CAFTA and the Legacy of Free Trade

CAFTA is thus the strategic nexus, the transition between NAFTA and Bush’s future plans for a Western hemisphere-wide version of NAFTA involving 34 nations, a FTAA. But passage of CAFTA is not guaranteed. Not because of massive public opposition to the further loss of U.S. jobs to corporate-defined trade that would result should CAFTA and FTAA pass. But because of splits within the U.S. corporate elite 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, 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  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 chair and CEO of the McGraw-Hill companies is also chair of ECAT as well as chair for the International Task Force of the Business Roundtable. ECAT is also the 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 coalition is an example of 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 ad-hoc formations like the Business Coalition.

ECAT and other corporate driven 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 percent as a result as well. Since Bush alone took office, approximately 1.8 million U.S. jobs have been lost directly attributable to so-called “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. 

The devastation of U.S. jobs by such trade policies is not a recent Bush phenomenon. This has been going on since Reagan and now is accelerating to record levels under George W. Bush. Consider 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 12 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 percent of the millions of jobs lost in manufacturing alone between 1979-1994. According to the same study, the millions of jobs lost to 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. Building on 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 NAFTA, the direct predecessor to the currently debated CAFTA. However, it would take a Democrat, Bill Clinton, to deliver the Bush-corporate vision. 

With 3.2 million jobs already lost 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 U.S. 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 game in town during the Clinton years. Between 1994 and 2000 trade policies apart from NAFTA resulted in the loss of additional high paid U.S. jobs. Most notable among other 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 6 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 trade deals have been accelerating. That’s a $162 billion annual trade deficit with China and another $111 billion for NAFTA; with more than a million lost jobs due to NAFTA and another 1.7 million lost to China over roughly the last decade. 

The Bush-Corporate Drive 

I n 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 (WTO). But trade negotiations collapsed in September 2003 at the WTO meeting in Cancun, Mexico. Resistance to Bush and U.S. 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 leaders willing to bargain harder with the U.S. 

The focus of their opposition was Bush’s refusal to open U.S. agricultural markets at Cancun, his insistence 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 agreement scheduled for November 2003 in Miami. 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, 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. To avoid an embarrassing break up of this second attempt at regionalized trade, the U.S. agreed to what was called FTAA-lite, 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 and Miami, Bush trade strategy quickly shifted. To reverse the appearance of momentum lost, 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 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 with the U.S. once again. Should the Bush-corporate forces fail to get CAFTA passed, the larger real corporate trade target of FTAA for all intents and purposes will die on Bush’s watch. 

The Strategic Lynchpin 

C AFTA remains the lynchpin to Bush’s trade plans in his second term. Should CAFTA get approved by Congress later this year, the Bush administration will quickly attempt to add to the list of free trade partners countries such as Peru, Ecuador, Panama, and Columbia with which it currently is negotiating bi-lateral trade agreements, as well as to add Chile with which it has already negotiated a 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 Brazil and its allies. 

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. On the other hand, there is also the growing trade independence of Latin American nations in general as those countries rapidly drift “left” 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, is intent on establishing closer trade ties and deals with Europe, OPEC oil producing countries, and other WTO nations. Another obstacle to Bush’s trade plans is the European Economic Community, which not only has targeted Brazil and other southern tier South American countries for trade deals, but also 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. 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 it is beginning to show signs of exacerbating economic crises in other areas of the U.S. economy. 

Longer term, beyond solidifying trade deals throughout Latin America, the Bush-corporate objective is to establish more of the same in southern Asia. Trade deals with Australia and Singapore are already in place and negotiations are underway with Thailand and other nations in that region. It is all part of the emergence of three regional capitalist mega-trade blocs, 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.