Dominican Republic–Central America Free Trade Agreement
The Dominican Republic–Central America–United States Free Trade Agreement (CAFTA-DR; Spanish: Tratado de Libre Comercio entre República Dominicana, Centroamérica y Estados Unidos de América, TLC) is a free trade agreement (legally a treaty under international law). Originally, the agreement encompassed the United States and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, and was called CAFTA. In 2004, the Dominican Republic joined the negotiations, and the agreement was renamed CAFTA-DR.
The Dominican Republic–Central America–United States Free Trade Agreement
CAFTA-DR, the North American Free Trade Agreement (NAFTA), and active bilateral free trade agreements such as the Canada-Costa Rica Free Trade Agreement are seen as bloc agreements instead of a Free Trade Area of the Americas (FTAA) agreement. Panama has completed negotiations with the United States for a bilateral free trade agreement known as the Panama–U.S. Trade Promotion Agreement, and has been in effect since October 2012.
The CAFTA-DR constitutes the first free trade agreement between the United States and a small group of developing countries. It was created with the purpose of creating new and better economic opportunities by opening markets, eliminating tariffs, reducing barriers to services, and more. In 2015, it was estimated that the total two-way trade resulted in $53 billion (~$66.6 billion in 2023).[1] Nearly all Central American exports to the United States had already been tariff-free thanks to the 1984 Caribbean Basin Initiative.
Ratification[edit]
The agreement is a treaty under international law, but not under the U.S. Constitution because in the United States laws require majority approval in both houses, while treaties require two-thirds approval in the Senate only. Under U.S. law, CAFTA-DR is a congressional-executive agreement.
The U.S. Senate approved the CAFTA-DR on June 30, 2005, by a vote of 54–45,[2] and the U.S. House of Representatives approved the pact on July 28, 2005, by a vote of 217–215, with two representatives not voting.[3] Controversy arose over this vote because it was held open 1 hour and 45 minutes longer than the normal 15 minutes in order to get some members to change their votes.[4] For procedural reasons, the Senate took a second vote on CAFTA on July 28 and the pact garnered an additional vote from Senator Joe Lieberman—who had been absent on June 30—in favor of the agreement.[5] The implementing legislation became Public Law 109-053 when it was signed by President George W. Bush on August 2, 2005.
The Dominican Republic, Costa Rica, El Salvador, Guatemala, Nicaragua, and Honduras have also approved the agreement. They are all the current members of CAFTA-DR.
El Salvador became the first country to formally implement CAFTA, which went into effect on March 1, 2006, when the Organization of American States (OAS) received signed copies of the treaty. On April 1, 2006, Honduras and Nicaragua fully implemented the agreement. On May 18, 2006, the Congress of Guatemala ratified CAFTA-DR, which went into effect on July 1, 2006. The Dominican Republic implemented the agreement on March 1, 2007. In a referendum on October 7, 2007, Costa Rica narrowly backed the free trade agreement, with 51.6% voting "Yes"; the agreement took effect on January 1, 2009.[6]
Aims[edit]
The goal of the agreement is the creation of a free trade area similar to NAFTA, which currently encompasses the United States, Canada, and Mexico. CAFTA-DR is also seen as a stepping stone towards the FTAA, another (more ambitious) free trade agreement that would encompass all the South American and Caribbean nations as well as those of North and Central America except Cuba. Canada is negotiating a similar treaty called the Canada–Central American Four Free Trade Agreement.
Once passed by the countries involved, tariffs on about 80% of U.S. exports to the participating countries were eliminated immediately and the rest were phased out over the subsequent decade. As a result, CAFTA-DR does not require substantial reductions in U.S. import duties with respect to the other countries, as the vast majority of goods produced in the participating countries already entered the United States duty-free due to the U.S. government's Caribbean Basin Initiative.
With the addition of the Dominican Republic, the trade group's largest economy, the region covered by CAFTA-DR is the second-largest Latin American export market for U.S. producers, behind only Mexico, buying $29 billion (~$36.4 billion in 2023) of goods in 2015. Two-way trade amounted to about $50 billion in the same year.
While not necessarily a part of Plan Puebla Panama, CAFTA is a necessary precursor to the execution of Plan Puebla Panama by the Inter-American Development Bank. The plan includes construction of highways linking Panama City to Mexico City, Texas, and the rest of the United States.
CAFTA-DR reduces tariffs, but every CAFTA country sets its overall tax level.
Support[edit]
In January 2002 U.S. president George W. Bush declared CAFTA as a priority and received "fast track" authority from Congress to negotiate it. Negotiations began in January 2003, and agreement was reached with El Salvador, Guatemala, Honduras, and Nicaragua on December 17, 2003, and with Costa Rica on January 25, 2004. That same month, negotiations began with the Dominican Republic to join CAFTA.
On May 28, 2004, U.S. trade pepresentative Robert Zoellick, Costa Rican minister of trade Alberto Trejos, Salvadoran economy minister Miguel Lacayo, Guatemalan economy minister Marcio Cuevas, Honduran minister of industry and commerce Norman García, and Nicaraguan minister of development, industry and commerce Mario Arana signed the 2,400-page document at headquarters of the Organization of American States. Negotiations with the Dominican Republic concluded on March 15, 2004, and a second signing ceremony including Dominican minister of industry and commerce Sonia Guzmán was held on August 5, 2004.