CAFTA Passage May Hinge on Support for China Trade Bill

Passage of a free trade agreement with Central America may depend upon legislation that would pressure China to loosen its exchange rate, which is blamed for the poor performance of American exports.

House Ways and Means Committee Chairman Bill Thomas, R-Calif., told the U.S. Chamber of Commerce Tuesday that it's become “very difficult for (many lawmakers) to vote on a trade package without getting some kind of meaningful response on the issue of China," Reuters reported. "That needs to be considered as members are looking to commit themselves to an additional trade agreement.”

Thomas said Republican House leaders may have to support legislation on China in order to get votes for the U.S. Central American Free Trade Agreement, or CAFTA, which is being pushed by the Bush administration. The White House is also leaning on Beijing to loosen its exchange rate, now at 8.28 yuan to the dollar. The huge trade deficit would decrease by as much as $60 billion by raising the value of the Chinese currency by 25 percent, the New York Times reported.

"We have to let China know, probably from a legislative position, that the administration's recent exhortations are supported by the Congress and that China ... has to continue to make changes as it modernizes itself," Thomas said.

CAFTA has split the U.S. textiles industry and opposition has come from unions and sugar farmers. CAFTA would do away with tariffs on U.S. exports to Costa Rica, El Salvador, Honduras, Guatemala, Nicaragua and the Dominican Republic. In return, those countries would continue to get duty-free access to U.S. markets.

"This model involves granting free access to the U.S. market for producers that use pennies-an-hour wages, low labor standards and low environmental standards to undercut U.S. domestic manufacturers," Auggie Tantillo, executive director of the American Manufacturing Trade Action Coalition, said during a Tuesday Senate hearing. "In return, U.S. domestic manufacturers gain access to markets that are only a fraction of the value of the U.S. market."

On the other side, Bob Stallman, president of the American Farm Bureau Federation, told the Senate Agriculture Committee that CAFTA is an opportunity for U.S. agriculture to eliminate a competitive disadvantage.

"U.S. agriculture will continue to face applied tariffs of between 15 and 43 percent," said Stallman. "CAFTA-DR will eliminate these barriers. This agreement provides balance by giving U.S. agriculture the same duty-free access that CAFTA-DR nations already have to our markets."

Thomas also said funding to support labor law enforcement in Central American might be necessary before CAFTA can pass. Congress, which must approve or reject the agreement without making changes, is expected to vote this month or in July.

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