CAFTA Explained, With Its Pros and

Cons
Agreement, Member Countries, Pros and Cons

The Central American-Dominican Republic Free Trade Agreement is

between the United States and six countries in the greater Central
America region. It was the first multilateral free trade agreement
between the United States and smaller developing economies. It
was signed August 5, 2004.

The CAFTA trade area is America's third-largest export market in

Latin America, right after Mexico and Brazil. CAFTA benefited U.S.
exporters of petroleum products, plastics, paper, and textiles, as
well as manufacturers of motor vehicles, machinery, medical
equipment, and electrical/electronic products.
 Also, growers of cotton, wheat, corn, and rice have seen
their exports improve.

Like most other trade agreements, CAFTA removes tariffs

and merchandise processing fees on trade. All tariffs on U.S.
consumer and industrial exports were removed as of 2015
while tariffs on agricultural exports will be gone by 2020.
Everything will be duty-free by the time the agreement is
fully implemented on January 1, 2025. To be eligible for
tariff-free treatment under CAFTA, products must meet the
relevant rules of origin.

CAFTA also improves customs administration and removes

technical barriers to trade. It addresses government
procurement, investment, telecommunications, electronic
commerce, intellectual property rights, transparency, labor,
and environmental protection.
 Member Countries

The seven CAFTA members are Costa Rica, El Salvador,

Guatemala, Honduras, Nicaragua, the Dominican
Republic, and the United States.

Implementation dates ranged from March 1, 2006 through

January 1, 2009, as follows.

• El Salvador: March 1, 2006.

• Nicaragua and Honduras: April 1, 2006.
• Guatemala: July 1, 2006.
• Dominican Republic: March 1, 2007.
• Costa Rica: January 1, 2009.
 Pros
Total trade of goods between the seven countries was
$60 billion in 2013, the latest period for which most
recent figures are available.
Services were not measured. That's a 71 percent
increase since 2005. CAFTA boosted the economies of
Nicaragua, Costa Rica, and the Dominican Republic.
The United States is their largest export market.
Nicaragua, one of the poorest countries, boosted exports
of textiles and agriculture so that the two are now 50
percent of total exports. The economy has grown by
leaps and bounds: 4.7 percent in 2014, 4.6 percent in
2013, and 5 percent in 2012.
Costa Rica benefited from increased foreign direct investment in the
insurance and telecommunications sectors, which the government
recently opened to private investors. The United States is its largest
trading partner, receiving 32 percent of Costa Rica's exports. These include
fruit, coffee, and other food, as well as electronic components and
medical equipment. GDP increased 3.6 percent in 2014, 3.5 percent in
2013, and 5.1 percent in 2012.

The people in Costa Rica supported CAFTA, according to Lheyner Gomez in

an interview with Baxter Healthcare in Cartago, Costa Rica. The
referendum resulted in 51.7 percent in favor and 48.3 percent opposed.
When CAFTA was implemented, the government partially privatized the
banking, telecommunications, and insurance industries, which helped to
boost economic growth.

The Dominican Republic exports half its goods to the United States. Its
exports are primarily sugar, coffee, and tobacco. Since 2012, gold, silver,
and tourism have grown as exports. Remittances from Dominican Republic
expats working in the United States equals 7 percent of GDP. The economy
grew 7.3 percent in 2014, 4.8 percent in 2013, and 2.6 percent in 2012.
Cons

CAFTA had many of the same destabilizing effects on Central

American countries that NAFTA did in Mexico. That's because U.S.
agribusiness is subsidized by the federal government. As a result,
exports of low-cost grains rose 78 percent to Honduras, El Salvador
and Guatemala. Local family farmers could not compete. Before
CAFTA, Honduras had a trade surplus in agricultural products. Six
years after CAFTA, it has a trade deficit.

Many farmers took jobs in U.S. apparel factories that moved to their
countries after CAFTA.

However, many other factories moved to China, Vietnam, and other

low-wage countries. As a result, apparel exports to the United
States from the CAFTA countries were lower in 2013 than before the
trade agreement was signed.
Economic growth in El Salvador, Honduras, and
Guatemala is lower than in the rest of Latin America.
This economic instability helps boost the drug trade. It
prompts many locals, including children, to
emigrate to the United States.

CAFTA Compared to Other Trade Agreements

CAFTA is much smaller than other regional trade

agreements, such as the NAFTA, currently the world’s
largest free trade area. It would have been dwarfed by
the Transatlantic Trade and Investment Partnership if
negotiations had been finalized and the Trans-Pacific
Partnership had it been approved by Congress.