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Passage of CAFTA May Depend on Legislation of Trade with China

The Bush administration is trying to win support for the Central American Free Trade Agreement--or CAFTA--from undecided Republicans in the U.S. House of Representatives. One tactic House leaders are using to win votes for CAFTA is punitive legislation on trade with China. Leta Hong Fincher explains the logic.

President Bush urged members of the House of Representatives to vote for CAFTA, saying that the trade deal would bring more peace, prosperity and democracy to the hemisphere.

"This bill that the House of Representatives will be voting on next week is pro-jobs, pro-growth and pro-democracy," said the president on Thursday.

As Mr. Bush made his speech at the Organization of American States in Washington, his administration struggled to gain enough votes to pass CAFTA in the House of Representatives.

The Central American trade agreement grants duty-free trade privileges to six Latin American countries. CAFTA has been criticized by Democratic Party and Republican Party legislators for threatening U.S. jobs.

In an effort to win over opponents of CAFTA, leaders in the House of Representatives have approved a vote to impose trade restrictions on China, which is accused of taking even more American jobs by manufacturing goods at lower prices.

Republican Party Congressman Phil English is one lawmaker who opposed CAFTA until the administration agreed to a tougher stance on China trade.

"My main concerns about CAFTA had to do with how it fit into our overall trading policy,” said Congressman English. “Now that the administration and Congress are clearly on a path to dealing with the China trade problem, I feel much more comfortable voting for CAFTA."

Mr. English says that his China bill will help level the playing field to allow American companies to compete with the Chinese. One of its provisions would impose "countervailing duties" or punitive tariffs on Chinese imports that are found to be subsidized by the Chinese government.

Under current law, the United States cannot impose countervailing duties on "nonmarket" economies like China, which has a communist government. Economists say that a new anti-China trade bill may be hard to enforce, because it is difficult to determine which goods have been subsidized when costs are not based on supply and demand.

Albert Keidel is a China economist at the Carnegie Endowment for International Peace. "If you have no way of determining whether those costs themselves are legitimate or not, whether they really represent scarcity in the economists' words, whether they represent supply and demand, then it's very hard to say that you should impose a countervailing duty."

The effort to link China trade restrictions with the Central American deal may not make much economic sense, according to analysts, but could be necessary if President Bush wants to avoid a defeat on CAFTA.