Politics & Policy

Steep Road to Free Trade

CAFTA lessons.

The vote on the Central American Free Trade Agreement was heartening, but on the long canvas of free-trade activity it is discouraging. What stands out is not the success of the CAFTA bill, but the weakness of its support.

To get the critical two votes on CAFTA, Mr. Bush practically had to promise individual congressmen that he would pave their driveways the next time a highway spending bill comes up. He was working against very heavy odds in a bitterly partisan scene. Republicans voted in favor of CAFTA by 202 to 27. Democrats voted against by 187 to 15. It was just before midnight on Wednesday that one congressman from North Carolina came around. A book will probably be written about the welter of pressures on him.

These pressures begin, properly, with the democratic mandate. This is difficult to measure because the country is almost exactly divided, 50-49, on the general question of free trade. Consulting local interests, Representative Robin Hayes, a Republican from North Carolina, saw the labor-union chief, machine gun leveled, speaking for the threatened textile workers. In ten years, 200,000 North Carolinians have lost their jobs as textile workers as tariffs edged down.

On his other side was the president of the United States and the brass of the party, asking for his fealty as a Republican–as also for his fealty as a capitalist.

Everybody knows that the man who makes shoes efficiently is better off buying shirts from the man who makes shirts efficiently than going into shirt making on his own. They call it the principle of comparative advantage. But considerations of many kinds must be weighed in the politics of free trade. The goal is, of course, an ongoing benefit to both parties, but the goal is made difficult to achieve by factors which may be extrinsic to raw economic analysis, but are absolutely organic in the political order. How do you muster the votes in France to reduce by half the number of agricultural workers? The answer: You don’t. It would be the equivalent of eliminating sugar tariffs in the United States. The CAFTA agreement just concluded permits an approximate one-percent reduction in that tariff. Still, what keeps the free-trade engine running is empirical factors. When the shoemaker discovers that by buying his shirts from someone else he can have not only the shirts he needs but also money left over to buy a radio, he comes to his senses, or edges towards them.

President Bush is certainly doing his best to inch along towards the goal of free trade, but what is he to do in the big theaters directly ahead? In Geneva the World Trade Organization’s “Doha Round” of negotiations, to be continued in Hong Kong in December, has stalled on the question of agricultural tariffs. But U.S. officials are aware that a reduction of tariffs on manufactured goods is sought not only by great industrial powers like Germany, France, and Japan, but also by nations seeking to grow economically. Towering over the lot, of course, is China, which is churning along economically as though it were a World’s Fair exhibit of Adam Smith, Inc.

There is movement in that part of the world towards regional free-trade pacts. Last November, China consorted with the ten-member Association of Southeast Asian Nations. Their goal is to create the world’s largest free-trade area by the year 2010, to which end separate pacts are being pursued with distant countries, for instance, Chile.

To make our own way, we need pacts of our own. In 1993 we set out to make the whole Western hemisphere a free-trade area, but approaches to that goal are skimpy and disordered. The Central American nations dealt with in CAFTA will sell to America in one year the equivalent of what China sells us in one month. And the experience with CAFTA is disheartening to potential partners in trade. In order to get the pact through Congress, we wrested concessions from the Central American nations which were sacrificial, and not always repeatable. Brazil is not as easily intimidated as Nicaragua.

Indeed it was a Brazilian economist who was quoted in the Wall Street Journal. Gesner de Oliveira summed it up: “If the formation of CAFTA is so difficult, imagine the difficulties of the formation of [the Free Trade Area of the Americas]. It’s an inexorable process. But the velocity is going to be much slower than we thought five years ago.”


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