Prepared Statement of The Honorable Cliff Stearns

Dominican Republic-Central America Free Trade Agreement

Subcommittee on Commerce, Trade, and Consumer Protection
April 28, 2005

Good Morning. On a basic level, trade, particularly trade between nations, rests on the age-old theory of comparative advantage. The laws of economic efficiency tell us that we only should produce goods at which we are most efficient, and trade for the others. This helps explain why we can see efficiency gains and improved standards of living when economically disparate countries trade with each other. In these cases, prices reflect the most efficient means of production, which, in theory, leads to a better standard of living by effectively making all goods concerned less expensive. This basic principle has been the bedrock of free trade theory for over two hundred years. I must say at the outset that I am not here to challenge Mr. Ricardo on his elegant principle but I do think the economic, social, and geopolitical complexities surrounding the Dominican Republic-Central America Free Trade Agreement or DR-CAFTA would leave even him a bit overwhelmed. These complexities and profound effects make it extremely important that we understand why the DR-CAFTA agreement's efficiencies -- its net gains for our economies in terms of import and export growth -- also could produce for some U.S. job losses, less competitive U.S. products, and shifts in regional U.S. economies that create winners and losers. Accordingly, the witnesses before us today represent a broad cross-section of many of the constituencies that will feel both positive and negative economic effects of the DR-CAFTA -- many of which constitute significant parts of our home districts.

The signatories of Dominican Republic-Central America Free Trade Agreement include the United States, Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua. The agreement was signed in 2004. The DR-CAFTA agreement would create the second largest U.S. export market in Latin America, behind Mexico. In 2004, U.S. trade with the DR-CAFTA region represented about 1.5% of total U.S. foreign commerce, which amounted to about $33 billion in trade flows, including almost $16 billion in U.S. exports to the region. The U.S. is by far the largest trading partner to the DR-CAFTA countries. Most of the import and export trade within the region covered by the agreement is related to the merchandise, raw material, and agricultural sectors. Since the early 1980s, the U.S. has provided the region one-way duty free trade preferences for the region under the Caribbean Basin Initiative (CBI). In contrast to CBI, DR-CAFTA is a reciprocal trade agreement that is designed to make over 80% of U.S. consumer and industrial exports and over 50% of U.S. farm exports to Central America duty free immediately. Likewise, DR-CAFTA countries would enjoy duty free status on all non-textile and non-agricultural goods immediately. In addition, the agreement includes a number of unique provisions relating to expanded protection of intellectual property, new trade rules for e-commerce, liberalization in the telecom sector, and improved labor standards in the region. The Committee has done a great deal of work in many of these areas, and we look forward to hearing more about these DR-CAFTA elements today.

But even with all of these beneficial provisions and market-opening commitments, DR-CAFTA still stirs up strong opinions. I believe part of the reason is that all trade agreements represent a compromise that, in theory, is crafted to provide net gains to all parties. It seems obvious that parties enter into trade agreements to gain, not to lose. Even so, I believe trade can cut both ways, regardless of economic theory. There are different regional effects, social impacts, and as I mentioned earlier, different winners and losers, regardless of politics. I have seen them, and my constituents have felt them. The NAFTA that my home district in Florida knows is probably a lot different than one in another part of the country, sitting in the middle of a different regional economy. What this Committee and the Congress need to ensure is that those net gains from these agreements don't outweigh the inevitable costs for some of our people back home -- our farmers, ranchers, and local manufacturers. We must do all we can to make sure all those Ricardian economic efficiencies translate into economic progress for all, not stagnation and loss for some.

I also would like to emphasize that I support the goals of forging political and social reform in the region through increased trade and economic progress. This, I agree, is an extremely important undertaking in a world that continues to challenge the ideals of democracy and economic freedom. And I do believe DR-CAFTA can be a very important instrument to help achieve those ends in this hemisphere. The important objectives, however, must not obscure the importance of providing those most affected by a shifting economic landscape the opportunity to be successful too. But let me be clear, stability in the region is an important strategic issue. I believe the United States should be the leader in this region and there are global political issues here which offer economic stability in trade. Positive efforts and results will help reinvigorate multilateral WTO the Doha Round negotiations. I believe that is important. We just need to look at the history postwar Europe and the positive impact trade had for millions of American and Europeans alike to understand the power of free markets and trading partnerships. But we must do it right. And we must remember that true long-term success in trade liberalization will depend on our ability to sustain mutual long-term economic benefits for all Americans under agreements like DR-CAFTA.

Finally, I would like to thank Assistant U.S. Trade Representative Vargo and our other distinguished witnesses from industry, agriculture, labor, academia, and other interests for joining us today and providing their views on this extremely important agreement for our great county. We look forward to your testimony. Thank you.

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