Max Chafkin | Inc. magazine

Senate Approves Cafta

 

July 1, 2005--In a narrow vote that fell largely along partisan lines, the Senate approved the Central American Free Trade Agreement (Cafta) Thursday, setting the stage for a fierce battle in the House.

The controversial legislation -- which eliminates tariffs between the U.S., Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua -- was passed by a vote of 54 to 45, with most Republicans voting for the legislation and most Democrats voting against.

Senate Majority Leader Bill Frist said the pact was a boon to consumers and small business. "CAFTA empowers American businesses to contend in the global marketplace, and ensures commerce flows fairly and freely between member nations," said Frist in a statement.

Small Business Administration administrator, Hector Barreto, added that Cafta, "makes sense to the U.S. small business community" because it will remove tariffs on American exporters. He cited the support of the Small Business Exporters Association, which issued a report Wednesday arguing that the agreement would lower transaction costs for exporters who are already doing business in the region. While 80% of Cafta nations already enter the U.S. duty free, exports are taxed significantly, according to the trade group.

Critics -- including labor unions, sugar producers, and environmentalists -- have staunchly opposed the legislation, arguing that it will send jobs overseas and do little to improve working conditions in Central American countries. In a statement, Democratic Senator Dick Durbin, said, "Our President has put forward a trade strategy that offers only small short-term benefits but in the long run hurts American manufacturers and farmers."

Others, including Senate Minority Leader Harry Reid, criticized Cafta supporters for focusing on an agreement in which the affected countries account for only 1.5% of total U.S. trade. Reid said the White House needed to do more to encourage exports to larger markets, like Russia, India, and Indonesia.

Also on Thursday, lawmakers on the House Ways and Means Committee approved the agreement, setting the stage for debate to begin after the July 4 holiday.

Senior contributing writer Max Chafkin has profiled companies such as Yelp, Zappos, Twitter, Threadless, and Tesla for the magazine. He lives in Brooklyn, New York. @chafkin