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187 IRET Congressional Advisory 1 (2005)

handle is hein.taxfoundation/iretcgadv0184 and id is 1 raw text is: INSTITUTE FOR RESEARCH ON THE ECONOMICS OF TAXATION IRET is a non-profit 501 (c)(3) economic policy research and educational organization devoted to informing the public about policies that will promote growth and efficient operation of the market economy. June 15, 2005 Advisory No. 187 CAFTA CLEARS COMMITTEES, AWAITS SENATE AND HOUSE ACTION The proposed United States-Caribbean- Dominican Republic Free Trade Agreement (CAFTA-DR for short) would cover Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, Nicaragua, and the United States. It was reported out of the Senate Finance Committee by a narrow 11 to 9 vote on June 14, and by the House Ways and Means Committee by a vote of 25 to 16 on June 15. It must now be considered by the full Senate and House. CAFTA-DR is of clear benefit to the people of the United States. It is being opposed by the sugar lobby, and some in the labor and environmental movements. This opposition has slowed consideration of the agreement. The initial trade agreement with the five Central American nations was signed on May 28, 2004. Agreement was reached with the Dominican Republic on August 5, 2004. Thus, the pacts have been awaiting ratification by the Congress for roughly a year. That CAFTA-DR is in some difficulty in the Congress is a sad commentary on the state of economic understanding and the policy making process in Washington. If Congress were to reject a trade agreement so favorable to the United States, it would cast a pall over any future trade negotiations. No one would credit any proposals made by the U.S. Trade Representative and the President, because it would be assumed that they would not clear Congress. Liberalization of global trade would be jeopardized. Gains and losses from trade: using gains to ameliorate losses The gains from trade have been motivating economic activity by ordinary people since human commerce began, and have been understood, documented, and measured by economists for at least two centuries. When it comes to removing tariffs and trade barriers that have protected certain industries, however, there are generally some losers among the many winners, and their vocal opposition is why trade agreements can founder. Fortunately, the gains to the winners almost always outweigh the harm to the losers by a wide margin. It is therefore possible for the winners to compensate or assist the losers to some reasonable degree, or even to buy them off outright, and still leave significant net benefits to the population at large. This is the justification for trade adjustment assistance. The goal of adjustment assistance should not be to freeze resources in the protected area, but rather to compensate them for the trouble involved in finding and training for alternative employment. The Senate Finance Committee has recom- mended that the legislation submitted to enact CAFTA-DR include extension of trade adjustment assistance to people in the service sector (in addition to factory workers already eligible). Services have become a much larger component of world trade in recent years, and the extension would make sense. There is also talk of a compromise with the sugar e~om S I gg~ g ~gg

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