U.S.-Central American Free Trade Agreement
President Bush signed the US-DR/CAFTA on August 2, 2005, giving final U.S. approval of the agreement. This follows a vote in the U.S. House of Representatives on July 28 of 217-215. Of California’s representatives to the House, 19 members voted in favor of the agreement, while 34 were opposed. To see how your representative voted, please see the U.S. House of Representatives roll call website.
The U.S. Senate approved the US-DR-CAFTA on June 30, 2005 by a vote of 54-45. California’s senators were split on the issue, with Senator Dianne Feinstein voting yes and Senator Barbara Boxer voting against the agreement.
The governments of El Salvador, Nicaragua, Honduras and the Dominican Republic have implemented the agreement as of March 2007. Costa Rica ratified CAFTA last year and is currently working to pass several laws needed for implementation.
The U.S. International Trade Commission released a study in August 2004 on the effects of CAFTA on the Dominican Republic and Central America. The report found that the agreement is expected to result in gains for U.S. exports, economic welfare and market access. The DR-CAFTA is expected to increase U.S. exports worldwide by $1.9 billion upon implementation, more than any other recent FTA, including Australia. Without a CAFTA in place, U.S. products face a competitive disadvantage in the region, because Central American countries have been very active in negotiating free trade agreements that do not include the United States. More than 20 trade agreements grant preferences in Central America to products from Mexico, Canada, Chile and several South American nations.
Under the Agreement, more than 80 percent of U.S. exports will be able to enter DR-CAFTA countries duty-free immediately after taking effect, with all products having duty-free access in ten years.
The United States and the five Central American countries share over $38 billion in total (two-way) trade in goods. U.S. goods exports to Central America totaled $22 billion in 2007. Seventy-four percent of the U.S. imported goods from the Central Americans enter duty free under the Caribbean Basin Initiative and Generalized System of Preference programs. Leading U.S. exports to Central America include textiles, machinery, electrical machinery, and mineral fuel. Leading U.S. imports from Central America include apparel products and edible fruits. The U.S. is the main supplier of goods and services to Central American economies. Forty percent of total goods imports by Central America come from the United States.
California exports to the DR-CAFTA market totaled over $920 million in 2007. California is the fourth largest of state agricultural exporters to the DR-CAFTA market, and the third largest exporter of computers and electronic products to the region.
The FTA is expected to contribute to stronger economies, the rule of law, sustainable development, and more accountable institutions of governance, complementing ongoing domestic, bilateral, and multilateral efforts in the region.
History of the US-DR/CAFTA Negotiations
On January 16, 2002, President Bush offered to negotiate a Free Trade Agreement with Nicaragua, El Salvador, Guatemala, Costa Rica and the Honduras while urging Latin America not to turn away from free market reforms.
On October 1, 2002, the U.S. Trade Representative notified the Congress of the President's intent to enter into trade negotiations with the five members of the Central American Economic Integration System. Working-level negotiations on a U.S.-Central American Free Trade Agreement or CAFTA, began in San José, Costa Rica, on January 27, 2003. As a result of eight rounds of negotiations, the substance of the FTA was completed at the end of 2003.
The FTA builds on the Caribbean Basin Initiative (CBI). Since 1985, the U.S. trade relationship with Central America has been driven by U.S. unilateral trade preferences through the CBI. By moving from unilateral trade preferences to a reciprocal trade agreement, the FTA will seek to eliminate duties and unjustified barriers to trade in both U.S.- and Central American-origin goods and also address trade in services, trade in agricultural products, investment, trade-related aspects of intellectual property rights, government procurement, trade- related environmental and labor matters, and other issues.
The California Chamber, in keeping with long-standing policy, enthusiastically supports free trade worldwide, expansion of international trade and investment fair and equitable market access for California products abroad and elimination of disincentives that impede the international competitiveness of California business. New multilateral, sectoral and regional trade agreements ensure that the United States may continue to gain access to world markets, resulting in an improved economy and additional employment of Americans.
- A U.S. - Central America Free Trade Agreement is a critical element of the strategy of the United States in seeking to liberalize trade through multilateral, regional, and bilateral initiatives.
- A CAFTA will complement the goal of completing a Free Trade Area of the Americas (FTAA).
- A CAFTA will increase momentum toward lowering trade barriers and set a positive example for other small economies in the Western Hemisphere.
Additional Information