Trade with South America is an important part of the US economy. It offers both markets for American made goods and imports for American consumers. Of more important regions the US has trade agreements with many are encompassed in the Dominican Republic-Central America-United States Free Trade Agreement.
CAFTA
The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) was signed on August 5, 2004. The agreement encompasses the Dominican Republic, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. This helps promote trade with what currently is the third largest U.S. export market in Latin America. CATO has found that these six countries together make up the United States’ 13th-largest trading partner.
CAFTA Benefits
There are many benefits to this FTA. CATO stated that the major benefit of the agreement is that “goods in 98 percent of the product categories from which the CAFTA countries could export to the United States would enter duty-free”, allowing more competition with American business, better prices for consumers, and a great growth opportunity for the members of CAFTA-DR. The USTR found that the ratio of trade is also beneficial to the United States, “…Exports totaled $20.0 billion; Imports totaled $18.8 billion; The U.S. goods trade surplus with CAFTA/DR was $1.2 billion in 2009. The entire text on CAFTA can be found at the Office of the United States Trade Representative, executive office of the President.
CAFTA Limitations
There are also several points of interest in the CAFTA-DR that are dissatisfying to United States and global free trade. The most significant exceptions to free trade are sugar and apparel. CATO found that the sugar imports from CAFTA-DR “…grudgingly expands the existing quota on sugar imports from the region.” This will allow the US sugar prices to remain artificially high “…while the costs of providing those benefits are spread across the U.S. economy.” This will negatively affect the “…724,000 people counted by the Commerce Department as working in sugar-using industries.”
The other part of the free trade agreement did not remove were some protectionist points in apparel. The apparel portion of the agreement has a “”rules of origin” requiring use of U.S.-made textiles.” This adds more steps to production as well as cost. In the end this will undermine demand for U.S. imports, and thus keep the trade from being completely void of protectionism. Review CATO‘s view on the pro’s con’s of politics of the situation.
While there are points that are favoring interests of American companies, overall the CAFTA-DR will bring about more trade, better prices, and opportunity for US companies that import as well as for business in the Dominican Republic and Central American regions.
By – Domenic Gabriella for Trade.org
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