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By Lana Robinson
Field Editor
Like all trade agreements, where the outcome cannot be predicted with absolute certainty, the proposed Central American Free Trade Agreement (CAFTA) is controversial. But the Farm Bureau believes CAFTA will be very positive for both U.S. and Texas agriculture, and supports it wholeheartedly.
According to American Farm Bureau President Bob Stallman, CAFTA, or CAFTA-DR as it is sometimes called since the Dominican Republic joined negotiations in March 2004, would have a net positive on American agricultural exports of about $945 million a year at the "end of its implementation period," which is 15 years.
"Sugar looks like the only commodity that looks to be a clear loser," Stallman says, regarding the agreement. "All the rest are either roughly a wash, or an improvement—poultry, pork, beef, rice, wheat, corn—all were positive."
Stallman pledged that Farm Bureau will work with sugar interests on the 2007 farm bill to remove taxes that the administration is proposing.
Farm Bureau insists CAFTA is close to being a "no-brainer," since U.S. markets are already among the most open in the world. Therefore, compliance will not require the U.S. to make many changes. The Central American signers of the agreement, on the other hand, will open their own markets and reduce the sometimes oppressive tariffs designed to keep products out. On a world average, products entering the U.S. market encounter a 12 percent tariff, and U.S. products entering foreign markets face a 63 percent tariff. American agriculture stands to gain an estimated increase in exports of $1 billion.
Jose Pena, Extension economist in Uvalde, on May 4 commented regarding hearings that began in mid-April in the Senate Finance Committee and the House Ways and Means Committee.
"It appears that the agreement is short of the majority needed to pass Congress. U.S. sugar producers, organized labor, and some other interest groups are lobbying heavily against this agreement," said Pena.
According to Pena, the region covered by the CAFTA-DR is the U.S.'s second-largest Latin American export market, behind only Mexico, buying $15 billion of goods a year. Two-way trade currently amounts to about $32 billion, he said.
"While all six nations signed the CAFTA with the U.S., Costa Rica is balking at ratifying the accord and may delay a vote to ratify the accord until after next February," Pena reported. "This hesitation may influence undecided votes in our Congress and further delay a vote. Generally speaking, the U.S. Congress waits until its trading partners ratify a pact because it wants to make sure it gets the last word, and that foreign governments don't try to change provisions."
Pena portrayed CAFTA as one component of the U.S. world trade strategy to open foreign markets to U.S. goods, similar to the North American Free Trade Agreement (NAFTA) which currently encompasses the U.S., Canada, and Mexico.
"A successfully negotiated CAFTA is also seen as a potential stepping stone towards the Free Trade Area of the Americas (FTAA), a more ambitious free trade agreement which would encompass South American and Caribbean nations (with the exception of Cuba)," Pena explained. "If passed by the congresses of the U.S. and the countries involved, tariffs on about 80 percent of U.S. imports to the participating countries will be eliminated immediately and the rest will be phased out over the next 20 years."
Pena said currently, nearly 80 percent of Central American products enter the U.S. duty-free, partly because of unilateral preference programs such as the Caribbean Basin Initiative (CBI) and the Generalized System of Preferences (GSP). This compares to an average of 55 percent tariffs on U.S. goods imported by Central American countries, he noted.
"The U.S. market is already open compared to stiff tariffs on U.S. goods entering other countries. CAFTA will open the region's markets to goods, services, and farm products from the United States," he said.
Also hindering CAFTA is a general mistrust that has resulted in Brazil's recent challenge, and the World Trade Organization's (WTO) support of it, regarding the U.S. cotton program.
"Misunderstandings and mistrust make trade agreements difficult to negotiate and to pass in congress. The WTO-Doha Round on agricultural trade negotiations, for example, broke down in late April. Negotiators could not agree on a formula to convert specific, or per unit, tariffs into percentages or ad-valorem equivalents, essential for comparisons among countries and products. So, the process toward international trade liberalization appears bogged down," he said.
Opponents contend that independent farmers in the U.S., Canada and Mexico have been hit particularly hard by NAFTA, with thousands wiped out and farmland shifting into the hands of huge agribusiness concerns. They fear that CAFTA will have the same effect in Central America. In addition, some fear that CAFTA may mean the further erosion of the U.S. vegetable industry.
Supporters suggest the CAFTA-DR trade agreement is an opportunity to score a clear victory by ending practically all tariffs applied to U.S. exports to those nations. They say it levels the playing field, since those Central American nations have been selling the bulk of their goods to the U.S. duty-free since the 1980s.
"It appears clear that the United States is aggressively pursuing agricultural trade liberalization to increase U.S. access to foreign markets by active participation in the WTO and by negotiating more regional trade agreements, similar to NAFTA. Some feel that trade reform is beneficial to the U.S. economy and that trade liberalization treaties offer unique opportunities," Pena observed.
Pena said on NAFTA's 10th anniversary, agricultural trade and the trade balance with Mexico has more than doubled from about $6.3 billion in 1993 (the year prior to NAFTA) to $12.7 billion in 2002 with a positive trade balance of $1.8 billion, up from $900 million in 1993.
"CAFTA has the potential to offer similar, though smaller, rewards for U.S. agriculture," he predicted.
