A Word on Greenspan’s CAFTA Comments

I just caught a replay of Alan Greenspan’s Wednesday testimony before the House Financial Services Committee. As Bill Day of Business Express complained, much of the discussion wasn’t enlightening. I just want to comment on one exchange.

Rep. Maxine Waters, in the briefest terms, asked: CAFTA will increase outsourcing. Is outsourcing good or bad?

Chairman Greenspan chose to reply by defending outsourcing as efficient and desirable. In doing so, he granted Waters’ premise. But there are good reasons to believe that CAFTA will not affect, or perhaps even reduce, outsourcing!

CAFTA primarily lowers the other nations’ barriers to US exports, not US barriers to theirs. Most of the six other nations’ exports already have duty-free preferential access to the US market under the Caribbean Basin Trade Partnership Act program. As such, CAFTA won’t introduce any new competitive pressures upon US import-competing industries. It will, however, reduce incentives for US companies to establish factories in CAFTA countries in order to circumvent (pre-CAFTA) trade barriers by allowing the US corporations to freely export their goods to the Latin American nations.

It’s silly how anti-globalizers try to impose all of their arguments upon every trade deal. CAFTA is a fairly narrow agreement that opens up Latin American markets to US exports. It doesn’t encourage outsourcing, doesn’t significantly reduce American tariffs, and doesn’t lower labor standards in our partner countries. Those that oppose free trade are using CAFTA as a proxy for globalization as a whole, ignoring that their complaints have little relevance to CAFTA itself.

[That said, I still oppose the deal, because it’s a preferential agreement that will do more harm than good.]