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STRATEGY

CAFTA Vote Expected By End of the Week

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July 26, 2005 -- With a House vote on the Central American Free Trade Agreement only days away, supporters are mobilizing in an effort to win over industry groups weary of any agreement that might push more business overseas.

On Monday, three textile-state Republicans announced their support for the legislation, after receiving assurances from the Bush administration that loopholes, which would have allowed materials originally from non-CAFTA countries to be imported tax-free, would be closed. In a statement, U.S. trade representative Rob Portman said that newfound support of Alabama congressmen Spencer Bachus and Mike Roberts and South Carolina's Bob Inglis -- all of whom had previously expressed reservations about CAFTA -- would give the agreement "a much needed shot in the arm."

Separately, a bill, which CAFTA supporters hoped would address the concerns of lawmakers that past trade agreements were not being enforced, failed Tuesday to get the two-thirds majority necessary to be approved before the CAFTA vote. The bill, sponsored by Republicans Thomas Reynolds of New York and Phil English of Pennsylvania, would have cracked down on Chinese government subsidies but had been criticized by Democrats and some manufacturing groups as a watered-down effort to buy votes.

Bill Hawkins, a senior fellow at the U.S. Business and Industry Council, said that the Reynolds-English bill did not go far enough to curb the outsourcing trend that has forced many manufacturers overseas or out of business. "I think CAFTA has taken on this larger than life status," he said, adding that he does not see much potential for small U.S. firms looking to export to Central America. "But it is mostly an agreement to protect companies that have already outsourced to these places. It's a labor market not a consumer market."

But some business groups disagree. James Morrison, president of the Small Business Exporters Association, said that companies able to fulfill basic services in the region, such as construction and water treatment, could be the big winners if CAFTA is passed. "The advantage for smaller companies is that the agreement lowers transaction and opportunity costs in hunting for businesses down there," said Morrison. "While these countries don't have a lot of money, that may be beneficial for companies able to make smaller sales profitably."




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