As the U.S. trade deficit topped $617 billion in 2004, and with the expiration of the global agreement on textile quotas this past January 1, U.S. legislators on both sides of the aisle have increasingly viewed the CAFTA-DR as politically radioactive. Indeed, the proposed agreement has become the battlefield of a much larger trade debate regarding, among other things, the role of China in the world economy. Indeed, should the CAFTA-DR eventually go down in defeat, its demise may fairly be laid at the feet of the China colossus, rather than the potential impact of open trade policies with the six signatory countries. Indeed, one of the lines of argument that is being employed by the Administration is that the CAFTA-DR will be a bulwark against a flood of textile imports from China by providing the six signatory countries with more beneficial U.S. market access terms in the wake of the expiration of the global quota system on textiles this past January 1.

However, China is not the only factor working against the prospects of CAFTA-DR approval. The powerful U.S. sugar lobby has transformed CAFTA-DR into a Rubicon of trade, and has vowed a no-holds bar to defeat this agreement. Some Members of Congress have announced their opposition to the CAFTA-DR based on what they consider to be unmet expectations of the North American Free Trade Agreement (NAFTA). For example, Representative Hilda Solis (D-CA), who describes herself as the only Member of Congress of Central American descent, says that she will oppose the CAFTA-DR because of NAFTA’s record, which she claims includes 750,000 jobs lost in the United States. Yet another factor working against the agreement is that the economies of the six signatory-countries are simply not large enough to present sufficient export opportunities that would translate into a critical mass of private sector pressure on key Congressional Representatives to vote in favor of the agreement. And there is a simple political factor at play here: Congressional democrats - who are the key towards approval of the agreement in the absence of unanimous Republican support - are not anxious to provide President Bush with an economic victory or to “bail” the President out of the current stalemate.

In its attempt to rally support in Congress, the Bush Administration is relying heavily on Commerce Secretary Carlos Gutierrez, who has extensive business background in Central American trade, and newly-confirmed U.S. Trade Representative Robert Portman, who is widely liked and respected by his former colleagues in the Congress.

Our sources indicate that the Senate Finance Committee is preparing to set a date for consideration of the draft CAFTA-DR implementing legislation prior to the 4th of July Congressional recess. This is not seen as an indication that the votes are there on the Senate side to approve the agreement, but only as a means to break the stalemate and force some forward movement on the process. The House Ways and Means Committee is not likely to initiate its hearings before the Senate Committee moves first.

In the end, the fate of the CAFTA-DR may well dictate the fate of the remainder of President Bush’s trade agenda, including additional FTAs and the ongoing Doha Round of multilateral negotiations under the WTO. Either way you look at it, the stakes are undoubtedly very high.

Members are urged to communicate their stance on the CAFTA-DR issue directly to Bob Bauer or to Jeff Levin so that we can - as an Association if possible, by individual member-companies if necessary – move to implement a well-devised political action program in support of the CAFTA-DR. The time to throw our hat in the ring is now!

We will keep Members advised as developments unfold.