 percent tariff on U.S. almonds, Breuner said.

That could grow to $5 million if the barriers come down -- still a tiny fraction of Blue Diamond's $2 billion in annual worldwide sales, but growth, nonetheless, and movement in what free traders see as the right direction.

San Francisco's Wine Institute, which represents many state and U.S. wineries, also backs CAFTA, said Joe Rollo, international director. The CAFTA region, which bought $3 million in U.S. wine last year, could buy more with the elimination of tariffs, which average a hefty 30 to 40 percent. He noted that the CAFTA countries already have signed separate free-trade agreements with the European Union and Chile, both major wine producers.

"So, if we don't, we are at a disadvantage," Rollo said.

Valleys back CAFTA

Silicon Valley lines up with Napa Valley and the Central Valley to support CAFTA, according to the Information Technology Industry Council, which includes Oracle, Hewlett-Packard, Apple and Cisco Systems.

High-tech firms would save $75 million per year with the elimination of Central American tariffs, which range as high as 30 percent on tech items, said the organization's president, Rhett Dawson.

High tech would also benefit from stronger protection of intellectual property and the elimination of local dealer protection networks, which limit direct distribution of high-tech goods by foreign manufacturers, Dawson said.

Critics of the trade deal paint a very different picture.

CAFTA, they say, would ravage the environment, make it easier for powerful, U.S.-based multinational corporations to exploit low-paid foreign workers and give unfair advantages to investors who could use it to trump national and state laws.

Free-trade foes say that NAFTA, the model for CAFTA, is a bad precedent.

They cite Canadian mining company Glamis Gold, which has sued the United States for $50 million under NAFTA Chapter 11, claiming that California's attempts to rein in open-pit mining are an unfair restraint of trade. CAFTA's Chapter 10, they say, replicates NAFTA's loopholes.

"People have trouble believing that foreign interests can challenge California and second-guess California's environmental rules and regulations," said Jesse Colorado Swanhuyser, director of the California Coalition for Fair Trade and Human Rights. "But they can."

As critics of free-trade pacts see it, overriding the laws of elected governments by unelected trade courts spurred on by foreign corporations erodes sovereignty and undermines democracy.

There is also some grassroots opposition to CAFTA in Central America.

Jose Andres Tomayo, a politically engaged Catholic priest from rural Honduras, said multinational corporations have already created havoc in his country through logging, some of it illegal, that has destroyed tropical rain forests, lowered the water table and made life harder for subsistence farmers. CAFTA would make matters worse, he said.

During a recent visit to San Francisco sponsored by CAFTA opponents, among them the Sierra Club and Friends of the Earth, Tomayo said that it is hard to know which CAFTA sections are worst. "CAFTA has not revealed its rules. It has been a secret agreement," he said.

Text available online

In fact, the full text of the pact is posted, in both English and Spanish, on the U.S. trade representative's Web site: www.ustr.gov.

Nevertheless, critics contend the deal-making that produced the pact was undemocratic. "Negotiations did not include meaningful input from any of the most impacted communities: workers, conservationists, family farm interests, and immigrant and human rights promoters," Swanhuyser said.

This failure to consult the grass roots, CAFTA critics say, will accelerate environmental damage and agricultural imbalances already seen in Mexico under NAFTA.

The Sierra Club cites a recent study done for the Carnegie Endowment for International Peace concluding that cheap imports from huge U.S. factory farms have forced some small farmers in Mexico off their land and deepened poverty in already dirt-poor regions.

Additionally, U.S. organized labor blasts NAFTA for supposedly contributing to a loss of American jobs to Mexico, where environmental laws are lax and workers have scant protection.

Unions are opposed

"Clearly, the last thing we need is another misguided trade agreement like CAFTA that will only speed the loss of good jobs at home and exacerbate inequity in Central America and the Dominican Republic," AFL-CIO President John Sweeney said.

Critics' positions were bolstered Wednesday when the U.S. Department of Labor admitted it had delayed the public release of American studies critical of labor practices in Central America for a year.

However, companies already engaged in commerce with Central America and the Dominican Republic are eager to see CAFTA become law.

At Crowley Maritime Corp., founded in San Francisco and now headquartered in Jacksonville, Fla., chief lobbyist Mike Roberts said the company, which ships containers from ports on the Gulf of Mexico, expects more business should CAFTA pass.

It already draws about one-third of its revenue from the Caribbean and Central America, he said.

Beyond the boost in business, Roberts said, passing CAFTA would have broader, more important meaning: "It would provide a level of certainty, so investment can continue," he said, helping to lift the region from poverty.
Pursuing free trade in Central America

With the Central American Free Trade Agreement before Congress, supporters say the deal will open CAFTA countries to U.S. exports and help lift the region out of poverty. Opponents say the pact would ravage the environment, cost U.S. jobs and allow U.S. corporations to exploit Central American workers.

E-mail David Armstrong at davidarmstrong@sfchronicle.com.