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Notebook Money


Trade winds

CAFTA faces an uphill battle on Capitol Hill despite its benefits to the U.S.

With one vote, members of Congress could help alleviate extreme poverty in Central America, open up export markets for U.S. companies, and perhaps even reduce illegal immigration to the United States.

That would be the likely outcome of passage of the Central American Free Trade Agreement (CAFTA), a trade deal that the Bush administration negotiated with Costa Rica, El Salvador, the Dominican Republic, Guatemala, Honduras, and Nicaragua.

But as Congress debated the measure last week, it looked increasing likely that it wouldn't pass. The vast majority of Democrats oppose CAFTA, and enough Republicans are wavering to put passage in doubt. That's very bad news for some of the world's poorest people, who desperately need the jobs and the lower prices that free trade delivers.

The choice, says Nobel Prize winner and former Costa Rican President Oscar Arias, is "between making more prosperous the people of Central America or condemning them to live in poverty forever."

Just how grindingly poor are the CAFTA countries? The wealthiest of the bunch, in terms of per capita income, is Costa Rica. It had a per capita income of $4,280 in 2004, or about $12 per person per day. The poorest is Nicaragua with a per capita income of $730, meaning a typical Nicaraguan has to live on $2 per day.

A University of Michigan study concludes that CAFTA would add $17.3 billion to the U.S. economy and, more importantly, $5.3 billion to the economies of the six CAFTA nations. $17.3 billion is a drop in the $9.5 trillion U.S. financial bucket, but $5.3 billion would be a windfall for poor Central American countries.

CAFTA would lower tariffs on U.S. farm exports, which would mean less expensive food for Central American families and more business for U.S. farmers. The Michigan study concludes that some U.S. textile workers would lose their jobs because of CAFTA but that job gains in export industries would offset those losses. Meanwhile, CAFTA advocates argue that better work prospects at home will prompt fewer Central Americans to come to the United States illegally.

So why does CAFTA face an uphill battle in Congress? The main argument against the agreement is that it doesn't force Central American nations to adopt U.S.-style labor and environmental regulations. "Trade agreements reflect our national values and character," said U.S. Rep. Lynn Woolsey (D-Calif.). "This is why labor and environmental standards must be an integral part of any U.S. trade negotiation-and CAFTA fails this test."

The problem with this line of thinking is that such high standards only follow economic growth. Stephen Johnson of the Heritage Foundation says that a per capita income of $5,000 has been the key threshold for developing countries. At that level, people can afford to think about issues other than where their next meal is coming from-issues like a cleaner environment and laws against child labor. Below that level, such standards are unaffordable.

The United States could help Central America get to that level with CAFTA. Instead, the richest country in the history of the world seems ready to turn its back on people who live on as little as $2 per day. And it seems ready to do so in the name of compassion.