The CAFTA, signed by the member nations mid 2005, eliminates tariffs on US goods exported to Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. Additionally, CAFTA locks in and expands the duty free access those countries have to the US market.
CAFTA positions many industries to benefit from the reduction and elimination of trade barriers and tariffs. Of these industries, US farmers will see the largest increase. Preliminary research shows that corn, feeder corn, dairy products including cheese, whey, and lactose are going to see the most significant growth this year. In sum, these estimates put the net trade gained to be $900 million during the first year of the agreement.
CAFTA is not, however, without opposition. The majority of the opposition has been from labor unions and environmental groups, who have lobbied strongly against CAFTA. This concern should be addressed by the CAFTA’s strong labor and environmental protection provisions. The CAFTA members boast that the agreement has the strongest labor protection provisions of any trade pact the US has entered into thus far. Additionally, to ensure the longevity and durability of the environmental protection provision, the US has pledged $160 million in aid to directly support CAFTA labor support and environmental protection programs.
Looking at the CAFTA from a global perspective shows that the agreement has the ability to impact world trade significantly. This is because there are many free trade agreements (and most importantly large regional integration agreements) currently under negotiation in every region of the world. And, the ability of the US to pass CAFTA at this time is paramount to the future of expanding free trade because negotiators are currently negotiating the world-trade agreement. World trade has been under attack over the past few years, particularly by larger economies. What is significant is that the US Congress was able to overcome a great deal of opposition in 2005 from the many labor unions and protectionists. CAFTA's passage shows that the US supports free trade. As such, the CAFTA will serve as stepping stones to both a FTAA, which has been discussed for several years, and a world-trade agreement.
CAFTA is likely the most significant regional integration agreement entered into by the US because it will serve as a role model for agreements between super powers and developing countries. By allowing trade to benefit both superpowers and developing countries CAFTA will serve as the template used for the foreseeable future.
Finally, CAFTA will serve as a precursor to the now expanding body of Appellate review of investment arbitration hearings. Previous agreements like the NAFTA, CUSFTA, and the AUSFTA do not have an appellate process. As a result, any perceived injustice or error in the arbitration process has always been left to the local courts to resolve. (Justice Tysoe has been repeatedly criticized for his decision in Metalclad). CAFTA has a provision requiring the countries to work toward an appellate body. These negotiations will have to consider different appellate process of other trade relationships, of which the WTO’s appellate body to date has been most significant.
Experts say that the net effect of the CAFTA will be similar to NAFTA, which led to a gain in both exports and imports from each country. In fact, trade between the US and Mexico has more than tripled since NAFTA was signed.
United States based businesses are poised to benefit significantly from the present business climate within CAFTA. Of the many factors influencing this growth the most significant are: the growing use of English in business, Visas are not required for U.S. citizens seeking to enter Central American countries, and CAFTA based businesses are actively seeking partners and investment from the United States.
Similarly, Central American based businesses are positioned to receive a significant increase in investment from the United States. The most notable reason for the increase in investment are the many protections granted to United States businesses and investors found in the CAFTA. Protections now granted to all CAFTA investors include the notable protections found in NAFTA and the US-Chile FTAs--Most Favored Nation Treatment, National Treatment, and a Minimum Standard of Treatment. These different levels of protection are discussed in detail on the Investment page.
This site only broadly addresses issues faced by companies seeking to do business within CAFTA. The information provided on this site is intended to provide a general guideline, and is not specific legal advice. If you are in need of advice on specific issues, we are happy to refer you the appropriate contact. CAFTAlaw.net works with a network of attorneys, consultants, and business contacts throughout the region provide you with the most up-to-date information and solutions. Please submit any specific questions or issues through our Contacts Page and we will be happy to work with you toward a solution.