posted July 22, 2005
CAFTA and the Legacy of Free Trade

“CAFTA and THE LEGACY of FREE TRADE�
copyright 2005 by Jack Rasmus
“Z� Magazine, July 2005

This past April debate began in Congress on the Central American Free Trade Agreement, or CAFTA. Currently pro-Free Trade forces, notably Bush and his large multinational corporate backers, are locked in an intense legislative battle with opponents concerned about opening yet another major front which may lead to yet a further exportation of U.S. jobs. The outcome of that Congressional debate will determine the future direction of Free Trade policies in America, and with it the prospect of millions of American jobs in the years immediately ahead.

CAFTA represents the Bush administration’s effort to resurrect its stalled plans for a Free Trade zone encompassing the entire western hemisphere, called the Free Trade Agreement for the Americas, or FTAA. FTAA is the Bush-Corporate plan to extend the North American Free Trade Agreement, NAFTA, passed a decade ago in 1994 that established a free trade zone between Canada, the U.S. and Mexico. NAFTA has already cost American workers the loss of more than a million jobs.

CAFTA is thus the strategic nexus, the transition between NAFTA and Bush future plans for a western hemisphere-wide version of NAFTA involving 34 nations, a FTAA. But passage of CAFTA itself is not guaranteed. Not because of massive public opposition to the further huge loss of U.S. jobs to trade that would result should CAFTA and FTAA pass. But because of splits within the U.S. corporate elite itself over the proper pace and focus of free trade.

U.S. agribusiness is uneasy about the CAFTA deal, especially the politically powerful sugar industry. Textiles and apparel, and other U.S. light manufacturing industries are also opposed. With average factory wages of 90 cents an hour in the CAFTA region, CAFTA will almost certainly result in significant losses due to imports for these U.S. corporations, which are already being hammered by even lower cost imports from China producing similar factory goods for 64 cents an hour. From their perspective, they don’t need another ‘China on their doorstep’ to compete with.

Aligned against this group are corporations strongly pushing for CAFTA and a further expansion of Free Trade in the western hemisphere. This group constitutes a long list of ‘who’s who’ among U.S. multinational corporations. With only $33 billion in U.S. annual trade with Central America today, these corporate forces dominating U.S. trade policy for the past two decades are not concerned about exports vs. imports. The value of current U.S. trade with the small ‘city-state’ of Singapore, for example, exceeds U.S. trade with all the CAFTA nations. U.S. multinationals’ interest in the CAFTA deal is not about trading products with Central America. It is about opening U.S. corporate foreign direct investment into that region, and then extending it beyond to all of Latin America. For them CAFTA is not really about trade but about exporting their factories (and U.S. jobs) to the region to take advantage of lower labor costs, looser environmental regulations, and lower taxes in particular. As others have noted, CAFTA is not a trade agreement but a U.S. multinational corporation ‘outsourcing’ agreement.

Lined up on behalf of this latter corporate faction are the ‘big guns’ of the corporate lobbying world—the Business Roundtable (BRT), the National Association of Manufacturers (NAM), the U.S. Chambers of Commerce (USCC), and their joint cross-organization lobbying organization on which representatives of all the above traditional corporate lobby groups sit called the Emergency Committee for American Trade, or ECAT.

ECAT is composed of the CEOs of major U.S. corporations with global operations. The same folks sit on ECAT that drove NAFTA and China free trade deals in the 1990s. ECAT was formed in the late 1970s when the current Free Trade Offensive began to take form. ECAT corporations total $2 trillion in annual sales and employ five and half million workers. The interlockings between ECAT and the BRT, the NAM, and others are exceptionally tight. For example, Harold McGraw III, who is chairman and CEO of the McGraw-Hill companies is also chairman of ECAT as well as chairman for the International Task Force of the Business Roundtable. ECAT is also the functional lobbying arm for the ad-hoc ‘Business Coalition for U.S.-Central American Trade’, a subgroup of 400 companies and trade associations, established specifically to get CAFTA passed. Their ad-hoc ‘Business Coalition for U.S.-Central American Trade’ is an example of a loose corporate alliances that come and go with specific legislative objectives. ECAT remains as the front coordinating group focusing on free trade for the traditional general corporate lobbying groups like BRT, NAM, and others. CEOs of the latter sit on the former, and may bring in others to participate in the ad-hoc formations like the ‘Business Coalition’.

ECAT and other corporate driven free trade policies over the past quarter century have cost U.S. workers at least 8 million lost jobs and reduced wages for the rest by at least 15-25% as a result as well.

Since Bush alone took office, approximately 1.8 million U.S. jobs have been lost directly attributable to Free Trade. Those losses were roughly equally distributed between losses due to NAFTA trade and China trade. Higher paying manufacturing and technology jobs have been leaving the U.S. in tens of thousands every month due largely to Free Trade. Now Bush wants to expand that further with CAFTA, his stalking horse for FTAA.

The Pre-CAFTA Legacy of Free Trade

Free Trade’s devastation of U.S. jobs is not a recent Bush phenomenon. This has been going on since Reagan and now only accelerating to record levels under George W. Bush.

Considering the manufacturing sector in the U.S. alone, in 1979 just before Reagan came to office there were 21.2 million manufacturing jobs in the U.S. By 1992 after twelve years of Reagan and Bush senior there were only 16.7 million such jobs. According to one study, trade and the growing U.S. trade deficit accounted for 83% of the millions of jobs lost in manufacturing alone between 1979-1994. According to the same study, the millions of jobs lost to Free Trade foreign imports paid on average twice that of new jobs that were created in U.S. export industries during the same period. Jobs lost were clearly being replaced by jobs of lower quality and lower pay.

Apart from assisting and presiding over the launching of a Free Trade offensive by U.S. corporations in the 1980s, it was on Reagan’s watch that a first formal ‘Free Trade’ agreement was negotiated by the U.S. with another country, in this case Canada in 1988.
The U.S.-Canada Free Trade law served as the precursor to NAFTA, the North American Free Trade Agreement. Building upon the U.S.-Canada Free Trade agreement, George H.W. Bush in 1990 then developed the plan to extend that agreement to Mexico, thus creating the North American Free Trade Agreement, NAFTA, the direct predecessor to the currently debated CAFTA. However, it would take a Democrat, Bill Clinton, to deliver the Bush-Corporate vision with regard to NAFTA.

With 3.2 million jobs already lost due to trade by 1994, following the implementation of NAFTA that same year another 3 million jobs were lost between 1994 and 2000. Moreover, the trade-related loss of 3 million jobs during the Clinton years occurred in only 7 years, in contrast to the previous 3 million jobs lost during the previous 15 years from 1979-1994. Trade-related job loss during the 1990s occurred at an average rate of 428,000 a year compared to 213,000 a year on average during the Reagan-Bush period, or nearly twice as fast. That accelerating loss in the 1990s was due largely to NAFTA.

There is a direct relationship between U.S. trade deficits and U.S. job losses due to trade. For example, the U.S. Department of Commerce in 1994 estimated that for every $1 billion in U.S. trade deficit (or surplus), one could expect a loss (or gain) of approximately 13,000 jobs in the U.S.

The U.S. net trade deficit with Mexico and Canada surged from $16.1 billion in 1993, the year preceding NAFTA’s implementation, to $111 billion a year today. By 2000 a total of 766,000 actual and potential U.S. jobs were lost to Mexico due solely to the effects of NAFTA. During the first two years of the George W. Bush administration another 113,00 jobs were directly lost, raising the overall total of net US jobs lost due to NAFTA between 1994-2002 to 879,280. An additional number of lost jobs for 2003-04 is yet to be estimated. But it is probably safe to assume the total loss of jobs to date from NAFTA exceeds one million and rising.

The loss of a million U.S. jobs, overwhelmingly manufacturing and high paid quality jobs, has had a definite negative impact on the average hourly wage in the U.S. The U.S. Trade Deficit Review Commission, a source unlikely to overestimate the loss of jobs due to trade, concluded in its report in 2000 that “trade is responsible for at least 15% to 25% of the growth in wage inequality in the United States�

But NAFTA wasn’t the only free trade game in town during the Clinton years. Between 1994 and 2000 free trade policies apart from NAFTA also resulted in the loss of additional high paid U.S. jobs. Most notable among other Clinton free trade initiatives was Clinton’s successful push for more open trade with China. In 1999, the year preceding the passage of PNTR, U.S. imports from China exceeded exports to China by $81 vs. $13 billion. The loss of U.S. jobs from China trade during the 1990s had already amounted to 880,000, according to reliable estimates.

In 2001 the U.S. International Trade Commission (USITC) predicted that by 2010 the U.S. trade deficit with China would reach $131 billion. This would translate into a net further loss of 817,000 jobs from trade with China, added to the 880,000 jobs lost during the 1990s. But even this would prove a gross underestimation.

By the end of Bush’s first term in 2004, fully six years earlier than predicted by the USITC, the trade deficit with China amounted to $162 billion (not $131 billion), creating the largest trade imbalance ever recorded by the United States with a single country and millions more lost jobs to that economy. That China trade deficit is projected to exceed $200 billion in 2005. Under George W. Bush it is clear that U.S. job losses due to Free Trade deals has been accelerating.

TABLE 1

Manufacturing and Other Trade-Related Job Loss, 1979-2004

Overall Manufacturing Trade-Related Job Loss
Period Job Loss Job Loss Manufacturing Non-Manufacturing

1979-1994 4.7 mil. 3.7 mil. 2.2 mil. 1.0 mil.

1994-2000 4.1 mil. 3.0 mil. 1.9 mil. 1.1 mil.

2000-2004 3.6 mil. 1.8 mil. .9 mil. . 9 mil

Sources: Robert Scott, Thea Lee, John Schmitt Trading Away Good Jobs 1979-94, EPI
Briefing Paper, October 1997; Robert Scott, Where the Jobs Aren’t, EPI Issue Brief #168,
March 23, 2000; Josh Bivens Shifting the Blame for Manufacturing Job Loss, EPI Briefing
Paper, 2004; AFL-CIO Industrial Union Council, Revitalizing American Manufacturing,
2003, U.S. Census Bureau and Bureau of Labor Statistics, U.S. Department of Labor,
January 2005, and author’s calculations.

That’s $162 billion annual trade deficit today with China and another $111 billion for NAFTA. More than a million lost jobs due to NAFTA and another 1.7 million lost to China over roughly the last decade. How many more to come should CAFTA-FTAA pass?

The Bush-Corporate Drive Toward CAFTA and FTAA

In 2002 the Bush team and U.S. corporate free traders set out in heavy handed fashion to force an FTAA agreement on Latin American nations that largely benefited U.S. multinational corporations at the expense of those nations. Bush had originally planned to achieve this through negotiations within the World Trade Organization, the WTO. But trade negotiations within the WTO collapsed in September 2003 at the WTO meeting in Cancun, Mexico. Resistance to Bush and U.S. free trade demands within the WTO was led by a coalition of 21 nations, at the core of which were 13 Latin American countries, in turn led by Brazil, Argentina, and Venezuela. These were countries that had been particularly ravaged by free market and free trade experiments in the previous decade and now had elected more nationalist leaders willing to bargain harder with the U.S.

The focus of their opposition was Bush’s refusal to open up U.S. agricultural markets at Cancun, to insist on pro-U.S. intellectual property rights, his opposition to labor and environmental issues, and U.S. demands for special treatment for U.S. pharmaceutical, technology and professional services.

Bush had hoped to quickly follow up any success at the September 2003 WTO with the rapid conclusion of an inter-Americas FTAA free trade zone agreement scheduled for November 2003 in Miami. Bush bilateral free trade agreements concluded the previous July 2003 with Chile and Singapore were to provide the ‘model’ for the FTAA. But once again at Miami in November 2003, as at the WTO two months earlier, the same issues of agricultural subsidies, U.S. tariffs, intellectual property, rules for unlimited direct U.S. investment, and services trade were key. Brazil, Argentina and Venezuela once again led the opposition as they had at Cancun. To avoid an embarrassing break up of this second attempt at regionalized free trade at Miami, the U.S. agreed to what was called ‘FTAA lite’. FTAA lite was essentially a face saver for the administration. It meant in effect that all parties would keep trying to negotiate a FTAA wide agreement at a subsequent date, although for now FTAA was essentially tabled indefinitely.

Following the tactical defeats in Cancun in September and in Miami in November 2003 Bush trade strategy quickly shifted. To reverse the appearance of momentum lost in Cancun and Miami, the Bush administration quickly closed the CAFTA deal in December 2003 with four nations in the Central America region: El Salvador, Nicaragua, Honduras and Guatemala. Added impetus to CAFTA was soon provided by Costa Rica and the Dominican Republic both joining in early 2004. In addition, follow up meetings to strategize how to resurrect FTAA were held by the CAFTA group in Mexico later in 2004 and in early 2005.

Bush strategy thus turned since November 2003 to CAFTA to get his plans for a western hemisphere free trade zone back on track. The Bush team envisions passage of CAFTA as a means to pressure the South Americans to return to the table to negotiate a FTAA with the U.S. once again. Should Bush-Corporate forces therefore fail to get CAFTA passed, the larger real corporate free trade target of FTAA for all intents and purposes will die on Bush’s watch.

CAFTA As the Free Trade Strategic Lynchpin

CAFTA remains the lynch pin to Bush free trade plans in his second term. The outcome of the current debate in the House of Representatives this May will be a recommendation to bring the CAFTA treaty before Congress later this year for an ‘up or down’ vote following consideration of the same CAFTA deal by the Senate. Should CAFTA get approved by Congress, and with additional bilateral free trade agreements in their pockets, Bush trade negotiators will subsequently turn to the offensive once more seeking the larger goal of a comprehensive free trade agreement, the FTAA, which is the real U.S. multinational corporate objective behind the current CAFTA debates.

And should CAFTA pass, the Bush administration will quickly attempt to add to the CAFTA list of free trade partners countries such as Peru, Ecuador, Panama and Columbia with which it currently is in the progress of negotiating bi-lateral free trade agreements, as well as to add Chile with which it has already negotiated a free trade agreement. With CAFTA and these latter countries in hand it will have achieved something of a countervailing presence in Latin America with which to pressure anew Brazil and its allies currently seeking trade alternatives elsewhere.

But there are growing obstacles to this Bush plan. On the one hand, a trade deficit is expected to exceed $700 billion in 2005, with more than $200 billion of that attributable to China alone. The China trade imbalance is beginning to give a bad name to free trade deals elsewhere, including CAFTA. On the other hand, there is also the growing trade independence of Latin American nations in general as those countries rapidly drift ‘left’ toward a more nationalist position as the U.S. is bogged down in the middle east. Brazil in particular, together with its key allies in South America, Argentina and Venezuela, are intent on establishing closer trade ties and deals with Europe, OPEC oil producing countries, and other WTO nations. Another obstacle to Bush free trade plans is the European Economic Community itself, which not only has targeted Brazil and other southern tier South American countries for trade deals but is increasingly locked in a trade struggle with the U.S. over penetration of the China market. On the surface this U.S.-Europe competition for China markets and profits appear as a U.S. concern over Europe selling military technology to China. But military sales are only a cover issue raised by the U.S. The real struggle is over non-military markets. Fourth, there is Bush’s gamble with his current strategy of devaluing the U.S. dollar, which may prove ineffective in terms of stimulating U.S. exports or mitigating the U.S. $700 billion trade deficit and is beginning to show signs of exacerbating economic crises in other areas of the U.S. economy.

Longer term, beyond solidifying free trade deals throughout Latin America, the Bush-Corporate objective is to establish more of the same in southern Asia. Free Trade deals with Australia and Singapore are already in place and negotiations underway with Thailand and other nations in that region. It is all part of the emergence of three regional capitalist mega-trade blocs that will come in place over the next decade aligning U.S. corporate interests and its allies on the one hand against two other major blocs on the other: the European Economic Community and an Asian bloc led by China.

What happens with CAFTA in 2005 may thus have an impact at least on how fast the new U.S. dominated mega-trade bloc forms, even though it will have little to do with the inevitability of its, or the two other mega-trade blocs, eventual formation.

Jack Rasmus
National Writers Union, UAW 1981, AFL-CIO

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