New York, NY, June 21--U.S. manufacturers expect higher exports from the passage of the Central American Free Trade Agreement, or CAFTA, while critics say the pact is nothing more than another way for multinational companies to ship U.S. jobs to other countries.
The agreement, which Congress could vote on before the July 4 break, would lower barriers for U.S. exports to Costa Rica, El Salvador, Honduras, Guatemala and Nicaragua, as well as the Dominican Republic, and lock in preferential treatment those countries enjoy in the U.S. market.
Together, the six countries would make up the 10th biggest export market for the United States, with manufactured goods accounting for 87 percent of the total.
CAFTA would boost U.S. manufacturing exports by $1 billion a year, while preserving $4 billion worth of existing exports that could be jeopardized if Central American textile companies lost business to cheaper Asian rivals, the National Association of Manufacturers has estimated.
Lower tariffs would lift sales of cars and car parts 25 percent, according to the association. Sales of nonelectric machinery would rise 8 percent, and electric machinery exports would rise 7 percent.
Jim Owens, chief executive of construction and mining equipment maker Caterpillar Inc., is one of the industry leaders urging lawmakers to approve CAFTA.
"For Caterpillar, the benefits of free trade are very real," he wrote in a May letter to House of Representatives Speaker Dennis Hastert of Illinois.
After a free trade pact with Chile went into effect last year, Caterpillar's U.S. exports to that country nearly doubled, Owens said. Caterpillar is hoping to benefit from the $10 billion in new infrastructure projects planned in the CAFTA countries.
As with any trade issue, China is a factor in the equation. By gaining tariff-free access to another market, U.S. exporters hope to elbow out overseas rivals.
While some tariffs would not be lifted for 10 years or more, exports of nearly all construction and agricultural equipment would receive duty-free treatment from the start.
Capital goods exports to CAFTA countries totaled $1.1 billion in 2004, led by machinery parts, tractors, pumps and switches, according to the office of the U.S. Trade Representative. Tariffs on these products are as high as 20 percent.
"It's very important for us, for our suppliers and our customers," said Rich Nelson at CNH Global NV, which sells agricultural and construction equipment in Central America.
"Any U.S. domestic manufacturer is going to benefit from a higher level of exports," said Rob Gallen, investment analyst at BB&T Asset Management in Raleigh, North Carolina. But the effect of CAFTA would be relatively small, Gallen said. "I don't expect a large boost to industrial companies should CAFTA pass."
Critics have said CAFTA would destroy U.S. jobs, further swell the trade deficit and expose U.S. sugar growers to a glut of imports. Many Democrats also argue the pact's labor and environmental provisions are not tough enough.
"It's an agreement designed to facilitate outsourcing," said Lloyd Wood, spokesman for the American Manufacturing Trade Action Coalition. "What are they gonna buy down there?" The CAFTA countries have buying power comparable to that of New Haven, Connecticut, he added.
Both advocates and opponents see CAFTA's fate as a crucial step in the larger battle for a new global trade deal.
The World Trade Organization's Doha round of talks, started in 2001, has been stuck for months, as rich and poor countries squabble over agriculture, intellectual property rights and other issues.
