DR-CAFTA – Maintaining Good Trade Relations Between the US and Central America

When we think of relations between the United States and countries in Central America, the association may spark memory of past US involvement in political unrest (particularly in Nicaragua and El Salvador). In recent years, however, six nations that comprise Central America have come to rely upon the US and each other for economic gain. The Central America Free Trade Agreement, or CAFTA, has proven advantageous for these countries – where many inhabitants live below the poverty level – to make trade inroads with North America.

The Benefits of DR-CAFTA

Following the ratification of the North American Free Trade Agreement (NAFTA) during the Clinton Administration, successor George W. Bush sought to expand American trade relations further along the Western Hemisphere. In 2003, the Bush Administration negotiated with four current members to form the agreement, and by the next year DR-CAFTA had been finalized to allowed free trade within the participating nations:

  • Costa Rica – A largely agricultural nation, Costa Rica imports bananas, coffee, sugar and cocoa.
  • The Dominican Republic – Clothing production represents the largest percent of this country’s export income.
  • El Salvador – Coffee accounts for nearly a quarter of El Salvador’s export revenues, though they also send paper products and sugar to the US.
  • Guatemala – Like Costa Rica, Guatemala exports coffee and bananas, but in recent years has expanded offerings to textiles and cut flowers.
  • Honduras – Coffee, fruits and nuts are among the foodstuffs shipped to the United States and fellow CAFTA nations
  • Nicaragua – The largest of the Central American nations land-wise, Nicaraguan key exports include coffee and shellfish.

Through this trade agreement, DR-CAFTA nations enjoy tariff-free trade on the majority of US imports and exports nearly a third of their product and services into the United States. The state of Florida, in particular, is important to DR-CAFTA in that the majority of trade and communication passes through this area. With a large Spanish-speaking population and airports that offer direct flights to Central America, Florida assists the DR-CAFTA in expediting trade. Close to $20 billion in goods from DR-CAFTA countries ship to the United States, improving overall prosperity.

The Challenges

Despite the economic boost to the poorer nations of Central America, and the potential for American companies to establish international branches and plants without penalization, DR-CAFTA has not operated without its share of detractors. Concern over restrictions with regards to drug testing and quality control of certain products have challenged Central American pharmaceutical companies to produce affordable medicines, while other critics in the economics field like Joseph Stiglitz have suggested the agreement will not necessarily lessen poverty since American imports may threaten the local businesses.

However one views DR-CAFTA, this agreement may be considered critical to maintaining good relations throughout the Americas – not just in these six Central American countries, but beyond. Their accompanying Environmental Cooperation Program serves to aid Central America in strengthening their conservation efforts, while US involvement in enforcement of International Labor standards seeks to improve working conditions in the country. DR-CAFTA is an important stepping stone towards a more ambitious Free Trade Area of the Americas – encompassing Chile, Colombia, and others – which could create profitable trade between the north and south continents for future generations.