Historical Evidence Favors Ratification of Central American Trade Pact, Economics Professor Concludes

(Alexandria, VA) -- As Members of the Senate prepared to debate the merits of the Central American Free Trade Agreement (CAFTA), a prominent economist and author of several books on public finance reminded lawmakers today that the historical successes of similar agreements recommend swift ratification of the pending treaty.

The following statement has been written by Dr. Richard Vedder, Distinguished Professor of Economics at Ohio University and Board Member of the non-partisan National Taxpayers Union (NTU):

"CAFTA --- the Central American Free Trade Agreement -- is the latest in a series of customs unions going back hundreds of years. History often repeats itself, and a little historical lesson can help us evaluate the probable success of CAFTA. Let us begin in 19th century Europe. The zollverein, an agreement between more than 30 small- and medium-size German states that was signed in 1834, completely eliminated tariffs between them. In the generation following this trade agreement, Germany had a huge increase in economic growth, entering what Walt Rostow has termed Germany's "take-off" into economic growth. Moreover, the trade agreement spawned greater cooperation between the states, leading in just 37 years to German unification, forming one of the most powerful and prosperous nations in Europe.

Another more recent example was the European common market, formed from the Treaty of Rome in 1957. Six nations -- France, Germany, Italy, Netherlands, Belgium, and Luxembourg -- formed a customs union that eliminated tariffs between those nations in a decade. In that decade Common Market economic growth exceeded five percent a year and unemployment rates fell below one percent in some of the nations. The agreement was so successful that it has subsequently spread to 19 other nations and is today's European Union (EU). While much of the EU today is stagnating, that is because of high taxes and government welfare state spending, not free trade. The unleashing of the spirit of enterprise by the removal of trade barriers created prosperity and had the added benefit of reducing tensions between former enemy nations.

Lastly, of course, is the North American Free Trade Agreement (NAFTA), the customs union between the U.S., Canada, and Mexico. A little over a decade ago, when it is was ratified, detractors like Ross Perot predicted a massive loss of American jobs (a "giant sucking sound"), and depression in the Mexican economy. Instead, it fostered a big growth in trade, contributing to the prosperity of the era. Today, about 18 million more people are working in America than at the time of NAFTA's passage, and the unemployment rate has fallen from 6.1 percent in 1994 to 5.2 percent presently. Meanwhile, the fears of economic devastation in Mexico have been likewise proven groundless.

CAFTA will lead to lower prices for American consumers, greater business for American exporters, and a higher standard of living both in the U.S. and Central America. The only question of importance is: how soon can CAFTA be expanded and integrated with NAFTA to form a true customs union encompassing all of the Americas? CAFTA is a great idea whose ratification is long overdue."

Last week NTU released an open letter to Congress from a coalition of 24 federal, state, and local citizen groups and think tanks in support of CAFTA. NTU is a 350,000-member citizen group working for lower taxes and smaller government. Note: Further information on the CAFTA coalition statement is available online at www.ntu.org.