U.S. trade agreements promise to stabilize regions in conflict through capitalism and democracy. They also open up cheap labor markets for multinational corporations. Consequently, U.S. jobs are outsourced to low-waged, third-world skilled workers as American employees face layoffs and small businesses collapse because they are unable to compete on the global stage.
The U.S.-Central American and Dominican Republic Free Trade Agreement (CAFTA) is no different. The trade union includes Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. These six CAFTA nations together represent the second largest Latin American export market outside of Mexico, which isn't saying much. These underdeveloped countries have an average cumulative GDP per capita income of $5,300, according to the CIA World Factbook.
Legal wrangling within each national body over technical provisions has delayed CAFTA, which was to take effect on January 1, 2006. Costa Rica, the nation with the highest per capita income at $10,000, has not ratified the pact because the agreement opens up certain sectors of the nation's existing state telecommunications monopoly, such as cellular services. The opening of these sectors to private competition has created a political debate within the nation. The victors of Costa Rica's presidential and congressional elections held this month will take up the issue in mid-2006, said Mauricio Salas, a partner at law firm Facio & Cañas, Costa Rica.
Opening U.S. markets to poor nations is not a new issue of contention. Heated debate surfaced in 1992 over NAFTA, a similar trade agreement between the U.S. and Mexico. The worry was a significant loss of U.S. jobs to Mexico, where laborers made on average $1 a day. The Economic Policy Institute (EPI), a think tank based in Washington, D.C., reported major U.S. job losses under NAFTA. These numbers are now being used to predict job loss and the outsourcing effect of CAFTA. Under NAFTA, one million job opportunities were lost nationwide among all 50 states and D.C. The hardest-hit state was Michigan, which lost more than 63,000 jobs.
CAFTA invites the same worries, as U.S. manufacturers close their doors and lay off thousands of workers. U.S. laborers are not the only ones losing their jobs, however. White-collar workers, including those working in the technical field, are helpless as their jobs are outsourced to India, China, and other nations under these trade agreements.
An October 2005 report by the Information Technology Association of America (ITAA) states that while global software and IT service outsourcing displaced some IT workers, the economic activity that followed IT outsourcing created about 257,000 new jobs in 2005 and is expected to create over 337,000 new jobs by 2010. Even this lobby group admits that not all of these new opportunities will be in the IT field. "While offshore software and IT services outsourcing has displaced and will continue to displace workers in software and IT services occupations, increased economic activity creates a wide range of new jobs—both IT and non-IT," according to the report.
Daniel Griswold, director of the conservative-minded CATO Institute's Center of Policy Studies, said CAFTA is not about more jobs or fewer jobs but about better jobs. He said certain production facilities and jobs in the United States will likely migrate to Central America, such as those in textile and agricultural fields. But at the same time, CAFTA expands markets for U.S. high-tech merchandise exporters, manufacturers, service providers, and their employees. One example is Intel Corp., which operates a factory in Costa Rica. Griswold said Intel could not only produce more chips at its factory with the help of CAFTA, but also sell more product and provide more services to the Central American market. "If Central America continues its development, they will become better consumers of U.S.-made, high-tech products and services," he said.
Not everyone agrees. Robert E. Scott, a senior international economist with EPI, said a market as small as Central America will not have a major effect on the consumption of U.S. technical goods or the creation of U.S. jobs. "What Intel cares about is their ability to have access to a relatively low-wage worker who is highly skilled," said Scott.
He may be right. The U.S. Business & Industry Council's September 2005 trade analysis report states that U.S. trade and advanced technology goods suffered a major setback last year even before the passage of CAFTA. U.S. exports of tech products plummeted 7.93% in September to $17.07 billion while U.S. imports of advanced technology products increased 3.71% to $22.64 billion, the second highest total on record.
This does not bode well for U.S. workers in technical fields. What CAFTA may result in is a U.S. market focused more on the import, not the export, of high-tech goods. CAFTA countries are capable of becoming major exporters to the U.S. market, said William Hawkins, a senior fellow with the council. In his opinion, CAFTA is little more than an outsourcing agreement—a seemingly unstoppable trend as multinationals look to shave costs from their bottom line.
In 2003, U.S. firms made $119 billion total outsourcing deals, up 44% from the previous year, according to Gartner, a research firm based in Stamford, Connecticut. U.S. companies like Motorola and IBM outsource back-office processing units and other IT services to China and India. Texas-based EDS set up EDS-Africa. There, programmers build human-resource and payroll software, among other projects. An entry-level programmer can earn $18,400 annually but pays for all benefits. A U.S. worker may make $50,000 including benefits. Therein lies the problem: It is ultimately cheaper for multinationals to hire non-U.S. workers.
CAFTA is a trade agreement supported by multinationals that want to gain access to low-waged employees. The agreement will cost American jobs, put downward pressure on American workers' incomes, reduce benefits, and add to the U.S. trade deficit. To protect American jobs, EPI's Robert E. Scott believes U.S. trade policy needs to move away from a focus on multinationals' bottom lines. "The problem is that we have allowed companies to write the rules in corporate interest and not the broader interest of workers and the country as a whole," he said.
As long as this trend continues, U.S. workers are vulnerable to outside competition not from those within their own city, state, or nation—but from low-waged workers around the world.