It's Son of Nafta!

But will a new trade pact help American companies remain competitive?

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If it is ratified, the Central America Free Trade Agreement, also known as Cafta, will eliminate duties on trade between the U.S. and six Central American nations. U.S. exports to Cafta nations approached $16 billion last year. Tariffs on goods from these countries -- Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic -- are as high as 12%.

Labor unions and other critics oppose Cafta because they say it will result in jobs being sent overseas. To many business owners, that is exactly the point. In the face of competition with countries like China and India, business groups say, they must have access to a larger pool of low-wage, legal labor. A more flexible immigration policy would be preferable to a trade deal but is politically unlikely.

Since Nafta took effect in 1993, exports to Mexico are up by 63%. Jobs were indeed lost to Mexico, says Larry Davidson, an Indiana University economist who studies exporting, but access to Mexican workers enables U.S. automakers and textile companies to remain competitive, "which creates even more jobs in the long run," he says.

At recent congressional hearings, the poster child for pro-Cafta private companies was American Textile Co., a Pittsburgh business that began outsourcing cutting and sewing jobs to El Salvador and Guatemala a decade ago. Today ATC is a sales and distribution outfit -- the largest private-label supplier of pillow and mattress covers in the U.S. with a head count of 92. Jack Ouellette, ATC's chief executive, says, "Low-wage jobs aren't coming back to the U.S." Businesses like his see Cafta as the only realistic way of going where low wages can be found.

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