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Techies See Central American Deal As 'Critical'
by Danielle Belopotosky
The ratification of the trade agreement with Central America and the Dominican Republic "is critical" to future trade negotiations, and its failure would send the wrong signal to the World Trade Organization (WTO), the Office of the U.S. Trade Representative and the technology industry contend.
The USTR office maintains that passing CAFTA is necessary step in "advancing the president's trade agenda and that includes Doha," a spokesman said.
"In terms of global leadership, it would send a horrible signal to [the WTO]" that the United States could not pass an agreement with a region that has the gross domestic product less than that of the city of Sacramento, said Christopher Wenk, director of international trade policy at the National Association of Manufacturers. CAFTA includes Costa Rica, the Dominican Republic, and El Salvador, Guatemala, Honduras and Nicaragua.
The Doha Domino Effect
Separate to CAFTA, the WTO, of which the United States is a member, has been negotiating the so-called "Doha round" that could open doors to international commerce with developing nations and clarify their obligations. Proponents of CAFTA say the completion of those talks, which began in Doha, Qatar, in 2001, hinge on the success of the Central American agreement.
U.S. technology and manufacturing companies say CAFTA promises new market access on a wide range of high-technology products, would encourage e-commerce and impose tough intellectual property rights protections.
Under the agreement, each nation would ratify several intellectual property treaties in a staggered timeline, which would be completed by 2008. Each would accede to the World Intellectual Property Organization's copyright treaty as well as other trademark and patent treaties.
Such provisions will foster "more legitimate sales there," said Joe Pasetti, director of government relations at the Information Technology Industry Council (ITI).
A 2004 report by the International Trade Commission (ITC), which evaluates U.S. trade deals, found that U.S. concerns in the CAFTA countries include piracy issues and "inadequate copyright protection for software, recorded music and motion pictures."
The International Intellectual Property Alliance estimated some $62 million in U.S. trade losses due to copyright infringement in 2002 and 2003. In its 2005 report, the alliance recommended that the Dominican Republic be elevated to the USTR's priority watch list for the "Special 301," which identifies countries that do not protect U.S. intellectual property rights.
The agreement also would lift telecommunications regulations allowing for the access and use of public communications networks and services in all six countries. Finally, the deal would remove trade restrictions on computer and related services.
Under the agreement, the Dominican Republic, Guatemala, Honduras and Nicaragua will join the WTO's Information Technology Agreement (ITA), of which Costa Rica and El Salvador are members. "This will save U.S. technology exporters millions of dollars annually and help expand a growing market," high-tech CEOs, including Craig Barrett of Intel, Mark Hurd of Hewlett-Packard and Ed Zander of Motorola, wrote in a letter to Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee.
Opposition On The Hill
The CAFTA agreement, however, faces tough opposition from members of Congress, the sugar industry and labor and environmental groups, while the agricultural, textile and commodities industries, such as cotton, are split. Several state legislatures have proposed resolutions opposing the deal, claiming it could undermine state and local regulations and would result in local job losses.
Meanwhile, the tech industry stands in solidarity. Multi-national companies that produce and sell online content, including McGraw-Hill, and other groups with intellectual property right concerns such as the Motion Picture Association of America (MPAA), have endorsed the pact.
"This important trade agreement will create jobs, promote intellectual property and protect against piracy," MPAA President Dan Glickman said in a March 9 statement, after he concluded a meeting with President Vicente Fox of Mexico.
The tech industry, which averages about 60 percent of its revenues from foreign markets, has lined up in support of CAFTA, saying the agreement will remove trade barriers and open market access to the CAFTA nations. The U.S. tech industry exported $2.5 billion worth of goods to those six nations in 2003.
"Our industry is dependent on international trade to survive and to grow," said Pasetti. This free trade agreement (FTA) is important to the industry "in order to grow the company and grow revenues" in that market, he said.
The United States also reported a $2.3 billion trade deficit in with the region in 2003, according to the ITC. Total U.S. exports to the region were $14.4 billion, while imports reached $16.7 billion. And in 2004, trade with the six CAFTA countries accounted for 1.15 percent of total U.S. trade, according to the Commerce Department.
But some opponents point out that 50 percent of the region's population is considered to be at the poverty level, and that is an impediment to stronger trade. "Are we going to be selling them computers?" said David Martin, senior government affairs representative for the Association of Flight Attendants-Communications Workers of America.
Opponents also point to lessons learned from the 1994 North American Free Trade Agreement (NAFTA). "We lost millions of jobs ... and we saw our trade deficit trade skyrocket," Martin added. Before NAFTA, the United States had a trade surplus of some $1 billion with Mexico. Today, the U.S. has a $41 billion deficit.
"It is becoming clearly evident that the multinational companies are looking to gain access to cheap labor," Martin added.
"We may be debating CAFTA," but concerns of previous trade agreements "are never far from decision makers process," said Pasetti. "I am sure people's interpretations under NAFTA, and China, are all things that come into play in deciding on how to vote."
Big Sugar Sours On Deal
Other CAFTA opponents, such as the sugar industry, say the United States should use the WTO as the platform to achieve true trade liberalization, as opposed to bi- and multi-lateral agreements. Doha would have a much broader reach into global markets, not just in Central America.
"[Free trade agreements] such as CAFTA distract from, and harm, the progress toward genuine trade liberalization in the WTO," said Jack Roney, director of economics and policy analysis for the American Sugar Alliance, when he testified before the House Committee on Ways and Means in April. "The FTA approach risks fragmenting the world economy into a matrix of trading blocs, each with its own tariff wall around to protect the subsidies within."
The tech sector sees a tough battle ahead in Congress. Neither side has enough votes, said Ralph Hellmann, senior vice president at ITI in a recent CAFTA roundtable. There will be 20 to 30 representatives who are unlikely to vote to ratify the agreement, he said.
About 10 Republican House members already have come out against the FTA. Three Democrats in the House have publicly supported the agreement, Reps. Henry Cueller of Texas, Jim Moran of Virginia and Jefferson Williams of Louisiana, two of which are home to "Big Sugar" states.
In the Senate, a bipartisan anti-CAFTA caucus has been formed. Sens. Norm Coleman, R-Minn.; Larry Craig, R-Idaho; Bryon Dorgan, D-N.C.; and Lindsey Graham, R-S.C.; have signed onto it. Sens. Saxby Chambliss, R-S.C., and Richard Burr, R-N.C., also have criticized the deal. Burr has called for stronger textile provisions.
While the trade agreement could prove to have ramifications on future trade deals, if CAFTA fails, it "would have a chilling effect on progress with those other nations," said Pasetti.
But some staffers say CAFTA is different.
"CAFTA seems to be unique ... it is so controversial," said a Senate aide. Congress has strongly supported four previous trade agreements during this administration.
While CAFTA may be ripe, there is a strong support on the Hill to move Doha forward, said a House aide.
"Everyone looks at [Doha] as the Big Kahuna," said the Senate aide.
The House vote could come as early as this summer, but a mock mark-up of the FTA has not been scheduled.
Editor's Note:
The original version of the May 2, 2005 Issue of the Week incorrectly reported that the Central American nations that are part of the Central American Free Trade Agreement (CAFTA) had a total gross domestic product less than that of San Diego. Those nations have a GDP the size of Sacramento, Calif. Also, David Martin is the senior government affairs representative for the Association of Flight Attendants-Communications Workers of America, which is separate from CWA International. The items have been corrected in this version.
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