Policy Today magazine cover
October 5, 2005

Should America's longstanding commitment to "free trade" also encompass support for the economic safeguards its workforce has won at home?

Over the past 60 years, the United States has entered a number of free trade agreements as the global economy has expanded: GATT, WTO, NAFTA, and most recently CAFTA—the Central American Free Trade Agreement. The primary goal of these treaties has been to reduce tariffs and to increase economic prosperity across the board.

Free trade—the free flow of goods and services between political entities—was implicit in the economic system created by the country's early leaders. It contravened prevailing mercantilist theories that said government should play an active, protectionist role in the economy by encouraging exports and levying tariffs to discourage imports. In 1776, Adam Smith challenged the mercantilist approach and reshaped the country's economic foundations with the Wealth of Nations, a seminal work that would become a cornerstone of free market theory.

The dimensions of today's global economy far exceed even the Framers' wildest dreams. Local markets—once defined by natural or political boundaries—have dissolved into an expanding world economic model. And free trade—once the ambition of 13 newly independent colonies—has become a pillar of the world economy. Free trade proponents argue that a rising tide lifts all boats; it will bring economic prosperity by lowering economic barriers between nations. Opponents say that free trade favors the interests of wealthy over those of the poorer countries.

The economic benefits of free trade agreements are clear, but should they also promote safeguards that U.S. workers have won domestically, including collective bargaining, occupational safety and equal opportunity—a sort of "free trade plus?"

What CAFTA does

CAFTA will eliminate most of the tariffs that the United States now pays when exporting to Central American countries. It will also open the American sugar market to more foreign imports, while protecting many exclusive rights of transnational corporations in all member states.

"CAFTA nations already have access to the U.S. market," says Mike Johanns, the U.S. Secretary of Agriculture. "But our farmers and ranchers don't have the same access to CAFTA markets. Now CAFTA will change all of that. It will help to level the playing field in our favor."

Central American nations have enjoyed a trade advantage with the United States since 1983, when the Caribbean Basin Recovery Act granted member nations duty-free importation rights to U.S. markets for perpetuity. Now, Johanns and others say it's time to even the score. But at what price?

CAFTA will lead to some increased economic activity at the expense of domestic Central American industries, which stand to be priced out by cheaper, subsidized U.S. goods. "The tariffs were the protectionist brace keeping many small farmers in business," says Jeff Vogt of the Washington Office on Latin America. "It's not a level playing field because the asymmetry in their economic powers is so dramatic. Their argument is, 'we have been giving preferential treatment to these countries, and now we want to cash the check.'"

While CAFTA will abolish Central America's trading advantage, the United States will continue to subsidize its own agriculture industry with $180 billion over the next 10 years. JB Penn, the Undersecretary for Farm and Foreign Agriculture Services points out that the World Trade Organization allows $19 billion in "trade disrupting" subsidies per year.

More foreign investment will benefit foreign workers

Penn says that the increased economic activity will benefit all rungs of the economic ladder. "By encouraging and stimulating trade, you encourage and stimulate investment," he says. "CAFTA makes a bigger piece of the pie for everybody."

Penn and other supporters say that the added foreign investment will make the poorer Central American countries wealthier, to the benefit of all. But that relies on a "trickle down" economic theory that has never worked, says Vogt. "NAFTA was not the economic miracle that was sold to Mexico." The statistics fall in Vogt's favor; eleven years of NAFTA have not significantly helped to alleviate Mexico's domestic income disparity.

Latin America's income inequality looms larger than Mexico's. Of the ten countries in the world with the largest gaps between rich and poor, four of them are in Central America. Perpetuating this inequality is central to the debate: even if the United States' free trade policies increase overall prosperity, should they be doing more?

More benefits for the United States

This disparity in power and benefits has led to widespread opposition from U.S. environmental groups, labor rights groups, and almost exactly half of the 435-member U.S. House of Representatives.

CAFTA represents a "line in the sand" regarding free trade's role in the expanding global economy, says Congressman Sandy Levin (D-MI), ranking member of the House Ways and Means Subcommittee on Trade. "Some view expanded trade as a magic wand that will resolve all of these problems automatically. Others, like me, view it as an essential tool that must be shaped."

No benefits for Guatemalan workers

Levin's opposition to CAFTA stems primarily from its labor provisions—or rather, its lack thereof. "Regrettably," he says, "CAFTA sanctions the status quo, or worse. It says to these countries: 'Enforce your own laws.'" Levin traveled to Nicaragua this year, where strikes are illegal without permission from the government. While he was there he interviewed many workers, and heard stories of horrendous labor practices that would not be improved by CAFTA.

Levin and other Democrats see CAFTA as a missed opportunity. This agreement, a stepping-stone towards the Free Trade Area of the Americas (FTAA), could have shaped U.S. policy as a positive force across all socioeconomic groups. But as it stands, most of the benefits will flow to only a favored few. "If I thought these people cutting cane in Guatemala were going to see some of this, I'd feel a lot differently about it," says Rep. Collin Peterson (D-MN), another opponent.

Peterson says that the six Guatemalan families that own most of the Central American sugar industry will benefit greatly from expanded access to U.S. markets. Their workers, however, still have limited options for unionizing and liberalizing their labor standards. Ultimately, their employers' increased wealth may not make a difference for workers.

Public services in those countries will open up to bids from private investment. All government purchases will be opened to transnational bids. And if a country passes a law that infringes on a corporation's profits, the country can be sued in a WTO international court.

Does CAFTA accurately reflect the future direction of America's free trade policies? These are weighty questions, but Congress forfeited its right to modify free trade agreements to conform to American principles when they approved "fast-track" negotiating authority in 2001. Thus, they had to vote on CAFTA as it came to them, and could not amend the treaty in any way.

"The challenge," says Lydia Lazar, the Assistant Dean for International Law of the Chicago-Kent College of Law, is to "present credible alternatives that address the needs not only of corporations to make profits, but of people to make a decent living." This exceeds the bounds of traditional U.S. free trade policy. And therein lies the debate.

About Caelan MacTavish

Caelan MacTavish is a freelance journalist from Portland, Oregon.