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Thursday, Dec 7, 2023

CAFTA’s Passing: More Symbolic Than Substance


For all the passion the Central American trade debate generated in Washington, D.C., it hasn’t created much buzz in Southern California.

After intense deal making among Republicans, representatives last month passed the Central American Free Trade Agreement, known as CAFTA.

Intense lobbying against the bill by labor, environmental and some agricultural groups came up short in the 217-215 vote. President Bush then signed the bill into law Aug. 2.

Bush lobbied hard for the trade deal. Bush sees it providing positive momentum for bigger trade deals in the works.

Experts said the free-trade legislation is positive for local companies, but won’t have a big effect on the economy here.

Some Positives

But observers see the deal helping in a few ways, including beefing up intellectual property laws or giving apparel makers new production options.

The trade deal cuts barriers between the United States and the Central American countries of Costa Rica, Honduras, Nicaragua, Guatemala and El Salvador, along with the Dominican Republic.

The combined gross domestic product of these countries was $85 billion in 2003, compared with $11 trillion in the United States, according to the World Bank.

Two years ago, Orange County posted nearly $9 billion in total exports, with CAFTA countries accounting for less than 1 percent of the county’s total, according to the most recent data from Vincent Dropsy, professor of international economics at Cal State Fullerton.

Orange County’s biggest export market in Central America was Costa Rica with $22 million in sales, according to Cal State Fullerton. Costa Rica ranked No. 32 among all county trade partners.

At No. 39, Guatemala was the second largest Orange County trade partner with $15.3 million in exports.

Nicaragua, ranked No. 76, imported $3 million worth of goods, the smallest amount of the CAFTA countries.

Irvine-based heart valve maker Edwards Lifesciences Corp. said CAFTA could prove positive for the company.

“I can say it’s not a major market for us, but we are looking to try and expand it,” said Barry Liden, a spokesman with Edwards, which has a plant in the Dominican Republic. “Elimination of the duties and tariffs will reduce our costs.”

U.S. industries most worried about CAFTA , largely sugar producers and basic textile manufacturers that warn of a flood of cheaper goods coming into the United States , don’t have much of an effect on the Orange County economy.

Effects Felt Over There

“I think it will have a stronger impact there than it will here,” said Denise Stanley, associate professor of economics at Cal State Fullerton. “For Orange County, I don’t see much impact.”

Under past agreements, CAFTA countries already enjoyed lower tariffs for goods they sell to the United States. However, many CAFTA countries continue to put tariffs on U.S. products.

Under CAFTA, those barriers are largely eliminated over several years. U.S. sugar producers and textile makers still enjoy some protections.

“The bottom line is I think it’s good for the local companies,” said Raul Lozano, international trade specialist for the Department of Commerce in Newport Beach.

The apparel industry could see some manufacturing shift to Central America because of CAFTA, said Jack Kyser, chief economist for the Los Angles County Economic Development Corp.

While China has been expanding its presence in the textile industry, some companies complain about clothing makers there.

“What you’ve found is a lot of apparel manufacturers that have gone to China have had quality control issues,” Kyser said.

Long shipping times only exacerbate these problems for U.S. apparel makers. Central America could provide some alternatives for local clothing makers, Kyser said.

Also, Central American companies can turn around orders within a matter of days, instead of the weeks typical with Chinese producers, he said.

At least one of Orange County’s biggest apparel makers doesn’t expect to outsource to Costa Rica or Honduras anytime soon.

Tustin’s Raj Manufacturing Inc. makes most of its high-quality swimwear in the United States, outsourcing less than 10 percent of the work to China, said Alex Bhathal, the company’s executive vice president, who handles production.

Although Bhathal said Raj Manufacturing had to overcome quality issues in China, Central America’s apparel industry is even less able to satisfy the company’s standards right now.

Bhathal isn’t giving up on the region.

“If Central America were able to meet our quality standards and our timelines, then it would be an option,” Bhathal said.

CAFTA’s stronger provisions for intellectual property rights could help some Orange County companies.

Drug companies should benefit from longer lives on their patents, which means they won’t have to compete with generic brands as quickly.

“The United States is asking for more in all of these bilateral trade agreements,” said Claude Barfield, a trade specialist with the American Enterprise Institute in Washington, D.C.

CAFTA likely will have more of an impact in Central America than in the United States. Open trade could encourage more foreign investment in CAFTA countries, which could boost local economies.

“I think in the long-term what the U.S. is interested in is political stability and economic growth in the region,” Barfield said.

Perhaps a bigger issue for Bush was to show he could negotiate a trade deal and then deliver the final agreement with Congress’ approval.

That should help with World Trade Organization negotiations, Barfield said.

And in the longer term, free-trade backers are hoping to put together a broad agreement throughout South America and North America that would create a European Union-type region for the Western Hemisphere.

These are the kind of deals that could greatly affect Orange County firms by opening up markets with more buying power and more investment opportunities, Barfield said.

Brian Womack writes for the

Orange County Business Journal.


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