WASHINGTON—A number of existing trade agreements, especially the Central America Free Trade Agreement (CAFTA) are a nightmare for importers and exporters alike.
Importers are burdened with regulations that are restrictive and expensive to implement, while exporters can’t sell their goods in the United States unless they comply with the regulations and other stipulations.
Economists categorically state that there are no “truly free” free trade agreements. All free trade agreements are managed trade agreements. Underlying economic theory demands that supply and demand is not restricted by government market intervention. Fundamentally, managed trade is protectionist trade.
“Better yet, to accurately reflect their true nature, all of them [free trade agreements] should be called Managed Trade because on each page within every agreement are quotas, stipulations, and byzantine clauses that rival the federal tax code,” according to an article on the Ludwig von Mises Institute Web site, an Austrian think tank.
On the other hand, importing from countries not governed by free trade agreements with the United States is cheaper and easier, as they are not governed by costly and unwieldy regulations and the United States operates under an open door trade policy.
Rules on tariff liberalization, place of origin, restrictive standards and controls, consumer protection requirements, custom duties, labor standards, and intellectual property rights make some free trade agreements nightmarish.
Trade conflicts, non-tariff barriers, and dumping do not disappear; they often go underground, which makes detection and cooperation more difficult.
To benefit from CAFTA, importers must comply with specific custom regulations and provide detailed information that is extremely time consuming to put together and often difficult to ascertain.
The importer must “conduct regular factory visits to their foreign suppliers’ manufacturing locations to make sure that the goods for which they claim trade preferences are legitimately entitled to them,” according to a recent Knowledge@Wharton (KW) report on the free trade subject.
Futility of Free Trade Pacts
The latest twist in the U.S. customs/importer saga is that customs officers have become nitpicky and are looking for needles in a haystack, even scrutinizing older shipments. On finding any infraction against established rules with any prior import, the importer is penalized.
Importers, especially small companies, are not up on the legalities of free trade agreements and don’t have the funds to hire a corporate lawyer who knows all the tricks of the trade. So CAFTA effectively handicaps smaller firms.
CAFTA “does not yield its benefits easily. Rather than simplify or eliminate trade rules (as many people imagine free-trade pacts do), CAFTA makes importing from Central America a more complicated process than importing from China and many other countries that are not parties to any U.S. free-trade pact,” the KW report explains.
According to KW, the clincher of the situation is that “in contrast, U.S. importers who buy from China can benefit from that country’s low costs and high productivity without having to meet such requirements, since they’re not applying for any trade-pact preferences.”
CAFTA was ratified in 2005 and until 2008, U.S. firms were on the receiving end. In 2008 alone, the United States exported 33 percent of all goods arriving in Central America, while it imported 32 percent of all goods exported from that region.
During the four years ending in 2008, imports from Central America to the United States rose by only 10 percent from roughly $13 billion dollars, while exports to the region from the United States soared by 48 percent to slightly above $24 billion.
Losing Ground in Textiles
CAFTA has not opened doors for Central American countries. For example, China has aggressively sold and is selling its textile products in the United States. As textile imports from CAFTA countries fell by 6 percent in 2009, China’s textile imports into the United States increased by 10.7 percent.
China does not have to comply with the restrictive rules, continues to manipulate its currency, pays little or nothing to its workers, and produces in labor camps and prisons at zero cost, making its products appear cheaper.
CAFTA countries are losers in the textile export game. In 2009, imports into the United States dropped by more than 40 percent from Costa Rica, by more than one-third from the Dominican Republic, and by close to one-fifth from Honduras and El Salvador.
None of the four top textile suppliers to the United States—China, Vietnam, Indonesia, and Bangladesh—operate under a U.S. free trade pact. They take advantage of America’s open trade doors and have driven the U.S. textile industry into the ground due to pricing that no American firm can compete with.
“So much for the magic of free-trade pacts, critics say, when it comes to stemming China’s rise in the sector,” KW states in its report.
A Gift to Corporations
Not only CAFTA, but any trade agreement is beneficial to the corporate world, as it is not only easier to outsource jobs, but cheaper to import products and save a great deal on import duties, affecting the corporate bottom line positively.
The corporate world envisioned that “CAFTA would lower the cost of importing from the five countries of Central America as well as the Dominican Republic,” according to the KW report.
However, CAFTA and many other trade agreements have a glitch. Any U.S. corporation, no matter where it is based, can sue the government of a CAFTA country outside U.S. jurisdiction, if any regulation would put a dent into its operations or attack its interests in the region.
“The fundamental problem is that, on many issues, CAFTA would give multinational corporations more power than our [Costa Rica] government,” according to a 2007 article on the Economic Policy Institute Web site by Ottón Solís.
Current CAFTA members include Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.
Importers are burdened with regulations that are restrictive and expensive to implement, while exporters can’t sell their goods in the United States unless they comply with the regulations and other stipulations.
Economists categorically state that there are no “truly free” free trade agreements. All free trade agreements are managed trade agreements. Underlying economic theory demands that supply and demand is not restricted by government market intervention. Fundamentally, managed trade is protectionist trade.
“Better yet, to accurately reflect their true nature, all of them [free trade agreements] should be called Managed Trade because on each page within every agreement are quotas, stipulations, and byzantine clauses that rival the federal tax code,” according to an article on the Ludwig von Mises Institute Web site, an Austrian think tank.
On the other hand, importing from countries not governed by free trade agreements with the United States is cheaper and easier, as they are not governed by costly and unwieldy regulations and the United States operates under an open door trade policy.
Rules on tariff liberalization, place of origin, restrictive standards and controls, consumer protection requirements, custom duties, labor standards, and intellectual property rights make some free trade agreements nightmarish.
Trade conflicts, non-tariff barriers, and dumping do not disappear; they often go underground, which makes detection and cooperation more difficult.
To benefit from CAFTA, importers must comply with specific custom regulations and provide detailed information that is extremely time consuming to put together and often difficult to ascertain.
The importer must “conduct regular factory visits to their foreign suppliers’ manufacturing locations to make sure that the goods for which they claim trade preferences are legitimately entitled to them,” according to a recent Knowledge@Wharton (KW) report on the free trade subject.
Futility of Free Trade Pacts
The latest twist in the U.S. customs/importer saga is that customs officers have become nitpicky and are looking for needles in a haystack, even scrutinizing older shipments. On finding any infraction against established rules with any prior import, the importer is penalized.Importers, especially small companies, are not up on the legalities of free trade agreements and don’t have the funds to hire a corporate lawyer who knows all the tricks of the trade. So CAFTA effectively handicaps smaller firms.
CAFTA “does not yield its benefits easily. Rather than simplify or eliminate trade rules (as many people imagine free-trade pacts do), CAFTA makes importing from Central America a more complicated process than importing from China and many other countries that are not parties to any U.S. free-trade pact,” the KW report explains.
According to KW, the clincher of the situation is that “in contrast, U.S. importers who buy from China can benefit from that country’s low costs and high productivity without having to meet such requirements, since they’re not applying for any trade-pact preferences.”
CAFTA was ratified in 2005 and until 2008, U.S. firms were on the receiving end. In 2008 alone, the United States exported 33 percent of all goods arriving in Central America, while it imported 32 percent of all goods exported from that region.
During the four years ending in 2008, imports from Central America to the United States rose by only 10 percent from roughly $13 billion dollars, while exports to the region from the United States soared by 48 percent to slightly above $24 billion.
Losing Ground in Textiles
CAFTA has not opened doors for Central American countries. For example, China has aggressively sold and is selling its textile products in the United States. As textile imports from CAFTA countries fell by 6 percent in 2009, China’s textile imports into the United States increased by 10.7 percent.China does not have to comply with the restrictive rules, continues to manipulate its currency, pays little or nothing to its workers, and produces in labor camps and prisons at zero cost, making its products appear cheaper.
CAFTA countries are losers in the textile export game. In 2009, imports into the United States dropped by more than 40 percent from Costa Rica, by more than one-third from the Dominican Republic, and by close to one-fifth from Honduras and El Salvador.
None of the four top textile suppliers to the United States—China, Vietnam, Indonesia, and Bangladesh—operate under a U.S. free trade pact. They take advantage of America’s open trade doors and have driven the U.S. textile industry into the ground due to pricing that no American firm can compete with.
“So much for the magic of free-trade pacts, critics say, when it comes to stemming China’s rise in the sector,” KW states in its report.
A Gift to Corporations
Not only CAFTA, but any trade agreement is beneficial to the corporate world, as it is not only easier to outsource jobs, but cheaper to import products and save a great deal on import duties, affecting the corporate bottom line positively. The corporate world envisioned that “CAFTA would lower the cost of importing from the five countries of Central America as well as the Dominican Republic,” according to the KW report.
However, CAFTA and many other trade agreements have a glitch. Any U.S. corporation, no matter where it is based, can sue the government of a CAFTA country outside U.S. jurisdiction, if any regulation would put a dent into its operations or attack its interests in the region.
“The fundamental problem is that, on many issues, CAFTA would give multinational corporations more power than our [Costa Rica] government,” according to a 2007 article on the Economic Policy Institute Web site by Ottón Solís.
Current CAFTA members include Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua.
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