CAFTA win sends mixed signals on US govt-analysts

[__Kratos__]

WASHINGTON (Reuters) - The Bush administration's success in passing a controversial Central American trade bill should embolden it ahead of world trade talks, analysts said on Thursday -- but its credibility may be hurt by how it secured votes.

The Republican-controlled House voted 217-215 in favor of the U.S.-Central American Free Trade Agreement, or CAFTA, in the early hours of Thursday after a final push by Bush and top aides to win over many reluctant Republicans.

The agreement eliminates tariffs on U.S. exports to Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic. It also locks in and expands the duty-free access those countries already have to the U.S. market.

CAFTA's success was considered vital by the U.S. government as proof of Washington's negotiating power on trade deals as it prepares to participate in the next round of World Trade Organization talks. WTO states are sharply divided on how to cut agricultural subsidies and open up their farm markets.

"The United States showing that it was able to get through a controversial trade agreement is reassuring to its allies," said Susan Aaronson, director of globalization studies at the Kenan Institute, a Washington think tank.

"But in another sense, it's meaningless because CAFTA wasn't passed on its merits but on side deals and arm-twisting."

To speed CAFTA's passage, and counter opposition from sugar state lawmakers and the industry, the administration promised to keep annual sugar imports below a key farm program threshold of 1.532 million short tons through the life of the current farm subsidy law, which ends with the 2007 crops.

"The way they were railroaded by the sugar lobby says to me that these special interests have much more clout than we've given them credit for. If we can't deal with sugar and cotton the (WTO) round is doomed," Aaronson said.

Textile-state representatives voted for CAFTA after receiving commitments, including one stating that pockets used in clothes that qualify for duty-free U.S. treatment under the pact will only come from a CAFTA country and not from China.

"It will be important to see what other side-deals are out there," said Kimberly Elliott, research fellow at the Center for Global Development in Washington.

"There have been passing references that maybe they promised to back off on some of the cuts in the agricultural budget that they had sought. Just because they promised doesn't mean they will necessarily deliver," she said. "But other side-deals... might undermine the administration's credibility."

The Senate already approved CAFTA, 54-45. But because the U.S. constitution requires bills affecting revenues to start in the House, the Senate has to vote again. Supporters hope that can be quietly accomplished by unanimous consent without another full-fledged Senate debate.

MARKET ACCESS

Nevertheless, CAFTA passed with more votes than did the 2002 trade promotion authority, which was approved in the House of Representatives by one vote in 2001 and with which President Bush hopes to push through any WTO deal. The authority means Congress can only vote yes or no on any trade bill.

CAFTA also showed that the United States is not afraid to tackle the thorny subject of market access -- the main sticking point in many WTO negotiations.

"The price the administration paid for CAFTA was smaller than the price it paid for trade promotion authority when it ended up with a farm bill spending $6 billion more a year than the previous one," noted Gary Blumenthal, president of agricultural trade think tank World Perspectives.

"Meanwhile the one thing that free trade agreements do is deal with market access. And what's holding up the WTO negotiations? Market access," he said.

"The U.S. has just shown it is willing and capable of negotiating improved trading terms via FTAs. If others are going to block (WTO) progress it emboldens the U.S. case -- 'negotiate with us or we'll just simply go around you'."

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I think I am going to be sick.

[Michelle]

No kidding....I can't believe it passed by two friggin votes. It goes to show that the governments are never going to listen to anything any of us have to say.