Global Policy Forum

By Elizabeth Becker

The United States sewed up its first new trade agreement in a year marked by reversals and setbacks, completing negotiations on Wednesday with four Central American countries to create a regional free trade pact. But it fell short of its goal of including Costa Rica, the richest nation of the group, and prospects are cloudy for trade progress in the year ahead.

Robert B. Zoellick, the United States trade representative, saluted his partners from El Salvador, Guatemala, Honduras and Nicaragua, saying they had the courage to agree to open their economies further to United States services and goods. Still, the agreement is but a fraction of the Bush administration's ambitious trade agenda.

That agenda has faltered on several fronts this year: global trade talks collapsed in Cancún, Mexico, in September; bilateral talks for trade agreements with Morocco and Australia have been delayed; and the agenda for a free-trade agreement for the Western Hemisphere had to be watered down to avoid a debacle.

Free trade advocates say these disappointments reflect deepening concern in the United States and around the world about the direction of trade liberalization and questions about its benefits. "Part of the reason this year has not been kind to these trade pacts is the advocates of free trade are too fundamentalist in their approach," said Julia Sweig, a senior fellow at the Council on Foreign Relations and Latin America expert. "They don't give the same level of priority to human capital - immigration and labor rights - as they do to inanimate issues like property rights and goods and services."

In the United States, some lawmakers and others are gaining traction in their complaints that free trade agreements have helped propel the country's growing trade deficit, which now stands at $500 billion, and contributed to the loss of three million manufacturing jobs since President Bush took office.

Though the new pact, the Central American Free Trade Agreement, or Cafta, was warmly received by many industry groups in the United States, representatives from the sugar and textile industries as well as some members of Congress were already complaining that it would cost more jobs in return for little benefit. "In order to get a trade agreement, they had to trade our jobs in sugar," said Dalton Yancey, executive vice president of the Florida Sugarcane League. "But people are more concerned today about jobs, and this agreement means sugar producers and industries in rural America are going to lose more jobs."

Those issues will make it difficult for the administration to win passage of Cafta in Congress in the coming election year. Besides the potential loss of jobs and growth in the trade deficit, lawmakers say they are concerned about labor and environmental standards.

With the administration's tepid trade record and the loss of jobs looming as a major campaign issue, it is questionable whether any of the presidential candidates will be full-throated advocates for free trade and globalization.

This year, the administration has also completed two free trade agreements begun by President Bill Clinton, one with Chile and one with Singapore, but it has won little support on the global stage. World Trade Organization talks in Cancún broke down when a group of 20 developing nations challenged the contention by the United States and Europe that current trade rules are effective in the fight against poverty in the poorest nations.

And the Bush administration backed away from its steel tariffs this month after losing to Europe at the W.T.O., a test of America's commitment to being policed by an international organization.

Cafta exemplifies the free trade dance the administration is having to perform. Currently, the annual trade between the United States and the four Cafta countries is valued at $15.4 billion, with nearly three-fourths of the products from Central America already entering duty free under special preference programs.

The United States insisted that the Central American nations open up their protected service areas and agricultural products markets. But at the same time, the United States is resisting a full opening of its borders to sensitive agriculture products like sugar.

Trade officials made no direct claims on Wednesday that the new agreement would lead to an improved trade balance or more jobs for Americans. Instead, said one, "Cafta and other trade agreements are important components to creating an overall robust economic picture of expanding jobs and exports." There is growing criticism that social programs, particularly in the public health arena, suffer disproportionately under these new trade agreements.

The talks over a new free trade agreement with Australia had to be extended in part because the Australian government balked at demands by United States officials to water down the system under which the Australian government negotiates the prices it pays for prescription drugs.

The new Cafta agreement was criticized by global health advocates who said that the provision strengthening intellectual property rights would weaken generic drug manufacturers in the region. "This is the worst case scenario," said Rachel Cohen of Doctors Without Borders. "By limiting the ability of generic pharmaceutical companies to compete, it will mean these people lose the lever of generic competition that keeps prices down and gives poor people access to medicine."

Costa Rica, which could still join Cafta, resisted doing so this week because of American demands to open up its services industries and tourist trade, which could mean giving up control of its coastline and its emphasis on ecotourism. Still, the administration won strong support for Cafta from many industry groups, including the United States Chamber of Commerce.

Mark Smith, the director of Western Hemisphere affairs at the organization, said Cafta was "a strong, high-value and comprehensive agreement." He said that the United States was correct to insist that Costa Rica open up its services sector. "Telecommunications has been a state-run monopoly for quite some time,'' Mr. Smith said. "It's been linked with social programs by extending telecommunication links to rural areas, but the fact is Costa Rica has some of the highest rates in the region."

Similarly, Mr. Zoellick said the textile and apparel industries would be strengthened by closer integration between American yarn and fiber producers and Central American manufacturers. The industry is facing stiff competition from China and other nations, Mr. Zoellick said, and the agreement will help "to prepare for an increasingly competitive global market."

Senator Ernest F. Hollings, Democrat of South Carolina, complained that the South Carolina textile industry had "already lost 62,400 jobs to Mexico, China and other countries." - "This agreement will get rid of the rest," he said. "This is about all of the Bush jobs policy that we can stand."

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