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CAFTA-DR Is Job Killer Just Like NAFTA

The author views CAFTA-DR as a similarly flawed carbon copy of its predecessor, NAFTA.
By George Shuster, Cranston Print Works and AMTAC

For the first time since the passage of NAFTA, the U.S. Congress is just now debating the ramifications of America’s so-called free trade policy in deciding whether to pass the Dominican Republic-Central American Free Trade Agreement (CAFTA-DR). With 3 million manufacturing jobs lost in the past five years, stagnant wage growth and a skyrocketing $617 billion trade deficit, such a debate is long overdue.

CAFTA-DR, like NAFTA, is a continuation of the flawed policy responsible for emasculating many of the wealth-creating sectors of the U.S. economy.

Take the experience of my industry, textile and clothing manufacturing: With Mexican wages a fraction of those paid in the United States, it is unsurprising that U.S. textile and clothing companies raced south under NAFTA’s banner. Combined with a surge in imports from Asia, the results were disastrous. Since 1994, nearly 900,000 U.S. textile and clothing jobs disappeared. In addition, U.S. textile output fell by approximately 26 percent, while manufacturing of clothing dropped by 57 percent.

One would like to think that the U.S. government would have learned from the mistakes of NAFTA. Unfortunately, that is not the case. Today, the U.S. government is pushing CAFTA-DR, a carbon copy of NAFTA’s flawed model of outsourcing high-wage jobs and maximizing imports. In fact, 85 percent of the language in CAFTA-DR is identical to NAFTA. The other 15 percent is worse.

Like NAFTA, the CAFTA-DR model involves the granting of free access to the U.S. market for producers that use low-wage labor and lax environmental standards to undercut U.S. domestic manufacturers.

In return, America gains access to markets worth less than 2 percent of the value of our own.

We only need to look at NAFTA to predict the results of CAFTA-DR. Under NAFTA, the United States has gone from a $1.6 billion surplus with Mexico in 1993 to a stunning $48 billion deficit in 2004. CAFTA-DR promises more of the same. Already promotional groups like ProNicaragua are using CAFTA-DR as a lure to convince U.S. manufacturers to outsource.

As if low wages and lax environmental standards are not enough attraction to outsource, CAFTA-DR is riddled with loopholes that discourage the use of U.S. suppliers by allowing for U.S. duty-free treatment for products assembled with component parts from China, Mexico and other non-CAFTA-DR countries. These provisions are even worse than the NAFTA model that led to the outsourcing of 1.8 million U.S. jobs.

Clearly, a new policy different from the NAFTA/CAFTA-DR model is needed to stop the bleeding of our wealth-creating manufacturing sector. Such a policy should include the following:

First, the United States should only focus on trade agreements with countries like Germany, Britain, France or Italy, which have the ability to purchase substantial amounts of finished U.S. goods.

Second, the United States must insist that all future trade agreements share the benefits only between the contracting parties. CAFTA-DR and other trade deals often include loopholes to benefit third-party countries like China at the expense of U.S. manufacturing.

Third, the United States must tackle its $162 billion trade deficit with China head on. This can only be done by using access to the U.S. market as leverage to persuade China to stop its U.S. job-destroying subsidies, intellectual piracy and other predatory trade practices.

Fourth, Congress must reassert its constitutional authority over trade policy. Instead of embracing this responsibility, Congress has severely diluted it by passing laws designed to place trade policy in the hands of the Executive Branch, a forum where more U.S. jobs are likely to be outsourced, regardless of the party in power.

Fifth, Congress should require an independent study prior to the consideration of all proposed trade legislation. This study should produce a “Trade Deficit Impact Statement.� This would let Congress know in advance whether the proposed trade deal would lessen the trade deficit or make it worse.

Finally, and most importantly, we must reverse the current trade policy by which all the government-imposed conditions of trade are designed to punish U.S. exports relative to imports.

The average U.S. tariff is 1.6 percent, hardly protectionist, but our exports face tariffs that average 40 percent. This distortion is replicated in all the other government-imposed conditions of trade, whether non-tariff barriers, regulations, subsidies, state-sponsorship, currency manipulation, tax policy and so on.

In conclusion, the cumulative impact of our flawed trade policy is devastating. To those who claim that America’s burgeoning trade deficit and mass outsourcing are the “inevitable result of globalization,� I say “no.� It is a wound self-inflicted by Congress and the White House. America can and must fight back. A good start to stopping the bleeding would be to defeat NAFTA’s identical twin: CAFTA-DR.

GEORGE SHUSTER is the CEO of Cranston Print Works of Cranston, RI, and co-chairman of the American Manufacturing Trade Action Coalition (AMTAC). www.amtac.org