CAFTA, NAFTA, SCHMAFTA

By Ben Way

Seventy members of Farmers Union from across the country descended upon the House and Senate office buildings in Washington, D.C., March 14-16, to convince congressional delegations to oppose the Central American Free Trade Agreement (CAFTA).

Participating from Rocky Mountain Farmers Union (RMFU) were Marvin Schmidt, Riverton, Wyo., Paul Schlagel, Longmont, Colo., both sugar beet growers, and Ben Way, RMFU executive director.

CAFTA is a trade agreement that is being negotiated between the United States and five Central American countries: Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, as well as the Dominican Republic. It often is described as simply expanding NAFTA (the North American Free Trade Agreement) to more countries.

Farmers Union opposed NAFTA and is opposing CAFTA.

Why? Doesn’t “free trade” benefit everybody … putting the laws of comparative advantage to work and all that good stuff? The short answer is that NAFTA did not deliver what was promised and neither will CAFTA.

To assess CAFTA, one need only take a look at NAFTA:

Promised: Income disparities between the U.S. and Mexico would be reduced.

Delivered: Income disparities have grown by 10.6 percent in the last decade, and real wages in Mexico have been falling at the rate of 0.2 percent a year. The percentage of Mexicans living in poverty has increased from 50.97 percent to 58.40 percent during this period.

Promised: U.S. agricultural exports would increase.

Delivered: U.S. agricultural exports have been flat since 1979 (see graph). Domestic demand has created the main market opportunities for the major commodity crops raised in the United States for the past 25 years. Furthermore, the overall U.S. trade deficit with Canada and Mexico has exploded from $9.1 billion in 1993 to $110.8 billion in 2004. Imports from Mexico and Canada have grown by 173 percent. The fruit and vegetable sector has been among the hardest hit, with that sector’s trade deficit with Mexico tripling to $3.3 billion annually. It would be hit again under CAFTA.

In 2005 it is projected that, for the first time in 46 years, the United States will import as much agriculture product as it exports. The U.S. historical agriculture trade surplus has been reduced to zero, yet U.S. trade officials want to initiate more agreements that have contributed to this trend.

Under CAFTA a similar result would ensue. The United States already supplies about 95 percent of all grains imported into the CAFTA countries, so there is no market for expansion. But, their exports of fruits and vegetables would increase into the United States, hurting local producers.

In the RMFU region, especially in Wyoming and Colorado, sugar beet growers will be especially hard hit and will most likely go out of business if CAFTA is implemented.

The irony is that the sugar beet industry receives no U.S. government subsidies and has instituted a supply-management program that keeps prices at levels where producers can make a fair profit. Increased imports of foreign sugar will trigger the release of currently stored stocks of U.S. sugar, driving the price to the bottom.

The beef marketing provisions of CAFTA target high-end prime and choice cuts of U.S. beef destined only for the restaurant and tourist industries. The general population of these countries cannot afford to buy these products – 40 percent of them earn less than $2 per day. The current U.S. trade deficit with these Central American countries will grow even larger if CAFTA is implemented.

Promised: NAFTA will spur job and income growth.

Delivered: The Economic Policy Institute estimates that the United States has lost 880,000 jobs because of NAFTA. There are about 33,000 fewer family farms and ranches since its implementation, with a 16.5 percent decrease in net farm income from 1996 to 2001. The past couple of years have seen improvement in farm income, due mostly to beef prices. Who benefits as farms go out of business and net farm income decreases?

1) Archer Daniels Midland profits grew from $110 million to $301 million annually from 1993-2000.
2) ConAgra’s profits grew from $143 million to $413 million.
3)Cargill’s profits more than doubled, from $468 million to $1.2 billion from 1998 through 2002.

U.S. domestic policies now result in these multinationals being able to buy agricultural commodities at below cost of production, and dump them in foreign markets for a profit. About 1.5 million small-scale Mexican farmers have been forced off the land as a result of cheap U.S. grain, driving prices below what can sustain a family.

A Question of Sovereignty

NAFTA included stringent and little publicized enforcement powers, and CAFTA contains similar provisions. Under NAFTA’s Chapter 11, Canadian or Mexican investors can sue the U.S. government if they believe that an action by the government results in a reduction of the investors’ projected business profits.

One of the most striking cases filed to date (over 40 complaints have been filed in the United States) involves a Canadian firm, Methanex, that produced a component of MTBE, the gasoline additive. California banned the use of MTBE because it has been determined to be a carcinogen and was found in the state’s groundwater. Subsequently, the private company making MTBE in California no longer needed Methanex’s component. So Methanex sued the U.S. government for over $950 million, complaining that the “California ban harmed it by substantially reducing the demand for methanol, its sole product.”

If the NAFTA tribunal rules for Methanex, it essentially means that foreign, private business’ profits have greater legal standing than the right of California’s citizens to enact laws that they feel protect their health and welfare. A U.S. firm could not file a similar suit in U.S. courts. Foreign firms have more rights through the NAFTA – and CAFTA – tribunal system than U.S. firms have through the court system. U.S. firms can, however, file similar complaints in Canada and Mexico, challenging local environmental protection, public health and worker rights laws that can be deemed to reduce profits.

The bottom line is recent U.S. trade agreements are not opening new markets for U.S. exports. Instead the United States is essentially creating outsourcing agreements with countries who can not buy our products, and giving up some sovereignty as part of the package.

The Congressional Mind Set?

For the most part, RMFU’s congressional delegations are holding their CAFTA cards pretty close to the vest and are not willing to commit publicly one way or the other. There are a few exceptions.

Mark Udall, D-Colo., and Barbara Cubin, R-Wyo., have stated they will oppose CAFTA. The rest remain undecided, at least publicly. Some progress was made with a few when they expressed a willingness to take a harder look at CAFTA when fly-in participants pointed out some of the lesser know provisions and impacts described in this article, especially the impact on sugar beet growers.

At this printing, CAFTA is being debated in Congress. RMFU can only hope that for once logic and an understanding of what is good for the long term economic health of this country will prevail over politics-as-usual.