Statement Of Congressman Stephen F. Lynch On The Central American Free Trade Agreement

May 4, 2005

I thank the gentleman for yielding and taking the time on such an important and timely subject.  I rise in opposition to this so-called Central American Free Trade Agreement.

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I am told the clinical definition of insanity is "doing the same thing over and over again and expecting different results.”  The <?xml:namespace prefix = st1 ns = "urn:schemas-microsoft-com:office:smarttags" />United States continues to enter into similar so-called "free trade” agreements with countries and regions of the world that give carte blanche to corporate America to outsource jobs to other parts of the world. 

Now given the experience so far, you would think that when you find yourself in a hole, you might stop digging. 

Not only does this ship American jobs overseas, but it creates a "race-to-the-bottom” mentality and further burdens our current trade deficit.  In 2004, the U.S. trade deficit soared to a record of $617 billion, a 25% increase over 2003’s record deficit and more than 5% of our nation’s GDP.

The Bush Administration and the corporations who profit when American jobs get shipped overseas argue that this trade deal will benefit U.S. businesses and workers while helping member countries prosper.  The fact is:  this couldn’t be further from the truth.  Tonight, I’d like to focus my remarks on exposing the real impact that the Central American Free Trade Agreement will have on our workers, Central American workers, and our burgeoning trade deficit.  Let’s first take a quick look at the North American Free Trade Agreement – NAFTA – and its impact on our workers, our neighbors’ workers, and the trade deficit.

Those who advocate Congress’ passage of the Central American Free Trade Agreement, CAFTA,  often point to NAFTA and it status as a "success story” in their arguments.  I think it is important to take a close look at NAFTA in order to understand both the economic and policy implications of this model as we consider the Central American Free Trade Agreement.

During the NAFTA debate, proponents of the trade measure promised that its adoption would lead to 170,000 new jobs in the United States; instead our country has lost 3 million manufacturing jobs since the adoption of NAFTA in 1994, 900,000 of which come as a direct result of NAFTA.  These jobs were good, high-wage, benefits-paying manufacturing jobs that have been replaced by service sector positions that typically pay 23 to 77 percent less, with few or no benefits.  While some proponents expect the Central American Free Trade Agreement to turn out differently than did NAFTA, the six Central American countries possess an even larger pool of cheap labor than Canada and Mexico. 

What’s more, since the implementation of NAFTA, the trade deficit with Mexico has surged from $9.1 billion in 1993 to $110.8 billion last year. 


Additionally, NAFTA did nothing to improve the lives of average Mexicans and this failure to improve the quality of life for these workers has generated mass opposition and widespread distrust on our southern border.  Amnesty International continues to report that extrajudicial torture and murders continue.   This is not democracy, this is not what Mexicans signed up for.

Meanwhile, here at home, this comparative advantage of subsistence wages and a complete lack of labor and environmental protections have led to the shift of low-wage, labor-intensive work from the U.S. to Mexico. 

Pursuing unrestricted free trade agreements with lesser-developed countries along the NAFTA model will continue to accelerate this "race to the bottom,” where jobs go to the countries with the weakest labor and environmental protections.  That’s bad for American workers and exploitative of foreign workers.

We hear this Administration talk about exporting democracy.  Well, this is probably the most powerful opportunity.  You don’t export democracy through the Defense Department – you do it through trade agreements.  Are we liberating Iraq so we can move American jobs there and exploit them for wages of 10 cents an hour, in miserable conditions, 12 hours a day, with no environmental standards.

As for the expected boon to the Mexican economy, we have seen none of these gains and instead we have seen NAFTA’s detrimental impact on the Mexican worker.  Average real wages in Mexican manufacturing are lower than they were ten years ago.  And as companies look to cut costs even further, we see factories being shipped from Mexico to China, India, and Indonesia, always in search of the lowest cost best exemplified by the most exploited worker.


Now on NAFTA’s coattails rides CAFTA, the Central American Free Trade Agreement, and the American people are expected to buy the same bill of goods at even higher costs.

Proponents of CAFTA insist that the economic gains from this trade agreement for American workers and business will be a windfall.  But remember what we’re trading FOR – the combined purchasing power of Nicaragua, El Salvador, Honduras, Costa Rica, Guatemala, and the Dominican Republic is almost identical to the purchasing power of New Haven, Connecticut. 

The U.S. economy, with a $10 trillion GDP in 2002, is 170 times larger than the economies of these six nations, at about $62 billion combined.  Quite simply, the Central American Free Trade Agreement is not about robust markets for the export of American goods.  It is about access to cheap labor.  It is about shipping American jobs overseas, so they can sell stuff back to the people who still have jobs…

The American Worker

As an ironworker who worked at the General Motors plant in Framingham, Massachusetts – which closed shortly before several plants were relocated to Mexico – and at the General Dynamics ship yard in Quincy, Mass – another victim of foreign competition – I know the impact of "offshoring.”  I know what it means to families and I know what it means to towns and cities when those jobs disappear.

Over the last twenty years, our economy has hemorrhaged jobs in the manufacturing sector; since 2001, 3.3 million jobs were lost.  Yet these workers were told not to worry.  They were told they would be retrained for another job; they needed more education in our new high-tech economy.  How can they not worry, though, when unemployment is at a 10-year high at 5.4%, with 80 million Americans out of a job?  Personal bankruptcies in Massachusetts alone rose 17.5% between 2000 and 2003. 

How can we tell these folks not to worry when the Administration is signing even more trade agreements to ship away their jobs?  The never-ending pursuit for the lowest cost labor is spreading and CAFTA will only cement this cycle.  We need to break this cycle now.


There’s a pretty good book out called "The World is Flat,” by Tom Friedman.  I suggest my colleagues read it.  Mr. Friedman writes about the speed at which our jobs are disappearing and the volume of wealth being taken from working class Americans.

The biggest share of U.S. exports to the 6 CAFTA countries is not the traditional, job-creating kind.  These products are not consumed in the purchasing nations.  What happens is that fabric is sent to Central America, stitched into final apparel and home furnishings, and then shipped back to the United States.  Rather than serving new foreign markets, these so-called "exports” serve our domestic market, which was once supplied by U.S.-based factories.

The biggest difference here is that American workers are cut out of the picture.  More than 30% of U.S. exports to the  6 CAFTA countries consists of these types of "round trip” exports that cause American jobs to be outsourced to those countries with lower labor standards.

But this trade agreement is bad not only for American workers, but for those in Central America as well.

The CAFTA Worker

Yesterday, the Wall Street Journal reported Costa Rica’s resistance to the Central American Free Trade Agreement.  Costa Rica, the oldest democracy in Central America and its most developed nation, is balking at ratifying this Central American Free Trade Agreement.  Costa Rican President Abel Pacheco has said that he believes that the Central American Free Trade Agreement will negatively impact the nation’s poor.  He has said he will not submit this trade agreement to the Costa Rican Parliament until next February. 


The reluctance of Costa Rica has surprised the White House and undermines one of its chief arguments for the pact:  that CAFTA represents an urgently sought benefit for the impoverished region.  


Costa Rica’s ambivalence and the long delay before it votes on the trade agreement indicates its reluctance to endorse this supposed "free trade” agreement.  Protests in Guatemala numbering in the thousands have also been an indicator that many Central Americans do not see the Central American Free Trade Agreement as beneficial for their nations and their livelihoods.  As you may know, May Day marches in Guatemala, Costa Rica, Honduras, and El Salvador have featured myriad anti-CAFTA signs and slogans.


As President Pacheco rightly emphasized:  more trade does not necessarily mean less poverty. 


Proponents of the Central American Free Trade Agreement have conveniently ignored this fundamental issue – the effect of trade on incomes in Central America and how to alleviate the adverse consequences of trade liberalization on the poor.  This "Washington Consensus,” that opening up markets will help alleviate poverty, is just plain wrong.


One reason is that labor in developing countries is not nearly as mobile as trade theorists assume.  In Central America, for trade to benefit unskilled workers – farm laborers, for example – they need to be able to move out of jobs that will face greater competition from efficient U.S. producers thanks to CAFTA – such as growing corn – and into jobs in exporting industries that are likely to be selling more products to the American market.

Unfortunately, though, job mobility is not a given. 

In both Mexico and Colombia, for example, trade liberalization has increased poverty among workers in some industries and locales precisely because labor cannot automatically move from one industry to another.


Trade reform has also been linked to increasing income disparity, as skilled workers have captured more benefits from globalization than their unskilled counterparts. 

Simply said:  CAFTA will make the rich richer and the poor poorer. 

Take Mexico as a perfect example.  Since NAFTA, Mexico has lost 1.9 million jobs and most Mexicans’ real wages have fallen.


The United States, with its unrivaled economic clout, is in a unique position to empower workers around the world while promoting economic prosperity here at home.  Unfortunately, the Central American Free Trade Agreement does the exact opposite. 

If we pass CAFTA, we are rewarding Central American countries for their poor labor rights records, we are harming farmers in Central America by opening up their tiny markets to our own, and we are cementing the cycle of exploitation.

Recently released reports prepared for the Labor Department, and confirmed in reports by Human Rights Watch and the National Labor Committee, provide overwhelming evidence that CAFTA does almost nothing to protect workers.  These Labor Department reports have been suppressed because they demonstrate Central American workers’ rights restrictions.  Thanks to my colleague, Representative Sander Levin, DOL has released these reports.

In these reports, DOL found that the rights to collective bargaining and nondiscrimination in the workplace were negligible.  In Nicaragua, for example, employees can be fired for organizing provided that they are paid twice the normal severance amount.  It is bad enough that these countries do not meet the International Labor Organization’s basic standards, but what’s worse is that CAFTA is silent on the need to improve working conditions in Central American countries.

Instead of trade policy that is beneficial to American businesses and workers as well as our trade partners, we have flawed trade policies that hurt all parties. 

Free trade should not mean free labor.  Likewise, free trade does not, as evidenced in CAFTA, mean fair trade.

The Central American Free Trade Agreement outlines only one labor and environmental provision:  that countries enforce their own labor and environmental laws. 

The labor laws of the 6 CAFTA nations are a joke. They have been repeatedly criticized by the UN’s International Labor Organization (ILO) and our own State Department.

Violations of core labor standards cannot be taken to dispute resolution and the commitment to enforce domestic labor laws – which are pathetic to begin with – is subject to remedies weaker than those available for commercial disputes.  In a purely technical sense, this violates the negotiating principal of Trade Promotion Authority (TPA) that equivalent remedies exist for all parts of an agreement.

Another negative effect of the Central American Free Trade Agreement for the Central American laborer will be felt in the agricultural sector of these countries.  Simply put, CAFTA will destroy Central American farmers.  That is why we have seen these mass protests.

1.5 million people in Central America depend on rice production.  Under CAFTA, while Central American countries will be forced to eliminate import tariffs on rice, the U.S. will continue to maintain subsidies for our domestic rice producers.  Central American rice producers will be destroyed by this flood of cheap rice. 

The final negative impact of the Central American Free Trade Agreement I’d like to discuss is what it will do to our trade deficit.

Trade Deficit

The U.S. trade deficit – which indicates that our imports exceed our exports – has increased by $200 billion per year under this Administration.  In 2003, the trade deficit reached $497 billion and U.S. foreign debt has increased dramatically from $1.6 trillion in 2000 to $2.7 trillion at the end of 2003.  Over the past 4 years, a ten-year budget surplus of $5.6 trillion has become a ten-year deficit of over $3 trillion.

The U.S. went from a $5 billion trade surplus with Mexico in 1992 to a $45 billion – let me repeat $45 BILLION – trade deficit in 2004.  Our trade deficit with China has risen from $18 billion in 1992 to an astounding $161 billion in 2004. 

Now we’re working to do another American job export bill.

Secretary of State Condoleezza Rice said yesterday that the Central American Free Trade Agreement will help the U.S. compete more successfully in the dynamic global economy.  HOW?  How will these nations be able to help the U.S. come out of its current trade deficit? 

CAFTA nations are not robust export markets – the average wage of a Nicaraguan worker is FIFTY CENTS an hour.  Nicaraguan workers cannot afford to buy cars made in the U.S.; they can’t afford Folgers coffee or Tide laundry detergent.  They cannot afford cuts of U.S. prime beef at $13 per pound.

As I noted before, the six Central American nations of Nicaragua, El Salvador, Honduras, Costa Rica, Guatemala, and the Dominican Republic have the purchasing power parity of New Haven, Connecticut.  

They will not add much to the U.S. economy, only take American jobs away.  And make no mistake.  That what this is all about.

If companies were serious about creating robust markets for "Made in America” goods, they would be working to improve the wages and working conditions of these workers.  It is only when these laborers can earn enough to buy U.S. goods that this kind of trade will be successful for all parties involved.

If you consider that a typical Central American consumer earns only a small fraction of an average American worker’s wages, it becomes clear that CAFTA’S true goal is not to increase U.S. exports.  About half the workers in this region work for less than 2 dollars a day, placing them below the global poverty level.

All this agreement does is exploit lowest-wage labor to the detriment of the American worker.  The Central American Free Trade Agreement does not benefit you.  Let’s be honest:  CAFTA benefits companies that leave the U.S. or outsource U.S. jobs to Central America.  These companies will not only exploit cheap labor with minimal protections, but can import their products back to the U.S. under favorable terms.

Policy Recommendations

There are several simple steps we can take to mitigate the effects that existing trade agreements have on our workers and future trade agreements have on global labor movements. 


First, instead of subsidizing large corporations that outsource American jobs, with tax breaks for foreign production and government contracts for companies that ship jobs overseas, we should create financial incentives for companies to keep jobs in the U.S. 


Secondly, we must act now to deal with our increasing national deficit.  The U.S. trade deficit has jumped from $70 billion in 1993 to $618 billion in 2004.  There should be no new trade agreements until this matter is addressed.


Finally, in existing trade agreements, we need to demand and strictly enforce all provisions protecting labor, human rights, and environmental standards.  All future trade agreements should include these basic rights and all countries should be held accountable to internationally-recognized standards. 

We need a trade policy that supports domestic manufacturers, while promoting labor standards overseas. 

CAFTA, the Central American Free Trade Agreement, fails to do either. 

There’s a stark contrast between Iraq and CAFTA policies.  In recent months and weeks, I’ve heard a lot of inspiring talk coming out of the White House – talk of exporting democracy to Iraq, empowering people, raising their standard of living – liberating the Iraqi people.

Then I see this Central American Free Trade Agreement and what it does.  It endorses oppression, it exploits workers, it turns a blind eye to repressive regimes, it reinforces the complete lack of hope that these people have – it doesn’t lift a finger to help them.

Once Iraq is stabilized, is this the way we’ll treat their workers?  Is that why we pumped $200 billion into that country?  Is that what "liberation” means?  Is that what our sons and daughters are fighting and dying for?