The U.S. Department of Agriculture reports under its export section that in 2009, the U.S. exported $20 billion to the countries of Central America and Dominican Republic. That is more than what the U.S. exported to Ireland, Indonesia, and Russia combined, and a 145% increase from 1994 exports. How was this accomplished? Through CAFTA-DR (Central American and Dominican Republic Free Trade Agreement).
Description of CAFTA-DR
This groundbreaking agreement known as CAFTA-DR was signed in August, 2004 between the U.S. and a block of six nations composed by Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica, and the Dominican Republic.
CAFTA-DR helps the smaller economies of developing countries by eliminating tariffs, reducing barriers to services, fostering transparency, establishing new markets, promoting mutual investments, and endorsing worldwide legal frameworks for commerce.
Benefits of CAFTA-DR
CAFTA-DR countries represent the third largest export market for the U.S. in Latin America, only surpassed by Mexico and Brazil. How do Latin American economies benefit from the trade? What is in it for the U.S.? Are there any drawbacks?
The most visible benefit is the immediate creation of a free trade area. Tariffs get slashed and consumers get cheaper goods. For instance, agricultural exports, so basic to the Central American economies, are treated with tariffs and quotas administered in such a way that are transparent, nondiscriminatory, responsive to market conditions, and less bureaucratic, while allowing importers to fully utilize import quotas.
The Example of Nicaragua in CAFTA-DR
Each member country eliminates export subsidies on agricultural goods destined for another CAFTA-DR country. Nicaragua, the smallest economy of the six CAFTA-DR members, benefited from a 44.7% increase to its U.S. exports between 2005 and 2008. Additionally, the commercial value between Nicaragua and the other CAFTA-DR countries grew by 17% just in one year after the treat went in effect.
As part of the CAFTA-DR commitments, the U.S. government, through USAID, has provided assistance to market-based agricultural endeavors to almost 27,000 producers and 2,600 SMEs in Nicaragua. Four years from its inception, Nicaraguan fresh produce exports have grown from US$300,000 to US$3,000,000, generating new direct and indirect jobs for locals.
U.S. Advantages in CAFTA-DR
According to the Office of the U.S. Trade Representative, the U.S. goods trade surplus with CAFTA-DR was US$1.2 billion in 2009; intellectual property rights now protect U.S. trademarks; and the U.S. foreign direct investment in CAFTA-DR countries hiked up by 39.4% between 2007 and 2008. Also, CAFTA-DR imposes rules requiring member countries to treat service suppliers from the U.S. the same as its own suppliers or those of any other country, prohibits certain quantitative restrictions on market access of financial institutions, and prohibits restrictions on the nationality of senior management.
Criticism of CAFTA-DR
Naturally, critics point at some arguable drawbacks of CAFTA-DR. No trade instrument is perfect, inasmuch not every national economy behaves the same way. Not surprisingly, economic asymmetries are the target of criticism by CAFTA-DR opponents. They argue that without fairer trade agreements, the benefits from trade will not be realized. Some scholars, like Columbia University professor Joseph Stiglitz, the 2001 Nobel Prize in economics, claim that the treaty will increase poverty because it prematurely opens markets to U.S. agricultural goods which are subsidized, making local farmers unable to compete with imports.
From the other side, labor unions and other belligerent groups like the Costa Rican “Patriotic Movement for No to CAFTA-DR”, complain that the treat will only benefit large businesses and the wealthy, leaving workers and farmers in the backseat.
CAFTA-DR Outlook
In the end, benefits from CAFTA-DR seem evident. Listening to the criticism, U.S. authorities agreed to create special funding and programs so that CAFTA-DR countries could implement the labor and environment provisions. Chief among the labor component is the training of human resources. Hopefully, this will ensure the success all involved countries expected from the treat, a treat that although not perfect, will certainly bring the region together economically and socially.
Roberto Porta - My penchant for writing began at an early age. At 8, I already entertained my older siblings with full adventure, action, and other ...
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