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June 24, 2005
CAFTA for dummies
The problem with too many free trade advocates is their "the adults are in the room attitude." (It doesn't help any that so many anti-globalization folks are decidedly unadult-like) Fee traders assume that since free trade is a self-evident good, no one could possibly argue with it. Yes, it is a self-evident good. But so is Iraqi democracy. The question is how you go about it.
Take Tom Friedman's latest column on CAFTA. He misses the point. Yes, passing CAFTA will be good for the American economy, and it will help Central American eocnomies too. And, as President Bush has pointed, out, the current trade restrictions are harsher for the United States than for Central America. So when the trade barriers fall in this deal, we get more than they do.
However, CAFTA is no miracle cure for Central America's woes. Current U.S. - Central American trade is a tiny fraction of U.S. GDP. It's not going to make an appreciable difference in the short to medium term. Trade takes time to grow. In the meantime Central American economies will have to undergo some sort of transition--apparently, given the structure of the treaty, the idea is they turn into major sugar and textile-producers. That is, Central America is supposed to be following the path of Mauritius forty years ago, when it expanded from its sugar plantation base into textile production.
Instead, Central America should follow the path of Mauritius today, which is set to become a free-trade entrepot in the Indian Ocean (no tariffs on any trade, not just American trade), and also a shipping and transport hub. The Mauritian economy is also developing its service sector, particularly tourism, and exploiting the broad familiarity with French and English within its population. The root of this is a democratic government that focuses on providing its population with the education and health care they need to get and hold better jobs.
CAFTA is our last, best bargaining chip with Central America. In addition to loosening trade restrictions, we should also bargaining for improvements in governance, for stronger anti-corruption measures, for a higher Central American minimum wage, and for better health, safety and environmental standards in Central American businesses. How else are Central Americans going to be able to afford to buy American products anyway? Free trade with Nicaragua is worth a lot more if the average Nicaraguan can afford to buy a new American-made car. And the average Nicaraguan can't. It's these sort of improvements that need to be at the center of our economic policy with Central America--helping Central Americans help themselves.
Free trade is not an end in itself, but a means to raise standards of living and increase prosperity for all. Good governance, decent wages, and strong health, safety and environmental legislation do this too. They shouldn't be forgotten.
Posted by James Fichter at June 24, 2005 12:16 PM
