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CAFTA, Like NAFTA, is bad Trade Policy

Location: Washington, DC

CAFTA, LIKE NAFTA, IS BAD TRADE POLICY -- (House of Representatives - May 04, 2005)

Mr. LYNCH. Mr. Speaker, I thank the gentleman from Maine (Mr. Michaud) for yielding. I thank the gentleman for his leadership on this very important issue.

I am told that the clinical definition of insanity is the tenancy to do the same thing over and over again and expect different results. And this proposed Central American Free Trade Agreement is another example of the United States continuing to enter into these so-called free trade agreements with countries and regions of the world that give carte blanche to corporate America to send our American jobs to other parts of the globe.

The one thing that I have been struck with, after coming here to Congress is, how many people in Washington, D.C. talk about job loss like they are talking about the weather, or a natural disaster like an earthquake. They talk about job loss like it is something that happens beyond the control of Congress, when, in fact, much of the job loss that we see in America today is the result of poor trade policy, and lopsided trade agreements in which we have negotiated away our jobs and failed to protect the American worker.

Now, given the experience that we have had thus far, with our subsequent trade agreements with NAFTA and others, you would think that with our experience of job loss that we have had there that when you find yourself in a hole that you might stop digging. But, that is not the case, because here we are facing another agreement that will definitely ship jobs overseas.

Not only does CAFTA, the Central Free American Trade Agreement shift jobs overseas, but it creates and perpetuates a race to the bottom mentality, and further burdens our current trade deficit.

In 2004, the U.S. trade deficit soared to a record $617 billion, a 25 percent increase over 2003's record deficit, and more than 5 percent of our Nation's GDP.

The Bush Administration and the corporations who profit when America sends their jobs overseas argue that this trade deal will benefit U.S. businesses and workers while helping member countries prosper. But, the fact is from our own experience with NAFTA, that that is very far from the truth.

And tonight I would like to focus my remarks on exposing the real impact of the Central American Free Trade Agreement, and what it will do to American workers, and also to Central American workers as well, and our burgeoning trade deficit.

Let us first take a quick look at the North American Free Trade Agreement, NAFTA, and its impact on our workers and our neighbor's workers and the trade deficit. Those who advocated Congress's passage of the Central American Free Trade Agreement often point to NAFTA as a success story in their arguments. I think it is important to take a good hard look, both from economic and policy implications of that model as we consider the Central American Free Trade Agreement.

During the NAFTA debate, the proponents then argued that the measure would, if adopted, would lead to the creation of 170,000 new jobs in the United States. Instead, our country has lost 3 million manufacturing jobs since the adoption of NAFTA, in 1994.

And 900,000 of those jobs lost can be directly tied to NAFTA. These jobs were good, high-paying jobs that included benefits. They were manufacturing jobs that have been replaced by service sector jobs that typically pay 25 to 75 percent less, and with few or no benefits. And while some proponents expect the Central American Free Trade Agreement to turn out differently than did NAFTA, it is important to remember that the six Central American countries possess an even larger pool of cheap labor than did Mexico, and what is more, since the implementation of NAFTA, the trade deficit with Mexico has surged from $9 billion to $110 billion last year. So the deficit with Mexico, the trade imbalance with Mexico, has gone from $9 billion before NAFTA to $110 billion last year.

Additionally, NAFTA did nothing to improve the lives of average Americans; and my colleague, the gentlewoman from California (Ms. Linda T. Sánchez), has talked about that briefly prior to my remarks. This failure to improve the quality of life for these workers has generated mass opposition and widespread distrust on our southern border.

Amnesty International continues to report that extra judicial tortures and murders continue. This is not democracy that we are exporting to Mexico, and this is certainly not what the Mexican workers signed up for.

Meanwhile, here at home this comparative advantage of subsistent wages and a complete lack of labor and environmental protections have led to the shift of low-wage, labor-intensive jobs from the U.S. to Mexico.

Pursuing unrestricted free trade agreements with lesser developed countries along the NAFTA model will continue to accelerate this race to the bottom where jobs go to countries where the weakest labor standards and environmental protections exist. That is bad for American workers, and it is exploitive of foreign workers and foreign populations.

We hear this administration talk about exporting democracy. You hear that often in the last weeks and months with regard to the situation in Iraq. Well, this is probably the most powerful opportunity we have to export democracy. You do not export democracy through the Defense Department or the Defense Secretary. You do it through trade agreements, through the Department of Commerce and favorable agreements with our friends and neighbors across the globe.

Are we liberating Iraq so we can move American jobs over there and exploit them for wages of about 10 cents an hour? I certainly hope not. And I hope that is not what our men and women are fighting today in Iraq for. We do not express liberation in terms of working 10 to 12 hours a day for 10 cents an hour, but that is what we are proposing for Central America.

As for the expected boon to the Mexican economy, we have seen none of these gains, and instead we have seen NAFTA's detrimental impact on the Mexican workers. Average real wages in Mexican manufacturing are lower than they were 10 years ago, if you can believe that.

As companies look to cut costs further, we see factories now being shifted from Mexico to China and India and Indonesia, always in search of the lowest cost best exemplified by the most exploited worker.

Now on NAFTA's coattails rides CAFTA, the Central American Free Trade Agreement. The American people are expected to buy the same bill of goods at even higher costs. Proponents of CAFTA, the Central American Free Trade Agreement, insist that the economic gains from this trade agreement for American workers in business will be a windfall. But remember what we are trading for in this case.

The combined purchasing power of all six Central American countries that are affected by this agreement have the identical purchasing power of New Haven, Connecticut. If you combine all of the purchasing power in these nations under the Central American agreement, their entire purchasing power is equal to the city of New Haven, Connecticut. That is what we are talking about here. This is what we are going for.

What they do have is millions of low-wage workers, and that, I think, that is the real object of this agreement. The U.S. economy has $10 trillion in gross domestic product in 2002. It is 170 times larger than the economies of those six nations at about $62 billion combined. And quite simply, the Central American Free Trade Agreement is not about robust markets for export of American goods. It is about access to cheap labor. It is about shipping American jobs overseas so they can sell stuff back to the people who have not been laid off yet.

Like the gentleman from Maine (Mr. Michaud), who spoke earlier and who is leading this debate, I worked in my previous life as an iron worker for about 20 years. I worked at the General Motors facility that used to be in Framingham, Massachusetts. It closed shortly before GM made decisions to relocate plants to Mexico. I also worked at the General Dynamics shipyard in Quincy, Massachusetts, as a welder prior to that plant closing because of foreign competition and unfair trade practices. I also worked in the steel mills in Gary, Indiana, and East Chicago, Indiana, for U.S. Steel and Inland Steel. And I understand those plants are now victims of foreign outsourcing as well.

So I know a little bit about the impact of off-shoring and imbalance in our trade agreements. I know what it means to communities and families when those jobs disappear.

Over the last 20 years, our economy has hemorrhaged jobs in the manufacturing sector. Since 2001, 3.3 million jobs were lost. Yet these workers were told not to worry. They were told they would be retrained for another job; they needed more education in our new high-tech economy. How can they not worry when unemployment is at a 10-year high at 5.4 percent, with 80 million Americans out of a job? Personal bankruptcies in my State rose 17 percent between the years 2000 and 2003.

How can we tell these folks not to worry when the administration is signing even more trade agreements to ship away their jobs?

The never-ending pursuit of the lowest-cost labor is spreading, and CAFTA will only just cement this cycle. We need to break the cycle now.

There is a pretty good book that is out there right now. It is called ``The World is Flat'' by Tom Friedman. I suggest my colleagues read it. Mr. Friedman writes about the speed at which our jobs are disappearing and the volume of wealth being taken from regular, average, working-class Americans.

The biggest share of U.S. exports to the six CAFTA nations is not the traditional job-creation kind. These are products that are not consumed in the purchasing nations. What happens is that, for example, textiles here in the United States are shipped to Central America where they are fashioned and furnished into clothing which is then shipped back to the United States and which our people, those that still have jobs, are able to purchase. These are called exports, but in fact it is just a cycle of us exporting raw materials and getting back finished product which was once supplied by U.S.-based factories.

The biggest difference here is that American workers are cut out of the picture. More than 30 percent of U.S. exports to the six CAFTA countries consist of these roundtrip exports that cause American jobs to be outsourced to these countries with lower labor standards.

This trade agreement is bad not only for the American workers but for those in Central America as well.

Yesterday, The Wall Street Journal reported that Costa Rica's resistance to the Central American Free Trade Agreement was based on the fact that the agreement itself would be harmful to poor and struggling workers in Costa Rica. Costa Rican President Abel Pacheco has said that he believes that the Central American Free Trade Agreement is bad overall for his country, and he has delayed a vote on that until February of next year.

The reluctance of Costa Rica has surprised the White

House and undermines one of its chief arguments for the pact itself, that CAFTA represents an urgently sought benefit for the impoverished region.

Costa Rica's ambivalence and long delay before it votes on this trade agreement indicates its reluctance to endorse this supposed free trade agreement. Protests in Guatemala numbering in the thousands and tens of thousands have also been an indicator that many Central Americans do not see the Central American Free Trade Agreement as a benefit for their nation and for their livelihood.

As you may know, May Day marches in Guatemala, Costa Rica, Honduras, and El Salvador have featured a myriad of anti-CAFTA signs and slogans. As President Pacheco rightly emphasizes, more trade does not necessarily mean less poverty.

Proponents of the Central America Free Trade Agreement have conveniently ignored this fundamental fact: the effect of trade on incomes in Central America and how to alleviate the adverse consequences of trade liberalization on the poor.

This Washington consensus that opening up markets will help alleviate poverty is just plain wrong. One reason is that the labor in developing countries is not nearly as mobile as trade theorists assume. In Central America, for trade to benefit unskilled workers, farm laborers, for example, they need to be able to move out of jobs that will face competition from efficient U.S. producers thanks to CAFTA, such as drilling, corn and into exporting industries that are likely to be selling products to the American market.

Unfortunately, there is no job mobility in Central America, and these workers are stuck, and there will be no place for them to turn.

Trade reform has also been linked to increased income disparity as skilled workers have captured more benefits from globalization than their unskilled counterparts. Simply said, CAFTA will make the rich richer in Central America and the poor poorer.

Take Mexico as a perfect example. Since NAFTA was put in place, Mexico has lost 1.9 million jobs and most Mexicans' real wages have fallen. The United States with its unrivaled economic clout is in a unique position to empower workers around the world while promoting economic prosperity here at home.

Unfortunately, the CAFTA agreement does the exact opposite. If we pass CAFTA, the Central American Free Trade Agreement, we are rewarding Central American countries for their poor labor rights records. We are harming farmers in Central America by opening up their tiny markets to our own cycle of exploitation.

Recently released reports prepared by the Human Rights Watch and National Labor Committees provide overwhelming evidence that CAFTA does almost nothing to protect workers. These Labor Department reports have been suppressed because they demonstrate the Central American workers' rights restrictions.

Thanks to my colleague, the gentleman from Michigan (Mr. Levin), the Department of Labor has just recently released these reports.

In these reports, DOL found that the right to collective bargaining and nondiscrimination in the workplace were nonexistent. In Nicaragua, for example, employees can be fired for trying to organize a union, provided they are paid twice the normal severance amount. It is bad enough that these countries do not meet international labor standards, but what is worse is that CAFTA is silent on the need to improve any working conditions in Central American countries.

Instead of trade policy that is beneficial to American businesses and workers as well as our trade partners, we have a flawed trade policy that hurts all parties. Free trade should not mean free labor. Likewise, free trade does not, as evidenced in CAFTA, mean fair trade.

The Central American Free Trade Agreement outlines only one labor and environmental provision, and that is that countries enforce their own labor and environmental laws regardless of how weak those might be.

The labor laws of the six CAFTA nations are a joke. They have been repeatedly criticized by the U.N.'s international labor organization and our own State Department. Violations of core labor laws cannot be taken to dispute resolution. And the commitment to enforce domestic labor laws, which are pathetic to begin with, is subject to remedies that are weaker than those available for commercial disputes.

In a purely technical sense, this violates the negotiating principal of the Trade Promotion Authority Act that equivalent remedies exist for all parts of an agreement.

Another negative effect of the Central American Free Trade Agreement for the Central American laborer will be felt in the agricultural sectors of these countries. Simply put, CAFTA will destroy the Central American small farms. And that is why we see these massive protests.

The final negative impact of the Central American Free Trade Agreement I would like to discuss is what it will do to our trade deficit. The U.S. trade deficit which indicates that our imports exceed exports, has increased by $200 billion per year under this administration. In 2003, the trade deficit reached $497 billion, and U.S. foreign debt has increased dramatically from $1.6 trillion in 2000 to $2.7 trillion at the end of 2003.

Over the past 4 years, a 10-year budget surplus of $5.6 trillion left by President Clinton has become a 10-year deficit of $3 trillion. And now we are working on another plan here to export more American jobs to countries overseas.

Secretary of State Condoleezza Rice said yesterday that the Central American Free Trade Agreement will help the U.S. compete more successfully in a dynamic global economy, but I cannot understand how.

How will these nations be able to help the U.S. come out of its current trade deficit? CAFTA nations are not a robust market for exports. The average wage of a Nicaraguan worker is 50 cents an hour. How much in terms of U.S. exports can a Nicaraguan worker afford? They cannot afford Folgers coffee or Tide laundry detergent. They cannot afford cuts of U.S. prime beef at $13 a pound.

As I noted before, the six Central American nations of Nicaragua, El Salvador, Honduras, Costa Rica, Guatemala, and the Dominican Republic have the combined purchasing power of New Haven, Connecticut.

They will not add much to the U.S. economy. They will only take American jobs away, and make no mistake, that is what this agreement is all about.

If companies were serious about creating robust markets for ``Made in America'' goods, they would be working to improve the wages and working conditions of these workers. It is only when these laborers can earn enough to buy U.S. goods that this kind of trade agreement will be successful for all the parties and all the countries involved.

If you consider that a typical Central American consumer earns only a small fraction of an average American worker's wages, it becomes clear that CAFTA's true goal is not to the increase U.S. exports. About half the workers in this region work for less than $2 a day, placing them below the global poverty level.

All this agreement does is exploit lowest-wage labor to the detriment of the American worker. The Central American Free Trade Agreement does not benefit America. Let us be honest. CAFTA benefits companies that leave the U.S. or outsource their jobs to Central America, plain and simple. These companies will not only exploit cheap labor with minimal protections, but can import their products back to the U.S. under favorable terms.

There are several simple steps we can take to mitigate the effects that existing trade agreements have on our workers and future trade agreements have on global labor movements.

First, instead of subsidizing large corporations that outsource American jobs, with tax breaks for foreign production and government contracts for companies that ship jobs overseas, we should create financial incentives for companies to keep jobs here in the United States. It sounds simple. It could be revolutionary in this country.

Secondly, we must act now to deal with our increasing national deficit. The U.S. trade deficit has jumped from $70 billion in 1993 to $618 billion in 2004. There should be no new trade agreements until we can negotiate fair terms for our own workers.

Finally, in existing trade agreements, we need to demand and strictly enforce all provisions protecting labor, human rights and environmental standards. All future trade agreements should include these basic rights and all countries should be held accountable to internationally recognized standards.

We need a trade policy that supports domestic manufacturers, while promoting labor standards which are similar to our own overseas. The Central American Free Trade Agreement fails to do either.

In closing, I must say that there is a stark difference between our policy in the United States with respect to Iraq and the policy that is being suggested here in this Central American Free Trade Agreement. I was in Iraq several weeks ago, and there was much talk from the White House and from my colleagues in government about the need to spread democracy, to export democracy. I have heard of that a lot in the recent months and weeks, the talk of empowering people and raising their standards of living and liberating the people of Iraq.

Then I see this Central American Free Trade Agreement and what it does. It endorses oppression. It exploits workers. It turns a blind eye to repressive regimes. It reinforces the complete lack of hope that these people have, and it does not lift a finger to help them.

Once Iraq is stabilized, is this the way we will treat their workers? Is this why we pumped $200 billion into that country in the last few years? Is that what liberation means for the Iraqi worker? Is that what our sons and daughters are fighting for? Is that the policy that we are going to adopt for Iraq once they are able to stand up on their own feet and control their own country?

We should have the courage and the honesty to tell our men and women in uniform that that is what they are fighting for if that is what we are proposing.

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