The proposed U.S.-Central America Free Trade Agreement (CAFTA) promotes trade liberalization between the United States and five Central American countries: Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Modeled after the ten-year old North American Free Trade Agreement (NAFTA), CAFTA is widely considered to be a stepping stone to the larger Free Trade Area of the Americas (FTAA) that would encompass 34 economies. CAFTA must be approved by the U.S. Congress and by National Assemblies in the Central American countries before it becomes law.
Public employees, farmers and students protested against Costa Rica’s participation in the Central American Free Trade Agreement (CAFTA) with the U.S.
The Bush Administration aggressively pursued the CAFTA negotiations on a very short timeline; whereas NAFTA took more than seven years to negotiate and the FTAA has been negotiated for almost a decade, CAFTA was completed in one calendar year, with limited civil society or Congressional participation.
Negotiations for CAFTA began in January 2003, shortly after the U.S. Congress approved a bill to confer Trade Promotion Authority (or “Fast Track”) to the White House. Under “Fast Track,” Congress is limited to an up or down vote and cannot amend a trade agreement. The agreement was signed on May 28, 2004 in Washington D.C. and is now waiting to be submitted to Congress after the elections.
CAFTA is the first “sub-regional” agreement to be negotiated between such unequal trading partners, where the combined GDP of Central America is equal to 0.5 percent of U.S. GDP.
CAFTA would require market liberalization for the majority of goods and services in Central America—including agriculture, manufacturing, public services and government procurement. In return, the U.S. has promised increased market access for certain sectors in Central America, including textiles and a limited increase in sugar quotas. Rigorous impact assessments of CAFTA have not been conducted in Central America. Rather, Central Americans are forced to judge the potential impact based upon the ten-year record of NAFTA. Analysts expect that – as occurred in Mexico – CAFTA will attract foreign direct investment and boost Central American exports in certain sectors, but will provide little benefit to the rural and urban poor of the region.
Facts on Trade among Central American Countries
In 2003, the U.S. exported $15 billion of goods to the Dominican Republic and Central American countries.
Combined total goods traded between the U.S. and the CAFTA countries is approximately $32 billion.
Collectively, CAFTA-DR is the second largest U.S. export market in Latin America and 13th largest export market worldwide.
Significantly, it is a larger market than Russia, India and Indonesia combined.
Through unilateral preference programs approved by Congress, nearly 80% of CAFTA-DR imports already enter the United States duty free.
The agreement immediately and significantly levels the playing field for U.S. manufacturers. Major U.S. industrial sectors that are highly competitive will gain immediate duty free treatment, including information technology; paper; chemicals and pharmaceuticals; and construction, agricultural, medical and scientific equipment.
More than 80% of U.S. industrial exports can be sold duty-free into the six countries upon entry into force of the agreement.
Central American and Dominican Republic average applied industrial tariffs are 30 to 100 percent higher than U.S. applied industrial rates. Whereas U.S. rates average 3.6 percent, Guatemala’s average applied industrial tariff is 7.1 percent, Honduras’ is 6.7 percent, El Salvador’s is 6.5 percent, Nicaragua’s is 4.9 percent, Costa Rica’s is 4.6 percent and the Dominican Republic’s is 10.7 percent.
Trade works for both business and labor. When the U.S. exports manufacturered goods, American labor benefits enormously.
Trade-intensive industries pay an average annual compensation of $60,000 a year – almost 40 percent more than the least trade-intensive industries. The U.S. needs more of those jobs.
Eighty percent of the U.S. trade deficit comes from countries with which the U.S. does not have trade agreements.