New Trade Pact with U.S. Would be Difficult

A visit from two U.S. congressmen last week has touched off a firestorm of press releases and statements over what Costa Rica could expect from the United States if it votes down the Central American Free-Trade Agreement with the United States (CAFTA).

The two congressmen suggested a new free-trade agreement might be possible and touted the permanence of most of the Caribbean Basin Initiative (CBI) trade benefits (TT, Sept. 28).

But other U.S. members of Congress, trade officials and the pro-CAFTA campaign have been quick to point out the precarious position Costa Rica would be in should it vote down CAFTA.

Although it’s true that most of the CBI benefits have no expiration date, reports to Congress from the U.S. Trade Representative note that either the U.S. Congress or the President can suspend the unilateral benefits at any moment.

 House and Senate Majority Leaders Nancy Pelosi and Harry Reid sent Costa Rican Ambassador, Tomás Dueñas, a letter last week stating that there is no “connection” between CBI benefits and the referendum vote, yet in the letter they stop short of guaranteeing the future of the benefits.

Indeed, some of the trade privileges granted by an extension of CBI in 2000 – including cut tariffs on leather goods, certain textiles and canned tuna – do expire, on Sept. 30, 2008. Absent approval of CAFTA, the U.S. Congress would have to renew those benefits for them to continue, but has yet to give any promises that it will do so.

Textile industry representatives estimate that 14,000 Costa Ricans are employed in the textile industry thanks to these CBI benefits. Without them, U.S. tariffs on some textiles would be as high as 35%.

In a statement released on Thursday, U.S. Trade Representative Susan Schwab sounded an ominous note: “The fact is, the United States has never faced a situation where one of our trading partners rejects a reciprocal trade agreement with the United States, but continues to seek unilateral trade preferences,” Schwab said.

Of course, Schwab doesn’t have the last word since she represents a Republican administration and the decision to extend CBI will be left up to the Democrat-controlled Congress.

Sherrod Brown, a freshman Democratic Senator from Ohio, gave a speech this week on the floor of the Senate saying that “there is a fair-trade movement on the rise here in this chamber, in the House of Representatives, and surely across the land,” and, like the congressmen who visited Costa Rica, raised the possibility of a new bilateral free-trade agreement should Costa Rica vote down CAFTA.

Claude Barfield, a resident scholar at the American Enterprise Institute and specialist in free trade, said that would be a “dicey game” for Costa Rica to play. For one thing, Congress recently let expire the President’s power to negotiate free-trade agreements and submit them to Congress for an up-or-down vote (a power known as fast-track).

A Democratic Congress isn’t likely to reinstate that power and seriously approach new negotiations until after a Democratic President is in power – 2009 at the earliest.

Even with Democratic majorities in the House and the Senate and a Democratic executive, Frank McNeil – the U.S. ambassador to Costa Rica from 1980 to 1983 and one of the architects of CBI – said a new freetrade agreement would probably be a low priority.

“There’s the Iraq War and a few little problems like that,” he said. “You think they’re going to rush through a new treaty with Costa Rica?”

Even if Democrats wanted to, they would have to work with disgruntled Republicans who have already spent several years and lots of political capital offering up free-trade agreements like CAFTA.

“In my view,” said Jim McCrery, the ranking Republican on the powerful

and Means Committee, “the United States will not consider a separate bilateral agreement with Costa Rica if the CAFTA-DR, already implemented by six of seven parties, is not approved in the referendum.”

McNeil said Costa Rica would be better off renegotiating parts of CAFTA after approving it, something that Peru and Panama have done and that the Democrat Congress has shown itself willing to do.

“Inside the tent it’s always easier,”McNeil said.