The US FTA with Central America and the
Dominican Republic (DR-CAFTA):
What Relevance for Asia?
Carl A. Cira, J.D.
Director, Summit of the Americas Center
Latin American and Caribbean Center
Florida International University
Miami, Florida
~~~~~~~~~~~~~~~~~
APEC OFFICIAL SYMPOSIUM:
IMPACT OF REGIONAL ECONOMIC INTEGRATION
IN EAST ASIA ON APEC TRADE LIBERALIZATION
Tokyo, 27-28 September 2006
LATIN AMERICAN AND
CARIBBEAN CENTER
SUMMIT OF THE AMERICAS
CENTER, FIU.
US and Central America –Recent History
25 years of US focus on CA – often intense
1980’s - leftist insurgencies and military
governments ending - Peace Accords - Nicaragua, El
Salvador, Guatemala, Honduras – Extensive US
military and economic development assistance.
 1984 – Caribbean Basin Initiative (CBI)
- Unilateral US trade preferences to CA and
Caribbean to promote economic growth, political
stability and democratic development.
- (By 2003, 77% of CA exports to US were duty free)
 1990’s - democratic elections, gradual economic
recovery. Maquila (assembly) industries and nontraditional agriculture expanded steadily.
 All 6 CAFTA countries now have over 50% of
their two way commerce with the United States.


SUMMIT OF THE AMERICAS
CENTER, FIU.
Western Hemisphere Trade Negotiations -1990’s





1994 - European Union and Mercosur begin
FTA talks.
1994 – Summit of the Americas – Miami – 34
leaders agreed to talks for a Free Trade Area
of the Americas (FTAA).
1995 – GATT Uruguay Round ends – World
Trade Organization (WTO) begins
1995 – NAFTA takes effect (US, Mexico,
Canada) – CBI benefits diluted, CA trade +
investment diverted to Mexico. CA begins to
lobby US for “NAFTA parity.”
1998 – FTAA negotiations formally begin.
SUMMIT OF THE AMERICAS
CENTER, FIU.
Free Trade Area of the Americas Negotiations
1998 - 2003





1998-2003 – FTAA ambition was a hemisphere–wide “WTO –
plus” agreement by January 2005. Hundreds of working
group and committee meetings held. Eight Trade Ministerial
meetings and Four Summits.
“Single Undertaking” - No partial agreements. Nothing agreed
until all is agreed. Nine Chapters and nine negotiating
groups. Very broad consensus needed.
New disciplines: Services, Gov. procurement, investment
protections, competition policy, trade facilitation, and “TRIPS
– plus” for IPR. (Resistance on most of these.)
Reduction of US agricultural subsidies – focus of Brazil,
Argentina etc. US unwilling outside WTO Doha context.
(Publication of Bracketed Draft Negotiating Text – July 2001.
First time ever to blunt “secret negotiation” criticisms.)
SUMMIT OF THE AMERICAS
CENTER, FIU.
“PLAN B” – 2001 to date
Before 2000 – US preferred multilateral trade
pacts – GATT/WTO. – only 3 bilateral US FTA’s Canada, Mexico (NAFTA), and Israel. Jordan signed
in 2000 absent Fast Track - Congress ratified 2001
 2000 – Failure of Seattle WTO Ministerial; FTAA
stalled, no Fast Track, Clinton administration opened
FTA talks with Singapore and CHILE.
 Chile and US had BIT and Chile had sought to join
NAFTA since ‘92. Even so, 3 years of negotiations.
 July 2002 - US TPA law (a.k.a., “Fast Track”) passed
and Congress got back into the FTA game.
 July 2003 - US – Chile FTA signed and ratified
under new TPA. Effective January 2004.

SUMMIT OF THE AMERICAS
CENTER, FIU.
Why start with Chile?








Chile’s “Open Regionalism”- fastest, broadest
liberalization of any Latin American nation in ’90s.
Chile FTA’s with 2/3 of NAFTA. [CANADA (1997)
and MEXICO (1998)]
FTA with Costa Rica + Central America (2001)
In 2002, Chile signs Association Agreement (FTA)
with European Union - (commercial, political
pacts plus technical and cultural cooperation)
Chile an Associate MERCOSUR member since ‘96,
but Chile-EU negotiated apart from MERCOSUREU talks, also stalled in 2002 (and to date…..)
Strategically, a US FTA with Chile easiest to
overcome US Congressional ratification hurdles.
Solid trade partner, stable market economy,
dynamic trade leadership in Latin America.
(And no illegal immigration problems………...)
SUMMIT OF THE AMERICAS
CENTER, FIU.
Why Central America Next in US Line?








2001- FTA’s Chile - Costa Rica + Central America
April 2001 - Costa Rica – Canada FTA. July 2001 Costa Rica
president gives Bush draft proposal for a US - Costa Rica or US Central America FTA.
Latin American leaders rush to join US bilateral queue….
After 2002 TPA passage, USTR pressured heavily for FTAA
progress and delayed on more bilaterals, moving only on Chile.
USTR used the implicit openness to other eventual bilaterals to try
to move FTAA ahead. Ultimately unsuccessful………
Brazil - main resisting counterpart. Other policy imperatives,
regional leadership ambitions, limited dependence on US trade.
Early 2003: Clear that FTAA not moving. USTR accelerated
“Plan B” - “multiple bilaterals,” opening “discussions” with
Central America as next priority after completing Chile.
End 2003: FTAA stalls – “Single Undertaking” abandoned –
Two tier structure decided, but February 2004 Vice Ministers
meeting unable to progress. Moribund since then.
SUMMIT OF THE AMERICAS
CENTER, FIU.
Brazil and Mercosur – “China Ex Machina”?
Brazil “Plan B” – After FTAA stall, pushed revival of
EU-Mercosur FTA. Still not moving today. EU has other
internal priorities. EU Agriculture - main obstacle.
 MERCOSUR crisis - Argentina collapse further slowed
integration; Uruguay and Paraguay seek US FTA’s; New
member Venezuela mainly political – minimal trade.
 South American Community? – non-substantive.
 MERCOSUR–Andean Community FTA – hollow so far.
 2004 - China to the Rescue! China factor in LA
highlighted by Presidential visits. Huge China S.A.
commodity sales boost Brazil, Argentina, Chile, and
Peru. (agricultural, mining, petroleum) Investments?
 Andes and Central America. Rest of region benefiting
less - low priced China manufactured imports in home
markets + strong competition for US import market.

SUMMIT OF THE AMERICAS
CENTER, FIU.
DR-CAFTA Trade with US (2004)
+/- $35 bn (1.5% of US trade)







Guatemala - Ex: $ 3.1 (48%) Im: $ 2.5(32%)
Honduras - Ex: $ 1.7 (54%) Im: $ 4.1 (37%)*
El Salvador - Ex: $ 2.0 (60%) Im: $ 1.9 (32%)
Costa Rica - Ex: $ 3.3 (53%) Im: $ 3.3 (42%)
Dom. Rep. - Ex: $ 4.5 (78%) Im: $ 4.3 (54%)
Nicaragua - Ex: $ 0.9 (82%) Im: $ 0.59 (52%)
Together the DR-CAFTA countries are
the Second Largest U.S. Latin American
trading partner after Mexico.
SUMMIT OF THE AMERICAS
CENTER, FIU.
More Factors on Relative Importance
of Central American Market for U.S.
~ DR - CAFTA Market Significance:
• Total U.S. exports - $15 bn. (2003) Equals combined US exports
to Russia, India, and Indonesia. 12th largest U.S. export market
• Agricultural exports - $1.3 bn. US exports account for largest
share of Central American agricultural imports.
• 13,000 US small and medium businesses export to Central
America+DR – 37% of total U.S. merchandise exports to region.
~ Current Regional Barriers to U.S. Trade:
• Average WTO bound rate 45% - Some key U.S. exports face WTO
bound rates of 250%
• Non-tariff trade barriers - Price bands, discretionary import
licenses, and absorption agreements
~ DR - CAFTA Tariff Reduction and Elimination:
• All products go to zero – 15 year maximum
• Linear cuts - from applied rates, not bound rates
• Phases - Immediate, 5, 10, 12/15 years
• Backloaded cuts - certain sensitive products
SUMMIT OF THE AMERICAS
CENTER, FIU.
DR-CAFTA Main 2005 Trade Partners

Costa Rica



Honduras

Guatemala






Nicaragua


El Salvador 


Dominican
Republic


Exports - US 29.8%, Netherlands 14.2%, UK 8.4%, China 7.6%
Imports - US 43.4%, Japan 5.8%, Mexico 5.3%, Venezuela 4.9%, Brazil 4.4%
Exports - US 74.4%, Guatemala 3%, El Salvador 2.9%
Imports - US 53.7%, Guatemala 6.5%, El Salvador 4.2%
Exports - US 50.1%, El Salvador 12.1%, Honduras 7.3%, Mexico 4%
Imports - US 38.1%, Mexico 7.6%, El Salvador 4.8%, S. Korea 4.8%, Panama 4.4%
Exports - US 64.1%, El Salvador 6.6%, Mexico 3.4%
Imports - US 20.6%, Venezuela 10%, Costa Rica 8.5%, Guatemala 7.1%, Mexico 5.7%,
El Salvador 4.8%, South Korea 4.3%
Exports - US 61%, Guatemala 12.1%, Honduras 7.4%, Nicaragua 4.2%
Imports - US 43.4%, Guatemala 8.2%, Mexico 7.8%
Exports - US 79.9%, Netherlands 2.4%, Canada 1.8%
Imports - US 51%, Colombia 5.4%, Mexico 5.3%
[Source – CIA Factbook 2005]
SUMMIT OF THE AMERICAS
CENTER, FIU.
The US Ratification Struggle
US did not submit agreement to Congress after
signing for one year until 2005 (2004 election year, etc.)
 Opposition on labor issues and perceived textile industry
state business and job losses, and “big sugar” concern over
increased access to US sugar market (110,000 mt)
 China textile competition had exploded after January
2005, with immediate negative impacts on US+Central
American industries. Relief sought + received.
 Up to $4 bn. in US manufactured exports to CA+DR
jeopardized if CAFTA nations lose textile industries
 Very close vote in lower house (217-215)

SUMMIT OF THE AMERICAS
CENTER, FIU.
Current DR - CAFTA Status





Costa Rica has not ratified yet. (was CA’s lead CAFTA
negotiator).
Dominican Republic - unresolved issues – USTR not yet
satisfied with DR legislative and administrative compliance.
Fully effective for Nicaragua (3/06), El Salvador (3/06),
Honduras (3/06), and Guatemala (6/06). (US removes
signatory country from GSP, CBI, and CBTPA benefits on
date DR-CAFTA enters into force for that country).
Former Unilateral US Preferences now converted into
permanent and reciprocal benefits and obligations.
Textiles in limbo - CAFTA pushed as response to expected
Chinese textile deluge. Incentives to regional industries
using US cloth, yarn, and thread and “cumulation.” US
ratification delay and slow CA + DR compliance with US
requirements have blunted effects and delayed investments.
SUMMIT OF THE AMERICAS
CENTER, FIU.
Gains for Asian Trade?
Improved investment opportunities for
direct access to US market via CA + DR
 Investment opportunities for indirect
US duty free access (Mexico – Japan
FTA - Mexico mfrs = qualified inputs for
DR-CAFTA Origin cumulation)
 Some uncertainty over CBTPA
investments in Costa Rica if CR
ratification is delayed into 2007

SUMMIT OF THE AMERICAS
CENTER, FIU.
DR- CAFTA - Summing Up

Consolidation of US trade relations in CA + DR

Building block for potential revival of FTAA
Potential effective regional integration of US and
NAFTA-DR-CAFTA textile industries
Implementation lab for TRIPS–plus IPR,
other “Singapore issues.” Piracy criminalized
New and strengthened regional dispute
settlement mechanism (SIECA)
New and stronger mutual obligations among all 7
signatory countries





Clear benefits for Central American integration
SUMMIT OF THE AMERICAS
CENTER, FIU.
Thank you for your attention….
www.AmericasNet.net
SUMMIT OF THE AMERICAS
CENTER, FIU.