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Article Published: Thursday, July 28, 2005 - 10:02:55 PM PST

CAFTA boost not expected
Experts predict little impact in Inland Empire
By Brenda Gazzar
Staff Writer

After passing Congress on Thursday, the Dominican Republic-Central American Free Trade Agreement is not expected to have much impact on the Inland Empire or on most Southern California industries.
After passionate debate and disagreement on its benefit to the nations on both sides, the agreement squeaked by the House of Representatives with a vote of 217-215, with most Republicans voting in favor and most Democrats opposed.

The agreement now moves on to the White House for the president's OK.

"The problem you have with this sort of thing is the pain is specific, but the benefits are general," said John Husing, an Inland Empire economist. "If I happen to be in a state or industry that competes head on with what's done in these little countries, I will be hurt by it. The beneficiaries will be consumers as a whole who will see slightly lower prices in America."

But the five Central American countries involved in the treaty - Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua - are small, and general impacts are not expected to be significant in the short-term.

Most of the impact will be in places that have agricultural commodities that directly compete with these Central American countries, such as in the Southeast, Husing said.

"To a very, very small extent, bananas will be cheaper (in America), something along those lines," he said.

The treaty will make 80 percent of U.S. exports of consumer and industrial goods duty-free in Central America and the Dominican Republic immediately, with remaining tariffs phased out during the next decade. More than half of current U.S. farm exports to these countries, including cotton and wheat, will also become duty-free.

In addition, apparel made in garment factories in Central America and the Dominican Republic will be duty-free and quota-free if they use U.S. or regional fabric and yarn.

Inland Empire businesses are more focused on Asia than on Central America, and distribution centers here generally process goods coming in from Asia, said Jack Kyser, chief economist of the Los Angeles County Economic Development Corp.

But in Los Angeles County, a finalized agreement could have advantages for the U.S.-based clothing and entertainment industries in the long run, Kyser said.

Some Los Angeles apparel firms, for example, might decide to do more production in Central America - where it's easier to move materials and finished products back and forth, and to monitor operations - rather than in Asia. In recent years, China has become a popular site for apparel manufacturing companies to do business.

"It will be something we'll have to watch over for a period of time," Kyser said. "It's not going to be changing the world overnight."

The treaty's impact on the nation was hotly contested Wednesday evening in the House of Representatives.

Rep. Joe Baca, D-San Bernardino, opposed the treaty, arguing that it would cause job losses and increase the gap between the wealthy and the poor.

"When NAFTA (North American Free Trade Agreement) was passed, many believed it would lead to higher wages and economic development in the U.S., Mexico and Canada and less illegal immigration. These hopes turned out to be false," he said in a prepared statement.

But Rep. David Dreier, R-Glendora, argued that the treaty will give Central Americans economic incentives to stay in their country rather than migrate to America.

"We simply cannot ignore the fact that the strength of democratic and free-market institutions throughout the globe, particularly in our own back yard, directly impacts our own security," said Dreier, who is also chairman of the powerful House Rules Committee, in a prepared statement.

The treaty, which was strongly endorsed by President Bush, still requires approval from three of the countries involved.

Brenda Gazzar can be reached by e-mail at brenda.gazzar@dailybulletin.com or by phone at (909) 483-9355.