U.S.-Central American Free Trade Agreement

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, Guatemala, Nicaragua, Honduras and the Dominican Republic have implemented the agreement as of March 2007. Costa Rica ratified CAFTA completely in 2008.

The United States and the five Central American countries share roughly $42 billion in total (two-way) trade in goods. U.S. goods exports to Central America totaled $28.9 billion in 2015. Leading U.S. exports to Central America include petroleum, computers, textiles, chemicals, and food manufactures. Leading U.S. imports from Central America include apparel products, agricultural goods, manufactured commodities, and food manufactures. The U.S. is the main supplier of goods and services to Central American economies. Over forty percent of total goods imports by Central America come from the United States.

California exports to the DR-CAFTA market totaled over $1.8 billion in 2015, making it the 4th largest state exporter. California imported over $2.7 billion from DR-CAFTA in 2015 making it the 2nd largest state importer.

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 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 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.