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DR-CAFTA Agreement

The Dominican Republic – Central America Free Trade Agreement, commonly called DR-CAFTA, is a free trade agreement (legally a treaty  under international law, but not under US 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 DR-CAFTA. CAFTA-DR includes seven signatories: the United States, Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. The U.S. Congress approved the CAFTA-DR in July 2005 and the President signed the implementation legislation on August 2, 2005. The MAHCC actively lobbied for the passage of this agreement and was invited to attend President George W. Bush's ceremonial signing of the treaty at the White House.

The agreement is a treaty under international law, but not under the United States Constitution. In the U.S., laws require majority approval in both houses, while treaties require two-thirds approval in the Senate only. Under U.S. law, DR-CAFTA is a congressional-executive agreement. The implementing legislation became Public Law 109-053 when it was signed by President George W. Bush on August 2, 2005.

The United States has implemented the CAFTA-DR on a rolling basis as countries make sufficient progress to complete their commitments under the Agreement. The Agreement first entered into force between the United States and El Salvador on March 1, 2006, followed by Honduras and Nicaragua on April 1, 2006, Guatemala on July 1, 2006, and the Dominican Republic on March 1, 2007. The Agreement entered into force between the United States and Costa Rica on January 1, 2009. The Multi-Country Agreement is now fully in force.

The goal of the agreement is the creation of a free trade area, similar to the North American Free Trade Agreement (NAFTA) which currently encompasses the US, Canada, and Mexico. DR-CAFTA 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.

In addition to tariff reduction, CAFTA-DR provides new market access for U.S. consumer and industrial products and agricultural products. It also provides unprecedented access to government procurement in the partner countries, liberalizes the services sectors (see also financial services), protects U.S. investments in the region, and strengthens protections for U.S. patents, trademarks, and trade secrets. The Agreement covers customs facilitation and provides benefits to small and medium-sized exporters. Provisions are also included that address government transparency and corruption, worker rights, protection of the environment, trade capacity building, and dispute settlement.

CAFTA-DR creates the third-largest U.S. export market in Latin America, behind only Mexico and Brazil, and the 14th largest U.S. export market in the world (or the 10th largest if the European Union is considered a single destination). The United States exported $22.4 billion in goods to the five Central American countries and the Dominican Republic in 2007, more than all exports to Russia, Ireland, and Indonesia combined. U.S. exports to the CAFTA-DR countries increased by 14.4 percent in 2007, following a 16.0 percent increase in 2006.

Most Dominican Republic and Central American exports into the United States have benefited from duty-free treatment as a result of a trade preference program provided by the U.S. Congress to promote regional economic development (the Caribbean Basin Initiative, CBI). CAFTA-DR reciprocally reduces tariff and non-tariff barriers for U.S. exports into the region.  CAFTA-DR also ensures that U.S. companies are not disadvantaged by the trade agreements that Central America has already negotiated with our NAFTA partners and other countries.

CAFTA-DR requires important reforms of the domestic legal and business environment that encourage competitive business development and investment, protect intellectual property rights, and promote transparency and rule-of-law in the democratic systems that have solidified in the region over the past decade. CAFTA-DR is an important instrument to support U.S. national security interests; the FTA promotes closer economic cooperation among the Central American countries, thereby advancing regional integration and contributing to greater peace and stability in the region.

The Department of Commerce's Market Access and Compliance offices monitor this Agreement to ensure that the CAFTA-DR signatory-partner countries fully comply with their obligations. If you encounter problems under the CAFTA-DR, please contact the CAFTA-DR Agreements Compliance office at 800-872-8723.
[Modified from U.S.- CAFTA-DR Free Trade Agreement. How U.S. Companies Can Benefit, www.Export.gov)