Trade: Pressures Dampening Outlook

Sept. 26, 2005
CAFTA's close vote might be a sign of tougher times for other pacts.

The extremely narrow 217-215 margin by which the U.S. House of Representatives in late July approved a free-trade agreement among the U.S., the Dominican Republic and five Central American countries could signal serious trouble ahead for approval of other trade-liberalizing measures.

In addition to a yet-to-be-reached global trade agreement being pursued by the 148 members of the World Trade Organization (WTO), pending pacts include the Free Trade Agreement of the Americas (FTAA) and free-trade agreements between the U.S. and the Andean countries, the Southern Africa Customs Union, Thailand and Panama.

The Business Roundtable, a Washington, D.C.-based association of 160 influential CEOs, tacitly recognizes tough times could lie ahead for these agreements. While praising this summer's passage of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA) -- which will lower trade barriers with the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua -- the CEOs emphasized a "U.S. commitment to a global leadership role on trade" would be "vital" to successfully concluding the Doha Round of WTO negotiations. Launched in Doha, Qatar, in November 2001, those ambitious trade talks have been marked by dissension and delays. Bargaining is not likely to be finished before the end of 2006, nearly two years behind schedule. And results could be far less than the marked lowering of tariff and non-tariff trade barriers achieved in the Kennedy and Uruguay Rounds, arguably the most productive of the nine post-World War II global trade negotiations.

The FTAA, the Americas free-trade pact, is "pretty much bogged down," believes Ernest H. Preeg, senior fellow in trade and productivity at the Manufacturers Alliance/MAPI, an Arlington, Va.-based business research and public policy group.

And Preeg predicts getting approval for the other pending trade pacts will be "difficult and complicated," not so much because of their content as what he calls "the broader concerns about trade policy." In the U.S. Congress, chief among those concerns is China -- specifically the huge U.S. trade deficit with China, $90.1 billion for the first six months of 2005, and an undervalued Chinese currency.

"A lot depends on what happens over these next few months," most importantly with China but also at the December WTO meeting in Hong Kong on the Doha Round, judges Preeg. "By early next year might be the time that one would have to look at where [the bilateral free-trade agreements] are going with a view to concluding them," he says. "They are being negotiated now, and that will continue. The real question is when they have agreements is the President in a position to sign them with a reasonably sure expectation that he would get them through Congress."

Meanwhile, procedural steps must be taken before CAFTA takes effect. But when the agreement does take effect, probably in early 2006, for U.S. makers of wood products, tariffs on their exports to the six CAFTA countries will fall from 10% to zero; for U.S. auto and auto parts producers, tariffs will from 11.1% to zero; for U.S. processed foods producers, tariffs will fall from 12.8% to zero; and for U.S. ferrous metals producers, tariffs will fall from 6.3% to zero.

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