Order Code RL31870
CRS Report for Congress
Received through the CRS Web
The Dominican Republic-Central America-United
States Free Trade Agreement (DR-CAFTA)
Updated July 6, 2005
J. F. Hornbeck
Specialist in International Trade and Finance
Foreign Affairs, Defense, and Trade Division
Congressional Research Service ˜ The Library of Congress

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The Dominican Republic-Central America-United States
Free Trade Agreement (DR-CAFTA)
Summary
On August 5, 2004, the United States, Costa Rica, El Salvador, Guatemala,
Honduras, Nicaragua, and the Dominican Republic signed the Dominican Republic-
Central America-United States Free Trade Agreement, or the DR-CAFTA. El
Salvador, Honduras, and Guatemala have ratified the agreement; the rest have not.
In the United States, following “mock markups” of draft implementing legislation by
the House Ways and Means and Senate Finance Committees, the Bush
Administration sent final legislation to Congress where identical bills were
introduced jointly and referred to the House Ways and Means and Senate Finance
Committees. Congressional consideration of the implementing bill is being done
under expedited procedures as defined in Trade Promotion Authority (TPA). The
Senate passed S. 1307 on July 1, 2005, and the House Ways and Means Committee
favorably reported out H.R. 3045 on June 30. It awaits floor action by the House.
The DR-CAFTA was negotiated as a regional agreement in which all parties
would be subject to the “the same set of obligations and commitments,” but with
each country defining its own separate schedules for market access. It is a
comprehensive and reciprocal trade agreement, which distinguishes it from the
unilateral preferential trade arrangement between the United States and these
countries as part of the Caribbean Basin Initiative (CBI), as amended. It liberalizes
trade in goods, services, government procurement, intellectual property, investment,
and addresses labor and environment issues. Most commercial and farm goods attain
duty-free status immediately. Remaining trade would have tariffs phased out
incrementally over five to twenty years. Duty-free treatment would be delayed
longest for the most sensitive agricultural products. To address asymmetrical
development and transition issues, the DR-CAFTA specifies rules for transitional
safeguards, tariff rate quotas, and trade capacity building.
The DR-CAFTA is not expected to have a large effect on the U.S. economy as
a whole, but would be more of an incremental change from existing trade
arrangements. Some sectors and groups, however, would be affected more than
others. Supporters see it as part of a policy foundation supportive of both improved
intraregional trade, as well as, long-term social, political, and economic development
in an area of strategic importance to the United States. Opponents point to the need
for better trade adjustment and capacity building policies to address the potential
negative effects on certain import-competing sectors and their workers. In light of
the region’s poor labor standards in some cases, the perception of inadequate labor
laws, and widely accepted lax enforcement, opponents also argue that the labor
provisions in the DR-CAFTA need strengthening. In a broader perspective, this
controversial agreement raises questions about the logic of pursuing bilateral FTAs
given the inherent conflicts associated with the TPA legislation and effects of trade
liberalization with developing countries. This report will be updated.
For more on individual country perspectives, see CRS Report RL32322, Central
America and the Dominican Republic in the Context of the Free Trade Agreement
(DR-CAFTA) with the United States, coordinated by K. Larry Storrs.

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Contents
Congressional Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Why Trade More Freely? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Impetus for a DR-CAFTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
U.S. Trade Relations with Central America and the Dominican Republic . . . . . 10
U.S.-Central America Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
U.S. Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
U.S. Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
U.S.-Dominican Republic Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S. Foreign Direct Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Review of the DR-CAFTA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Textiles and Apparel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Investment and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
Government Procurement and Intellectual Property Rights . . . . . . . . . . . . 23
Pharmaceutical Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Labor and Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Environmental Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Labor Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Dispute Resolution and Institutional Issues . . . . . . . . . . . . . . . . . . . . . . . . . 31
Trade Capacity Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
Outlook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Appendix 1. Chronology of DR-CAFTA Negotiations . . . . . . . . . . . . . . . . . . . 35
Appendix 2. Selected Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37
Appendix 3. U.S. Merchandise Trade with DR-CAFTA Countries . . . . . . . . . . 38
List of Figures
Figure 1. Central America’s Direction of Merchandise Trade, 2003 . . . . . . . . . 11
List of Tables
Table 1. Central American Exports of Goods and Services/GDP . . . . . . . . . . . . 7
Table 2. Top Eight U.S. Merchandise Imports from Central America, 2004 . . . 12
Table 3. Top Eight U.S. Merchandise Exports to Central America, 2004 . . . . . 14
Table 4. U.S.-Dominican Republic Merchandise Trade, 2004 . . . . . . . . . . . . . . 15
Table 5. U.S. Foreign Direct Investment (FDI) in DR-CAFTA Countries . . . . . 16

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The Dominican Republic-Central America-
United States Free Trade Agreement
On May 28, 2004, the United States Trade Representative (USTR) and trade
ministers from Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua signed
the U.S.-Central America Free Trade Agreement (CAFTA). On August 5, 2004, the
Dominican Republic, having completed separate negotiations with the United States,
was added to the agreement in a subsequent signing by all parties. The new
agreement was titled the Dominican Republic-Central America-United States Free
Trade Agreement and is referred to as either the DR-CAFTA or the CAFTA-DR (see
Appendix 1, Chronology of Negotiations).1 Three countries have ratified the DR-
CAFTA: El Salvador on December 17, 2004; Honduras on March 3, 2005; and
Guatemala on March 10, 2005. In the United States, implementing legislation was
introduced jointly in the House and the Senate on June 23, 2005, where it was passed
by the Senate on July 1, but awaits floor action by the House. This report provides
an analysis of the DR-CAFTA and will be updated.
Congressional Action
The DR-CAFTA is arguably the most controversial trade vote that Congress has
faced since the North American Free Trade Agreement (NAFTA) implementing
legislation was passed in 1993. Many lawmakers are uncomfortable with the
agreement as written, particularly with respect to the labor provisions, treatment of
certain sensitive industries (sugar and textiles), and to a lesser degree, investor-state,
pharmaceutical data protection, and basic sovereignty issues. It has also been caught
up in an overarching congressional controversy over how trade negotiation objectives
are defined in Trade Promotion Authority (TPA) and concern by some Members over
the perceived ineffectiveness of the executive-legislative consultation process.
These issues were raised repeatedly in “mock markups” of draft implementing
bills held by the Senate Finance and House Ways and Means Committees June 14
and 15, 2005, respectively. The Senate Finance Committee voted 11-9 to approve
the draft legislation, with one non-binding amendment that would extend the trade
adjustment assistance program for workers to cover services industries. The House
Ways and Means Committee voted 25-16 for approval of the draft legislation, also
adding a non-binding amendment with “a requirement that the Administration report
on activities conducted by the DR-CAFTA countries and the United States to build
capacity on labor issues” and a provision requiring monitoring of DR-CAFTA’s
1 For detailed information on country issues, see CRS Report RL32322, Central America
and the Dominican Republic in the Context of the Free Trade Agreement (DR-CAFTA) with
the United States, coordinated by K. Larry Storrs.

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CRS-2
effects on U.S. services industries. A “mock conference” was not held, to the
expressed consternation of some Members.
The Bush Administration sent the final implementing bill to Congress on June
23, 2005. Under TPA procedures, identical bills were introduced jointly as H.R.
3045 and S. 1307 and referred to the House Ways and Means and Senate Finance
Committees. Each committee technically has 45 legislative days to report the bill,
after which it would be automatically discharged. Because of the bill’s revenue
provisions, under the Constitution, the Senate must pass the House bill. Hence, with
respect to reporting the bill, the Senate Finance Committee had the longer of either
45 days from the time the bill was introduced in the Senate or 15 days from the time
it receives the House bill. After a committee reports the bill or it is discharged, each
house then has 15 legislative days to conduct limited debate and vote on it, up or
down. The DR-CAFTA enters into force if the United States and at least one other
signatory country pass implementing legislation into law.2
In fact, the Senate chose to act first, favorably reporting out S. 1307 by voice
vote on June 29, 2005. The House Ways and Means Committee followed suit,
reporting favorably by a vote of 25 to 16 on June 30, 2005. The measure came before
the full Senate on July 1, 2005, where following 20 hours of floor debate, S. 1307
passed 54 to 45. The House could not schedule a vote before the July 4 recess and
is expected to take up the measure later in the month.
Passage in the Senate was by a slimmer margin than with earlier trade
agreements and was apparently secured by accommodating labor, sugar, and textile
interests. Of the suggested amendments made during the mock markups, only
required reporting on labor issues was added to the final implementing bill.
Specifically, section 403 mandates that the Administration transmit biennial reports
on progress made in implementing the labor provisions of the agreement, as well as
the Labor Cooperation and Capacity Building Mechanism defined in annex 16.5.
Progress in meeting the challenges outlined in the so-called White Paper on labor
produced by the vice ministers of trade and labor of the DR-CAFTA countries is also
to be monitored.
Commitments to support labor and rural development were also made outside
the final implementing legislation. In a letter from USTR Rob Portman to Senator
Jeff Bingaman, the Administration promised to allocate the $40 million for foreign
operations appropriations for fiscal 2006 earmarked for “labor and environmental
enforcement capacity building assistance,” and to continue to request this level of
funding in budgets for fiscal years 2007 through 2009. Some $3 million is to be used
for supporting ILO reporting on progress in labor law enforcement and working
conditions in these countries. An additional $10 million annual commitment for five
years was made for transitional rural assistance for El Salvador, Guatemala, and the
Dominican Republic, or until these countries can qualify for anticipated assistance
from the U.S. Millennium Challenge Corporation.
2 For more on how trade implementing legislation moves through Congress, see CRS Report
RL32011, Trade Agreements: Procedures for Congressional Approval and Implementation,
by Vladimir Pregelj.

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CRS-3
In a letter from Secretary of Agriculture Mike Johanns to Senators Saxby
Chambliss and Bob Goodlatte, the Administration provided assurance that the DR-
CAFTA would not interfere with the operation of the sugar program as defined in the
Farm Security and Rural Investment Act of 2002 (the Farm Bill) through calendar
year 2007, when it expires. In particular, the promise provides that should additional
sugar imports due to the DR-CAFTA cause the import trigger threshold of 1.532
million short tons per year be exceeded, the U.S. Secretary of Agriculture would
preclude entry of additional sugar imports into the domestic sweetner market by
either making direct payments to exporters or using agricultural commodities to
purchase sugar from exporters to be used for nonfood use (ethanol production).
Separately, for the textile and apparel issues, promises were reported that
include: 1) an attempt to change the rules of origin for textiles and apparel to require
use of U.S.-made pocketings and linings; 2) negotiation of a customs enforcement
agreement with Mexico before the DR-CAFTA cumulation rules take effect allowing
Mexican inputs to be used in DR-CAFTA textile and apparel products; and 3) an
agreement with Nicaragua that would limit its special textile and apparel tariff
preference levels to only currently non-qualifying items.
These compromises apparently were sufficient to allow passage of S. 1307 in
the Senate, but it is not clear this will be the case in the House. The sugar industry
responded that the commitments made addressed only short-term concerns and so
were inadequate. Some Members arguing for the inclusion of fully enforceable
international labor standards also expressed dissatisfaction with the Administration’s
offer. The textile and apparel industry remained split, despite promised changes.
Why Trade More Freely?
Countries trade because it is in their national economic interest to do so, a
proposition long supported by theory and practice. Comparative advantage has been
recognized for nearly 200 years as a core principle explaining the efficiency gains
that can come from trade among countries by virtue of their fundamental differences.
It states that countries can improve their overall economic welfare by producing those
goods at which they are relatively more efficient, while trading for the rest. Intra-
industry trade is the other major insight that explains trade patterns, in which the
benefits from exchange among countries occur based on specialized production,
product differentiation, and economies of scale. Many Latin American countries
have liberalized trade policies recognizing the contribution that trade (and related
investment) can make to economic growth and development. As an important
caveat, trade is at best only part of a broad development agenda, and is no substitute
for the promotion of political freedom, macroeconomic stability, sound institutions,
and the need for complementary social and economic policies.3
3 The role of trade is summarized well in: Rodrik, Dani. The New Global Economy and
Developing Countries: Making Openness Work. The Overseas Development Council,
Washington, D.C. 1999. p. 137 and Bouzas, Roberto and Saul Keifman. Making Trade
Liberalization Work. After the Washington Consensus: Restarting Growth and Reform in
(continued...)

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CRS-4
Comparative advantage provides the rationale for U.S.-Central American (and
Dominican Republic) trade in agriculture, textiles, apparel, and capital goods. Intra-
industry trade (e.g. goods within the same harmonized tariff system (HTS) code
number) is based on specialized production, but in this case relies in large part on
differences in wages, skills, and productivity.4 Certain specialized jobs have
developed in Central America (and other developing countries), where they
frequently reside in production sharing (maquiladora) facilities. Economists have
come to refer to such specialized production as “breaking up the value added chain”
and it accounts for why products (and particularly parts thereof) as diverse as
automobiles, computers, and apparel are often made or assembled in Central America
and other countries in partnership with U.S. firms.5 This relationship, discussed in
more detail later, provides the basis for much of the labor policy debate on the DR-
CAFTA, and FTAs more generally.6
Measuring the benefits of freer trade is another difficult issue. There is a
tendency to count exports, imports, and the oft-misrepresented importance of the
trade balance as indicators of the fruits of trade. This approach often gives undue
weight to exports at the expense of understanding benefits from imports, where the
gains from trade are better understood by their contribution to increased consumer
selection, lower priced goods, and improved productivity. For example, high-tech
intermediate goods imported from developed countries are the basis for future, more
sophisticated, production in developing countries. In developed countries, imports
from developing countries, whether final goods for consumers or inputs for
manufacturing enterprises, reduce costs and contribute to productivity and economic
welfare. For all countries, exports are the means for paying for these imports and
their attendant benefits.
Three caveats related to negotiating FTAs are important. First, the discussion
of costs and benefits generally assumes that FTAs are implemented in a multilateral
3 (...continued)
Latin America. Kuczynski, Pedro-Pablo and John Williamson, eds. Institution for
International Economics. Washington, D.C. March, 2003. pp. 158, 165-67.
4 This differs from the standard intra-industry case between two developed countries in
which goods, such as automobiles, are exchanged based on product differentiation and
economies of scale and where differences in wage levels are not a central factor.
5 For the theoretical foundation, see Krugman, Paul. Growing World Trade: Causes and
Consequences, in Brookings Papers on Economic Activity (1), William C. Brainard and
George L Perry, eds. 1995. pp. 327-76 and for the case in Central America, see Hufbauer,
Gary, Barbara Kotschwar, and John Wilson. Trade and Standards: A Look at Central
America. Institute for International Economics and the World Bank. 2002. pp. 992-96.
6 Note that this trend has not been a driving force in the aggregate unemployment rate of the
United States, but does affect the distribution of employment among sectors of the economy.
It is also important to emphasize here that wage levels are only part of the issue. Lower
wages correlate closely with lower productivity, hence an abundance of low-skilled (low
productivity) workers attracts these types of jobs. For a overview of the methodology of
measuring the effects of changes in trade policy, see Rivera, Sandra A. Key Methods for
Quantifying the Effects of Trade Liberalization. International Economic Review. United
States International Trade Commission. January/February 2003.

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CRS-5
setting. In fact, given the slow pace of World Trade Organization (WTO)
negotiations, many countries are pursuing preferential arrangements, that is, regional
and bilateral agreements like the DR-CAFTA. Latin America is full of them and
depending on how they are defined, they may actually be trade distorting if they
promote trade diversion. This occurs when trade is redirected to countries within a
limited agreement that does not take into account countries outside the agreement,
some of which may be more efficient producers. Preferential trade agreements are
also cumbersome to manage, requiring extensive rules of origin, and economists
disagree as to whether FTAs help or hinder the movement toward multilateral trade
liberalization.7
Second, trade, much like technology, is a force that changes economies. It
increases opportunities for internationally competitive sectors and challenges import
competing firms to become more efficient or do something else. This fact gives rise
to the policy debate over adjustment strategies, because while consumers and export
sector workers benefit, some industries, workers, and communities are hurt.
Economists generally argue that it is far less costly for society to rely on various types
of trade adjustment assistance than opt for selective protectionism, the frequent and
forcefully argued choice of trade-affected industries.8 The public policy difficulty is
that both options have costs and benefits, but result in different distributional
outcomes.9 Because trade agreements raise difficult political choices for legislators
in all countries, many of whom represent both potential winners and losers, FTA
provisions are typically limited in scope (so continue to protect partially or
completely certain products, industries, or sectors) and are phased in over time
(typically up to 15-20 years for very sensitive products).
Third, there are clearly implications in the trade negotiation process for smaller
countries’ bargaining leverage when they choose to negotiate with a large country in
a bilateral rather than multilateral setting. Both Chile and the Central American
countries realized early in the process that there were negotiating issues over which
they would be able to exert little or no leverage. Both agreements deal little with
7 U.S. businesses operating in Latin America have had to interpret a difficult road map when
dealing with multiple arrangements defined in the Caribbean Basin Trade Partnership Act,
the Andean Trade Preference Act, and the North American Free Trade Agreement. Each
distorts investment decisions in the region and can have a countervailing influence on the
others. Adding the many Latin American FTAs only makes the situation more confusing.
8 For a recent and accessible treatment of this subject, see Kletzer, Lori G. and Howard
Rosen. Easing the Adjustment Burden on US Workers. In: Bergsten, C. Fred., ed. The
United States and the World Economy. Washington, D.C.: Institute for International
Economics, 2005. pp. 313-41.
9 Importantly, when a staple, such as underwear, is produced abroad and sold in the United
States as a lower-priced import compared to a domestically produced good, it is equivalent
to an increase in real income for the U.S. consumer. This can be significant for low-wage
workers in the United States. The same idea holds true for industrial products and business
consumers. So, there is a “trade off” in the trade policy decision between keeping certain
jobs through protection and losing the income gains, or keeping the income gains and losing
certain jobs. One public policy response has been to pass trade adjustment assistance
legislation to help firms and workers transition more quickly to new opportunities.

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CRS-6
trade remedies (e.g. antidumping and subsidies) and resolving agriculture issues also
has been limited, given the politically sensitive nature of this issue.
The Impetus for a DR-CAFTA
The United States was motivated by both commercial and broader strategic
interests in deciding to negotiate preferential trade agreements with Central America
and the Dominican Republic. Geopolitical and strategic concerns sparked interest
by all parties in pursuing the DR-CAFTA. Proponents expect the DR-CAFTA to
reinforce regional stability by providing institutional structures that will undergird
gains made in democracy, the rule of law, and efforts to fight terrorism, organized
crime, and drug trafficking. The DR-CAFTA may also be a way to expand support
for U.S. positions in the FTAA, and given that the January 2005 completion date has
slipped, may also help rationalize the system of disparate preferential trade
agreements that currently define Western Hemisphere trade relations.
Critics of the DR-CAFTA point to equally broad themes, such as the pervasive
social and economic inequality in much of the region, and so support strong labor and
environment provisions as important negotiating objectives. There is concern, for
example, over the adequacy of working conditions and enforcement of labor laws in
the DR-CAFTA countries. The DR-CAFTA countries argue that the agreement is
one of many forces that can have a positive effect in raising labor standards, although
it is not sufficient to accomplish this goal on its own.
With the proliferation of regional agreements around the world, trade
negotiations have also become a tactical issue of picking off gains where they are
perceived relative to what other countries are doing. It was repeatedly argued by the
U.S. business community, for example, that the U.S.-Chile agreement was necessary
to equalize treatment of U.S. businesses competing with Canadian firms that already
enjoyed preferential treatment with Chile. The case was made for Central America
as well, which has trade agreements with Canada and Mexico, each with firms that
compete with U.S. businesses in the region. Delays with WTO and Free Trade Area
of the Americas (FTAA) negotiations only reinforce this attitude.
In the context of regional trade agreements, history, geographic proximity, and
economic complementarities also make the DR-CAFTA an apparently logical step.10
Economic fundamentals shaped a trade relationship based on exports of traditional
agricultural products, and later apparel. From the early days of independence,
agricultural exports were the centerpiece of Central American economic growth. The
British controlled primary export production (coffee, bananas, sugar, and beef) until
about 1850, when U.S. interests won over. This continued until the 1980s when
passage of the Caribbean Basin Economic Recovery Act (CBERA — P.L. 98-67),
as part of the Caribbean Basin Initiative (CBI), began to transform the Central
American and Dominican economies. By becoming eligible for unilateral
preferential tariff treatment, U.S. investment fostered growth in light manufacturing,
10 For an excellent economic history of the region, see Woodward, Ralph Lee Jr. Central
America: A Nation Divided. New York: Oxford University Press, third edition, 1999.

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CRS-7
primarily apparel.11 Most Central American exports grew, albeit unequally, as a
percentage of economic output, particularly after the turbulent 1980s (see Table 1).
Table 1. Central American Exports of Goods and Services/GDP
Country
1980
1985
1990
1995
2003
Costa Rica
26.5
30.7
34.2
37.6
46.8
El Salvador
34.2
22.3
18.6
21.6
26.7
Guatemala
22.2
18.5
19.7
19.3
16.2
Honduras
36.2
25.1
37.2
43.7
38.8
Nicaragua
24.2
14.8
25.7
31.8
24.1
Data Source: IMF, International Financial Statistics Yearbooks 2002 and 2004 and Costa Rican
Ministry of Foreign Trade.
The U.S.-Central American/Dominican Republic economic relationship changed
dramatically under the CBI, creating an environment in which businesses forged
strategic partnerships in the increasingly complex world of textile and garment
manufacturing. From 1974 until 1995, rules restricting trade in apparel between
developed and developing countries (mostly quotas) were set out in the Multifiber
Arrangement (MFA). Its successor, the WTO-sponsored Agreement on Textiles and
Clothing (ATC), served as a transitional agreement that oversaw the elimination of
quotas on January 1, 2005. It was under this system that the CBI preferential
arrangements were defined, and amended in the Caribbean Basin Trade Partnership
Act (CBTPA) of 2000. The CBTPA expanded, through FY2008, preferential
treatment for select apparel imports and coincided with a large increase in U.S.
domestic exports of fiber, yarn and fabric to the region. The United States created
the CBI/CBTPA to foster Caribbean economic development and to assist U.S.
industry in responding to competition from similar production-sharing arrangements
in Asia that were taking a toll on U.S. production and employment in the textile and
apparel industries.12
Still, U.S. textile and particularly apparel industries have been hit hard by
foreign competition, resulting in a total job loss of over 540,000 employees from
1998-2002.13 The textile industry (e.g., fiber, yarns, fabric) has remained marginally
competitive through use of sophisticated production technologies. The apparel
manufacturing industry (e.g., shirts, pants, undergarments) by contrast, is highly labor
intensive, and in striving to reduce costs, has moved production offshore to lower-
wage countries.
11 This legislation was extended and amended twice, most recently in 2000 by the Caribbean
Basin Trade Partnership Act (CBTPA — P.L. 106-200, Title II), which further eased
restrictions on apparel imports from the Central American countries.
12 See CRS Report RL31723, Textile and Apparel Trade Issues, and CRS Report RL32895,
Textile Exports to Trade Preference Regions, p. 2, by Bernard A. Gelb.
13 United States International Trade Commission (USITC). The Economic Effects of
Significant U.S. Import Restraints. Publication 3701. Washington, D.C. June 2004. p. 60.

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CRS-8
As defined in the CBTPA, U.S. firms, through subsidiary or contractual
arrangements, are required to use mostly U.S. textiles as inputs to products that are
assembled and exported to the United States. This strategy created a mutually
beneficial pact and in 2002, some 56% of U.S. apparel and textile imports from
Central America was assembled from U.S. materials, compared to less than 1% for
imports from China.14 Although this was a controversial move because of the
reliance on foreign low-wage workers to the detriment of some U.S. employment,
many economists argue that the alternative would have been an even greater loss of
textile and garment jobs to Asian countries that use no U.S. inputs.15
With the removal of textile and apparel quotas in January 2005, the trade picture
changed. The DR-CAFTA countries were already losing U.S. market share, which
from 1997 to 2002 declined from 11.7% to 9.4%. Over the same time period,
China’s market share increased from 9.1% to 13.0%. Given that U.S. textile and
apparel imports from DR-CAFTA countries are heavily concentrated in products
previously covered by quotas, the dominance of China and other low-cost Asian
producers is likely to continue. DR-CAFTA producers are less competitive on a pure
cost basis because of the lower labor costs in Asia, the requirement to use more
expensive U.S. inputs, and the additional administrative costs associated with U.S.
preferential trade requirements.16
Low-cost labor, however, is not the only or even the most important factor
driving competitiveness. Studies suggest that the economic and social networks that
developed between U.S. and Central American firms effectively created a
comparative advantage for the region in apparel exporting that has held up even with
the entry of China in the market. This relationship was made possible by the
proximity of production, operational efficiencies, and quick turn around times for
meeting increasingly shortened deadlines demanded of large retailers.17 In a post-
14 USITC. Production-Sharing Update: Developments in 2001. Industry Trade and
Technology Review. November 2003. p. 22 and B-1-4.
15 Chacón, Francisco. International Trade in Textile and Garments: Global Restructuring
of Sources of Supply in the United States in the 1990s. Integration and Trade, Vol. 4, No.
11, May-August 2000. Inter-American Development Bank, Washington, D.C. and United
States International Trade Commission. Production-Sharing Update: Developments in 2002.
Industry Trade and Technology Review. November 2003. p. 12.
16 United States International Trade Commission. Textiles and Apparel: Assessment of the
Competitiveness of Certain Foreign Suppliers to the U.S. Market. USITC Publication 3671.
Washington, D.C. January 2004. pp. 1-12, 3-22, and 3-33-35. On December 13, 2004, the
U.S. Department of Commerce published rules that would impose safeguard measures and
restrict apparel imports from China in 2005, despite the removal of quotas. This may
provide some cushion to DR-CAFTA apparel producers. See Rugaber, Christopher S.
Textiles: CITA to Restrict Imports of ‘Embargoed’ Goods from China, Others in Early 2005.
BNA, Inc. International Trade Reporter. December 16, 2004.
17 A more subtle distinction made by one economist notes that, “How comparative advantage
is created matters. Low-wage foreign competition arising from an abundance of workers
is different from competition that is created by foreign labor practices that violate norms at
home. Low wages that result from demography or history are very different from low wages
(continued...)

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CRS-9
quota trading world, these advantages may allow a certain portion of textile and
apparel production to remain in the DR-CAFTA countries. Although DR-CAFTA
country representatives have emphasized that the passage of the free trade agreement
is a critical component for maintaining this strategy, it is not certain that it can
counter the long-term trend in market share loss to Asia.18
Strategic considerations were important, but ultimately it is fair to ask what each
country expects to gain commercially from the detailed agreement that has emerged.
The dollar value of U.S. trade with Central America makes the region the United
States’ third largest Latin American trading partner, right behind Brazil, but a far
distant third from Mexico. Still, these are small economies (see Appendix 2 for
economic data) and although firms engaged in this trade may find its effects
significant, total DR-CAFTA trade in 2004 represented only 1.5% of U.S. foreign
commerce, and so can be expected to have only a small macroeconomic effect.
For the United States, an FTA is a more balanced trade arrangement than the
unilateral preferences provided in the CBI/CBTPA. Market access issues (e.g., tariff
rates, quotas, rules of origin) were core negotiating areas. Although Central
American and Dominican tariffs are already relatively low, they can be reduced
further. In particular, U.S. business interests want equal or better treatment than that
afforded to exports from Canada and Mexico based on their FTAs with Central
American countries. Permanent and clarified trade rules would also support the joint
production arrangements already in place between U.S. firms and those in the region.
Finally, a bilateral agreement offers the United States a chance to deepen other trade
commitments that affect some of its most competitive industries. This includes rules
covering the treatment of intellectual property, foreign investment, government
procurement, e-commerce, and services.
From the Central American and Dominican perspectives, reducing barriers to
the U.S. market (especially for textile and agricultural products) was cause enough
to proceed. The DR-CAFTA would also make permanent and expands U.S. benefits
given under the CBTPA legislation, but which require periodic reauthorization by
Congress.19 This could increase U.S. foreign direct investment (FDI) that defines the
maquiladora relationship and which supports the region’s export driven development
strategy.
The DR-CAFTA countries also faced important vulnerabilities, such as the
possibility that U.S. agricultural exports of key staples, such as corn and rice, might
overwhelm their small markets. Sensitivity to these and other key industry sectors
were addressed in the extended tariff phase-out and safeguard schedules, and as a
17 (...continued)
that result from government repression of unions.” See Rodrik, Dani. “Sense and Nonsense
in the Globalization Debate.” Foreign Policy. Summer 1997. p. 28.
18 USITC, Textiles and Apparel, pp. 3-33, 4-2-4. Gereffi, Gary. The Transformation of the
North American Apparel Industry: Is NAFTA a Curse or a Blessing? Integration and
Trade. Vol. 4, No. 11. May-August 2000. Inter-American Development Bank. pp. 56-57.
19 To date, Congress has reauthorized and often expanded every U.S. trade preference
program upon expiration.

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CRS-10
matter of development policy, by DR-CAFTA country efforts to diversify the
agricultural sector into non-traditional exports and non-farm employment.20
Finally, there were two significant negotiation challenges. The first was the
need for better Central American integration. Individually, the Central American
countries may be too small to justify a U.S. bilateral agreement by themselves, and
also trade has been hampered within the subregion by cumbersome customs and
other rules. For the DR-CAFTA to work well, the United States needed some
assurance that goods could flow efficiently within the region, which would be a
significant benefit to the agreement. Second, there was a difference in negotiating
capacity between Central America and the United States. U.S. and multilateral offers
to assist these countries in developing such capacity were viewed as generous, but
also a little self-serving, which required sensitivity in the negotiation process.
U.S. Trade Relations with Central America
and the Dominican Republic
“Docking” the Dominican Republic FTA to CAFTA added the largest of what
would be six trading partners covered by the DR-CAFTA agreement. Total U.S.
trade with the Dominican Republic in 2004 was one-third greater than with either
Costa Rica or Honduras, which tie as the next largest U.S. trading partner in Central
America. What made the process feasible was the Dominican Republic’s willingness
to accept the basic framework and rules of CAFTA, while negotiating market access
and some other issues bilaterally, as was done with each of the five Central American
republics. In addition, the Dominican Republic’s economy and export regime are,
in many ways, similar to those of Central America. U.S.-Dominican Republic trade
was added to this report and is discussed in more detail separately.
U.S.-Central America Trade
Because of its huge size and geographical proximity, the U.S. market is a natural
destination for Central American exports. Merchandise trade with the United States
has dominated Central America’s foreign commerce for 150 years, and as seen in
Figure 1, remains in that role today.
The United States is by far the largest of Central America’s trading partners,
accounting for some 56% of its exports and 44% of its imports. The rest of Latin
America collectively is the next largest trading partner, accounting for 25% of
20 The DR-CAFTA countries have begun new exports projects in areas such as miniature
vegetables, cut flowers, cable manufacturing, among others, in expectation that moving
beyond subsistence agriculture and textile manufacturing is critical to achieve economic
diversification and development. What distinguishes this effort from the earlier agricultural
export model is the emphasis on integrating small producers into the export system. The
idea is not only to tap into naturally small production capabilities, but to help bring social
development to areas that previously were not integrated into the agricultural export
development model. It is still a relatively small effort and its widespread application has yet
to be fully realized, but the DR-CAFTA countries see the FTA as supporting this strategy.

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CRS-11
Central America’s exports and 31% of its imports. The European Union and Asia
together account for about 14% of Central American exports and 21% of imports.
Figure 1. Central America’s Direction of Merchandise Trade, 2003
This distribution is not uniform throughout the region. Honduras, for example,
exports 67% of its merchandise goods to the United States, compared to 44% for
Costa Rica. Honduras also has the highest import percentage from the United States
at 53% compared to Nicaragua’s 25%, which is the lowest. Total trade (exports plus
imports) with the United States is also somewhat uneven country by country. Costa
Rica accounts for 30% of total Central American trade with the United States,
whereas Nicaragua amounts to only 5% of the total. Guatemala, Honduras, and El
Salvador account for 25%, 22%, and 18% respectively.
Trade volume with the United States varies among countries, but in most cases
the trend has been one of growth at a rate higher than the average for U.S. trade with
the world. Over the past five years, U.S. exports to Central America grew by 34.7%
(25.3% including the Dominican Republic), compared to 17.6% with the world and
21.2% with Latin America as a whole (see Appendix 3 for the data). U.S. imports
from Central America increased by 19.3% (15.4% including the Dominican
Republic) over the same time period, compared to 43.4% from the world and 51.4%
from Latin America. Importantly, in 2003 some 80% of imports from Central
America and the Dominican Republic entered the United States duty free under either
normal trade relations (NTR) status or the CBI or GSP programs.21
For 2004, although trade growth varied among the five countries, U.S. export
growth to Central America doubled average export growth to the world, with all five
countries experiencing solid growth. U.S. imports from Central America, by
21 United States International Trade Commission. U.S.-Central America-Dominican
Republic Free Trade Agreement: Potential Economywide and Selected Sectoral Effects.
USITC Publication 3717. August 2004. p. 7.

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CRS-12
contrast, grew by less than half that of average import growth from the world. As
these trends suggest, the United States tends to run small merchandise trade deficits
with all the Central American countries and the Dominican Republic. In part, this
is the nature of a production-sharing trade relationship, where parts and materials are
sent abroad for value-added processing and then returned to the United States.
Importantly, when services trade is added to the trade balance, the United States
tends to run trade surpluses with all these countries. This trend, too, is indicative of
the basic relationship between the United States, a service-based economy, and
developing countries.22
U.S. Imports. Nearly three-quarters of U.S. imports from Central America fall
into three main categories: fruit (mostly bananas) and coffee; apparel; and integrated
circuits. These three distinct categories, for various reasons, are not traded uniformly
by the five countries (see Table 2).
Table 2. Top Eight U.S. Merchandise Imports from Central
America, 2004
($ millions)
Product and HTS
Total
C.R.
Hon
Guat
El Sal
Nic
Number
Total U.S. Imports
13,172
3,333
3,641
3,155
2,033
991
Knit Apparel (61)
5,108
253
2,013
1,261
1,364
216
Woven Apparel (62)
2,415
265
729
686
357
379
Edible Fruit & Nuts (08)
1,037
490
172
359
0
14
-Bananas (0803)
(657)
(245)
(129)
(273)
(0)
(11)
Electrical Mach. (85)
983
719
172
1
18
73
-Integrated circuits 8542
(489)
(489)
(0)
(0)
(0)
(0)
Optical/Med. Equip. (90)
492
480
0
12
0
0
Spices, Coffee, Tea (09)
512
150
45
216
49
52
-Coffee (0901)
(504)
(148)
(43)
(213)
(49)
(52)
Fish and Seafood (03)
293
60
133
22
6
74
Mineral Fuel, Oil (27)
186
0
0
180
6
0
Other
2,146
916
377
418
233
183
Top 8 as % of Total
83.7%
72.5%
89.6%
86.8%
88.5%
81.5%
Data Source: U.S. Department of Commerce.
#HTS = Harmonized Tariff Schedule
First, Central America has traditionally exported bananas and coffee, which is
dominated by Costa Rica and Guatemala. Coffee has actually declined for all
countries except Costa Rica and constitutes only 3.8% of U.S. imports from the
region. This reflects the competitive nature of trade in coffee, which is grown in vast
22 This trend is not disputed, but the U.S. Department of Commerce does not disaggregate
U.S. bilateral services trade data with the Central American countries. Estimates are
provided in some of the Country Commercial Guides produced by the U.S. Department of
Commerce based on foreign country reporting.

---

CRS-13
quantities by Brazil, Colombia, and countries in Africa as well. Banana trade has
also declined in importance and accounts for only 5.0% of U.S. imports from Central
America.
Second, knit and woven apparel has become the primary export goods for all
countries except Costa Rica and accounts for nearly 57% of total U.S. imports from
Central America. Because of the CBTPA benefits, some 56% of textiles and apparel
imported from the six DR-CAFTA countries in 2002 was assembled from U.S. fabric
(from U.S. yarns). Of that amount, the Dominican Republic had 33% of the total
followed by Honduras with 30%, El Salvador with 18%, Costa Rica with 9%,
Guatemala with 8%, and Nicaragua with 2%. Under the CBTPA, these countries
may engage in greater value-added operations such as cutting and dyeing, which has
allowed them to remain somewhat competitive with low-cost Asian exports. These
restrictions would be further relaxed under the DR-CAFTA.23 The USITC points out
that the DR-CAFTA countries have been losing market share to Asia since at least
1997, and the DR-CAFTA is seen as a way to help abate this trend.24
Third, Costa Rica attracted $500 million in foreign direct investment for a
computer chip assembly and testing plant, which has become its major export
generator. This investment was augmented by an additional $110 million in October
2003 for the production line of “chipsets” for personal computers. In 2004, U.S.
imports of integrated circuits constituted 18% of total imports from Costa Rica.
Similar importance may be seen in the imports of Costa Rica’s medical equipment,
another indicator of its relatively sophisticated production capabilities. Costa Rica
is the fastest growing and most diversified trader in Central America, which explains,
in part, why it has outpaced its neighbors on the development path.25
The DR-CAFTA is intended to build on these trends, support export
diversification, and provide a long-term stable trade environment that will increase
U.S. foreign investment in the region. Evidence is already seen in alternative
agricultural exports such as cut flowers and miniature vegetables (in multiple DR-
CAFTA countries), as well as, developing maquiladora operations to supply coil
wrapped cables for the automotive sector (Honduras) and adapting apparel cutting
technology to supply insulation for aircraft engines (Costa Rica).
Many non-apparel items that the United States imports from Central America
face minimal or no tariffs. Bananas, coffee, oil, most fish products, and Costa Rica’s
integrated circuits and medical equipment enter duty free. Some enter the United
States under preferential arrangements, but the majority is free of duty under normal
(most favored nation — MFN) tariff rates. Apparel was technically excluded from
preferential treatment under CBI, but under a special access program (SAP), eligible
Central American apparel exports receive preferential treatment under production-
23 United States International Trade Commission. Production-Sharing Update:
Developments in 2001. Industry Trade and Technology Review. November 2003. pp. 13,
22, B1-4.
24 USITC, Textiles and Apparel, p. 1-12.
25 Hufbauer, Kotschwar, and Wilson, op. cit., p. 1003.

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CRS-14
sharing arrangements (Chapter 98 of the Harmonized Tariff System — HTS). This
arrangement was extended under the Caribbean Basin Trade Partnership Act
(CBTPA) in October 2000 (P.L. 106-200), which allows duty-free and quota-free
treatment of apparel imports if assembled in the Central American countries from
fabrics made in the United States made of U.S. yarns, whether the fabrics were cut
to shape in the United States or Central America.26
U.S. Exports. As seen in Table 3, the major U.S. exports to Central America
include electrical and office machinery (computers), apparel, yarn, fabric, and plastic.
Many of these goods are processed in some form and re-exported back to the United
States under production-sharing arrangements. For example, nearly 60% of electrical
machinery exports to Central America is integrated circuits going to Costa Rica for
processing and re-export. The same may be said for fabric and yarns that are
exported to all countries, sewn and otherwise assembled, and re-exported back to the
United States. Some of these goods are consumed in the DR-CAFTA countries along
with capital goods (machinery and parts) and agricultural products.
Table 3. Top Eight U.S. Merchandise Exports to Central
America, 2004
($ millions)
Product and HTS
Costa
Hon
Guat
El Sal
Nic
Number#
Total
Rica
Total U.S. Exports
11,388
3,304
3,077
2,548
1,868
592
Elec Machinery (85)
1,698
1,092
175
206
157
68
-Integrated circuits 8542
(828)
(822)
(0)
(5)
(1)
(0)
Machinery (84)
1,031
301
205
256
205
69
-Office Mach. Pts (8473)
(207)
(68)
(26)
(62)
(32)
(19)
-Computer Parts (8471)
(136)
(43)
(20)
(32)
(26)
(10)
Cotton Yarn, Fabric (52)
780
18
412
241
84
23
Mineral Fuel (27)
712
93
239
313
57
10
Knit/Crocheted Fabric 60
688
38
351
24
272
3
Plastic (39)
657
253
123
181
87
13
Knit Apparel (61)
624
101
312
33
176
2
Cereals (10)
559
156
92
118
125
68
-Corn (1005)
(242)
(71)
(31)
(65)
(64)
(10)
-Wheat and Meslin 1001
(167)
(38)
(28)
(34)
(46)
(21)
-Rice (1006)
(149)
(46)
(33)
(18)
(16)
(37)
Other
4,639
1,252
1,168
1,176
705
336
Top 8 as % of Total
59.3%
62.1%
62.0%
53.8%
62.3%
43.2%
Data Source: U.S. Department of Commerce. #HTS = Harmonized Tariff Schedule
26 For the technical details of this arrangement, see CRS Issue Brief IB95050, Caribbean
Basin Interim Trade Program: CBI/NAFTA Parity, by Vladimir N. Pregelj.

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CRS-15
Similar trends for U.S. import trade are evident in U.S. exports. In 2004, 78%
of knit apparel and 76% of knit, cotton, and yarn fabric went to Honduras and El
Salvador. Although the United States exports machinery and parts to all five
countries, electrical machinery and particularly integrated circuits, are sent to Costa
Rica. All five countries import U.S. cereals and some, such as corn and rice, are
among the more import sensitive products for the DR-CAFTA countries because they
are staple crops and grown by small, often subsistence farmers.27
The significant aspects of this trade structure are that it reflects: 1) the continued
historical trend of (largely duty-free) regional dependence on the large U.S. market
as an important aspect of trade and development policy; 2) a deepening economic
integration; and 3) growing U.S. direct investment over the long run.
U.S.-Dominican Republic Trade
The Dominican Republic is the 28th largest U.S. export market (6th in Latin
America) and ranks as the 41st largest import country (8th in Latin America). More
so than any of the Central American countries, Dominican trade is dominated by the
United States (see Table 4 for bilateral trade data.)
Table 4. U.S.-Dominican Republic Merchandise Trade, 2004
U.S. Exports (by product
U.S. Imports (by product
$ millions
$ millions
and HTS Number*)
and HTS Number*)
Electrical Machinery (85)
529
Woven Apparel (62)
1,147
Knit Apparel (27)
379
Knit Apparel (61)
889
Cotton Yar, Fabric (52)
301
Medical Instruments (90)
417
Oil (not crude) (27)
291
Electrical Machinery (85)
393
Plastic (39)
235
Precious Stones/Jewelry(71)
341
Machinery (84)
230
Tobacco (24)
227
Precious Stones/Jewelry(71)
219
Iron and Steal (73)
161
Cereals (10)
185
Footwear (64)
137
Other
1,974
Other
816
Total
4,343
Total
4,528
Top 8 Exports as % of Total
54.5%
Top 8 Imports as % of Total
82.0%
Data Source: U.S. Department of Commerce. #HTS = Harmonized Tariff Schedule
The United States absorbs 80% of its exports, with 12% going to other
developed countries and only 8% entering developing countries. The Dominican
Republic imports 50% of its merchandise goods from the United States, 13% from
other developed economies, and 37% from various developing countries. Although
the largest of the DR-CAFTA trading partners, U.S. exports grew by only 1.6% in
2004 as the Dominican Republic continued to recover from a severe recession.
27 USITC, Production-Sharing Update: Developments in 2001. Industry Trade and
Technology Review. July 2002. pp. 39-42, B1-4

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CRS-16
The joint-production arrangements are evident in apparel and jewelry-making
industries. Apparel and textiles constitute 16% of U.S. exports and 48% of U.S.
imports. Other significant U.S. exports include various types of machinery, refined
oil products, and plastic. Other important U.S. imports include medical instruments,
electrical machinery, tobacco, and plastic. In many ways, the structure of the U.S.-
Dominican trade is similar to that of U.S.-CAFTA trade, and hence the economic
logic of “docking” it to the Central American agreement.
U.S. Foreign Direct Investment
The DR-CAFTA countries also benefit from foreign direct investment (FDI) as
part of the trade relationship with the United States, which is the largest foreign
investor in all six countries. To the extent that an FTA can be considered a
stabilizing factor in economic relationships, it is expected to encourage more FDI and
thereby promote longer term economic growth and development. U.S. FDI in the
CAFTA countries is presented in Table 5.
Table 5. U.S. Foreign Direct Investment (FDI)
in DR-CAFTA Countries
($ millions)
Country
1999
2000
2001
2002
2003
Costa Rica
1,493
1,716
1,835
1,802
1,831
El Salvador
621
540
464
684
779
Guatemala
478
835
311
303
294
Honduras
347
399
227
181
270
Nicaragua
119
140
157
250
261
Total Central America
3,058
3,630
2,994
3,220
3,435
Dominican Republic
968
1,143
1,116
983
860
Total CAFTA
4,026
4,773
4,110
4,203
4,295
Data Source: U.S. Department of Commerce. Bureau of Economic Analysis. Available at
[http://www.bea.doc.gov/bea/di/usdlongcty.htm]. Data are stock of FDI on a historical-cost basis.
The trends suggest that U.S. direct investment in the area is relatively small and
has grown erratically in recent years. Some countries have fared better than others
and net foreign investment may increase or decrease because of both economic and
political trends, as well as opportunities in other parts of the world that can affect
business decisions. Investment patterns have been skewed toward Costa Rica, which
has over half of U.S. FDI in Central America. The stock of FDI has declined since
1999 in El Salvador, Guatemala, Honduras, and the Dominican Republic.
Review of the DR-CAFTA
One aspect of the congressional debate over trade agreements focuses on their
potential economic effects on the United States. Congress mandated that the United
States International Trade Commission (USITC) assess these effects and it released

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CRS-17
its final report in August 2004. This report provides quantitative and qualitative
estimates of the DR-CAFTA effects on the U.S. economy as a whole and for selected
sectors. Overall, the “welfare value” or aggregate effect on U.S. consumers and
households of trade liberalization under the DR-CAFTA, assuming it would be fully
implemented on January 1, 2005, would be approximately $166 million (less than
0.01% of GDP) for each year the agreement is in effect.28
With respect to trade flows, the reduction of relatively higher tariff rates on U.S.
goods is expected to provide a greater effect on U.S. exports than to imports from the
region. The USITC model estimates that if the DR-CAFTA were fully implemented,
U.S. exports to the DR-CAFTA countries would increase by $2.7 billion or 15%,
while imports would increase by $2.8 billion, or 12%. The effect on aggregate U.S.
output and employment is expected to be minimal. The largest sector increases were
estimated to occur for U.S. grains (0.29% for output and 0.31% for employment) and
the greatest decrease to occur for sugar manufacturing (-2.0% for both output and
employment).29 These estimates are in line with expectations made prior to the
negotiations that the marginal effects of the DR-CAFTA would be small, but positive
for the U.S. economy as a whole, given the DR-CAFTA countries had small and
already largely open economies.
The rest of this section briefly summarizes the major negotiation issues and
references the ITC’s conclusions with respect to each major issue area, where
applicable. Emphasis is given to those sectors expected to be most affected by the
agreement.
Market Access
Market access covers provisions that govern barriers to trade such as tariffs,
quotas, safeguards, and rules of origin, which define goods eligible for tariff
preferences based on their regional content. For the DR-CAFTA countries, the FTA
would consolidate and make permanent and expand preferential market access
currently provided under the Caribbean Basin Trade Partnership Act (CBTPA) and
the Generalized System of Preferences (GSP). For the United States, DR-CAFTA
would change the trade arrangement with Central America from one based largely
on unilateral trade preferences to a bilateral FTA, making U.S. exports more
competitive. Agriculture and textile/apparel goods, Central America’s major exports,
were the most important and difficult market access issues to resolve.
Each traded good falls into one of eight tariff elimination “staging categories,”
which define the time period over which customs duties would be eliminated. Each
country negotiated a list of its most sensitive products for which duty-free treatment
would be delayed. For manufactured goods, duties on 80% of U.S. exports would
28 USITC, U.S.-Central America-Dominican Republic Free Trade Agreement, p. 64. The
study reviews literature on the DR-CAFTA and makes estimates of the economywide and
sectoral effects of trade liberalization under DR-CAFTA based on a computable general
equilibrium (CGE) model. For details, see pages xiv, 2, and Appendix D.
29 Ibid., pp. xxii and 64-70.

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CRS-18
be eliminated immediately, with the rest phased out over a period of up to 10 years.30
For agricultural goods, duties on over 50% of U.S. exports would be eliminated
immediately, with the rest phased out over a period of up to 20 years. In some cases,
duty-free treatment is “back loaded” and would not begin for 7 or 12 years after the
agreement takes effect. For the DR-CAFTA countries, 100% of non-textile and non-
agricultural goods would enter the United States duty free immediately.31 Safeguards
are retained for many products over the period of duty phase out, but antidumping
and countervailing duties were not addressed in the DR-CAFTA, leaving all U.S. and
other country laws fully enforceable as required under TPA.
Textiles and Apparel. The DR-CAFTA would have less restrictive
provisions governing textile and apparel imports than currently in force under the
CBTPA. It would remove all duties on textile and apparel imports that qualify under
the agreement’s rules of origin, retroactive to January 1, 2004 and allow for special
safeguard measures during the duty phase-out period. The permanence of the
provisions and the more accommodating rules of origin and administrative guidelines
may allow for a marginal increase in apparel imports from the region. These
provisions are intended to address the decline in U.S. market share of textile and
apparel imports from the region over the past five years, most of which have been
displaced by Asian products, despite the enhanced preferential treatment that
Congress afforded to Central American and Dominican imports under the CBTPA.32
Much Central American and Dominican apparel has been entering the United
States duty free for several years, if it is assembled from U.S. yarn and fabric under
the so-called “yarn forward” rule. The key difference from the CBTPA is that duty-
free access would apply to textiles and garments assembled from components made
in either the DR-CAFTA countries or the United States, rather than just the United
States.33 Among other enhanced benefits, the “cumulation rule” would allow duty-
free treatment to be extended on a limited quantity basis to woven apparel made from
components made in Canada and Mexico, a new step toward integrating apparel
manufacturing in the region.
Duty-free treatment would also be extended to goods with limited amounts of
material from third countries. Although these rules were widely supported, some
textile producers registered concern that they are overly restrictive and therefore
limited in their intended effect of helping the region compete (by lowering costs) in
the U.S. market against Asian imports. U.S. and DR-CAFTA firms that produce for
the U.S. market wanted as much flexibility as possible to use fabrics from third
countries. Others fear, however, that they are too generous and that if customs
procedures are not well implemented, they could harm U.S. producers by increasing
30 Ibid., p. 25.
31 Office of United States Trade Representative. Free Trade with Central America:
Summary of the U.S.-Central America Free Trade Agreement. p. 1. Hereafter cited as the
CAFTA Summary. It may be found at [http://www.ustr.gov].
32 USITC, U.S.-Central American-Dominican Free Trade Agreement, pp. 28-29.
33 See CRS Report RS22150, DR-CAFTA: Textiles and Apparel, by Bernard A. Gelb. p. 4.

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opportunities for the illegal transshipment of fabrics or goods made in ineligible
countries, such as China.
There are exceptions to the yarn forward rule for certain products (affecting less
than 10% of trade) and tariff preference levels (TPLs) were allowed for a few imports
from Nicaragua and Costa Rica. Because of this special treatment, countries that did
not receive such consideration challenged these provisions, as did some U.S. textile
manufacturing interests, which argued that they would hurt U.S. producers. There
was also considerable debate over the expansion from the CBTPA of the “short-
supply” list. This is the list of goods given duty-free access if made from materials
that are determined to be commercially in “short supply” in the United States. The
DR-CAFTA may also increase U.S. exports of textiles, which have risen significantly
under CBTPA. On balance, however, the USITC study estimated that it “will likely
have a negligible impact on U.S. production or employment.”34
Agriculture. Domestic support programs were not addressed in the DR-
CAFTA, but strides were made to reduce tariffs and increase quota levels, the most
costly trade-distorting policies. Average applied tariffs on agricultural goods by most
DR-CAFTA countries are relatively low, ranging from 7% to 23%. Most agricultural
imports face no tariff in the United States. For all countries, the pressing challenge
was negotiating tariff rate quotas (TRQs — see below) for their most sensitive
products.35 Agricultural products have the most generous tariff phase-out schedules,
with up to 20 years for some products (e.g. rice and dairy). This approach
acknowledges that the agricultural sectors bear most of the trade adjustment costs and
that it takes time for rural economies to make the transition to freer trade.36
All agricultural trade would eventually become duty-free except for sugar
imported by the United States, fresh potatoes and onions imported by Costa Rica, and
white corn imported by the other Central American countries. These goods would
continue to be subject to quotas that would increase, after a certain period, by
approximately 2% each year in perpetuity, with no decrease in the size of the above-
quota tariff.37 Over half of current U.S. farm exports to Central America would
34 CRS Report RL32895, Textile Exports to Trade Preference Regions, p. 2, by Bernard A.
Gelb. Inside U.S. Trade. CAFTA Textile Rules Pave Way for Increase in Foreign Fabric
Use. December 19, 2003 and Press Release. NTA Denounces CAFTA as Threat to U.S.
Textile Industry. December 18, 2003 and USTR, CAFTA Summary, p. 2 and USITC, U.S.-
Central American-Dominican Republic FTA, p. 30-32. Nicaragua received special
preferential treatment for certain “non-originating apparel goods”(Annex 3.27) and Costa
Rica received limited special treatment for certain wool apparel goods (Annex 3.28).
35 For more details, including sanitary and phytosantiary (SPS) provisions, see CRS Report
RL32110, Agricultural Trade in a U.S.-Central American Free Trade Agreement (CAFTA),
by Remy Jurenas.
36 Salazar-Xirinachs, Jose M. and Jaime Granados. The US-Central America Free Trade
Agreement: Opportunities and Challenges. In: Schott, Jeffrey J. ed. Free Trade
Agreements: US Strategies and Priorities. Washington, D.C. Institute for International
Economics. 2004. pp. 245-46.
37 CRS Report RL32110, p. 5.

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CRS-20
become duty free immediately, including high quality cuts of beef, cotton, wheat,
soybeans, certain fruits, and vegetables, processed food products, and wine.
Many other transitional provisions exist. Agricultural products would be subject
to tariff-rate quotas, or limits on the quantity of imports that can enter the United
States before a very high tariff is applied. The phased reduction in agriculture
protection also includes the transitional use of volume-triggered safeguards, or
applying an additional duty temporarily on products that are being imported in
quantities deemed a threat to the domestic industry.38 Export subsidies would be
eliminated except when responding to third party export subsidies.
Sugar was perhaps the most controversial and complex of agricultural issues to
resolve and U.S. sugar growers and processors are vehement opponents of the
agreement. The U.S. conceded to slight numerical increases in sugar quotas for all
six countries. Sugar and sugar-containing products imported under the U.S. quota
system enter the United States duty-free, but exports above the quota face prohibitive
tariffs (nearly doubling the price). Raw sugar receives the largest quota by volume,
28% of the total U.S. sugar quota for the world was filled by the DR-CAFTA
countries in 2003, and was the major issue for this agreement. The U.S. market
accounts for only 14% of the region’s sugar exports, representing less than 10% of
the region’s sugar production.39
The DR-CAFTA would raise the U.S. quota by an amount equal to 35% of the
current quota in year one, rising to 50% by year 15, after which the quota would
increase each year slightly in perpetuity. This may seem large, but the USITC notes
that the initial increase amounts to only 1% of U.S. production and consumption of
raw sugar in 2003, and that the overall effects of the sugar provisions may be small.
Two studies done by the USITC and Louisiana State University estimated that the
sugar provisions could result in a decline in sugar prices of 1% (USITC) and 4.6%
(LSU), with perhaps largely offsetting employment effects in the sugar producing and
sugar-containing product industries.40 The United States would be able to impose a
sugar price mechanism to compensate Central American sugar exporters in lieu of
according them duty-free treatment, but a key issue for some Members of Congress
is defining precisely how this mechanism would work.
Increasing grain exports was an important goal for the United States. Wheat is
not grown in the DR-CAFTA countries and there is already largely free trade in this
commodity. Staples for the DR-CAFTA countries, such as rice and white corn,
however, remain protected and there is a complicated system for phasing out TRQs
on U.S. exports over a 15-20 year period. As with sugar imports to the United States,
U.S. exports of corn and rice will increase slowly due to the highly restrictive TRQs
38 For example, in the case of beef, the Central American countries have agreed to the
immediate elimination of tariffs on U.S. prime and choice cuts, but have a 15-year tariff
phase-out on other products, with a backloaded schedule (no tariff reductions in the early
years) and a safeguard. The United States has a 26% out-of-quota tariff on beef that will be
phased out over 15 years, with the quota schedule defined for each country.
39 USITC, U.S.-Central American-Dominican Free Trade Agreement, p. 35.
40 Ibid., pp. 38-40.

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CRS-21
and special safeguard measures. The USITC estimates that changes in the quantity
of exports from the United States will be small at first and rise by perhaps 20% by
the end of the TRQ phase-out period. The USITC suggests that the long-run effect
would be small (1.2% of total U.S. grain exports), but notes that the “potential
increase in grains exports offers significant market opportunities for U.S. white and
yellow corn growers and U.S. rice growers.”41
Despite the lengthy transition period toward freer trade under the DR-CAFTA,
concerns remain over the potentially harmful effects to Central America, particularly
to the small commercial and subsistence farmers, of further opening its markets to
U.S. agriculture.42 Three recent studies, however, agree that overall, increased
agricultural trade can be one source of Central American rural development. In
addition to increasing Central American agricultural exports, the majority of
households are net consumers of agricultural goods, and so stand to gain from lower
prices, the equivalent to a increase in family income. Because subsistence farmers’
produce generally does not reach the market, it would not likely be affected greatly
by changes in market prices.43
Still, for the minority of rural net producers of agricultural goods, economists
also agree that adjustment policies are essential, beginning with targeted income
assistance. For rural areas to benefit fully from the DR-CAFTA, there is also a
critical need for increased investment in transportation and communications
infrastructure, education, and more fully developed financial services. This would
improve agricultural productivity, help transition workers toward alternative crops
or non-farm employment, and integrate the rural economy more fully with the
national and international economy. Without concerted effort in adjustment
assistance, the poorest segments of rural Central America would remain vulnerable
to the effects of freer trade.44
Investment and Services
In 2003, the United States’ stock of foreign direct investment (FDI) in the DR-
CAFTA countries was $4.3 billion, which represents only 1.4% of U.S. FDI in Latin
America and the Caribbean. Some 43% of the FDI in DR-CAFTA countries went
to Costa Rica, followed by the Dominican Republic with 20%. The United States has
41 Ibid., pp. 43-47.
42 Oxfam International. A Raw Deal for Rice Under DR-CAFTA. Briefing Paper #68. 2004.
43 Todd, Jessica, Paul Winters, and Diego Arias. CAFTA and the Rural Economies of
Central America: A Conceptual Framework for Policy and Program Recommendation.
Inter-American Development Bank. Washington, D.C. December 2004. pp. 43-50, Mason,
Andrew D. Ensuring that the Poor Benefit from CAFTA: Policy Approaches to Managing
the Economic Transition. Draft of Chapter 5 in forthcoming book. The World Bank.
Washington, D.C. March 25, 2005. pp. 25-26, 35, and Arce, Carlos and Carlos Felipe
Jaramillo. El CAFTA y la Agriclutura Centroamericana. Paper presented at the World
Bank Regional Conference on International Trade and Rural Economic Development,
Guatemala. February 21-22, 2005. p. 17.
44 Ibid.

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CRS-22
advocated clear and enforceable rules for foreign investment in all trade agreements,
which is largely accomplished by “standard” language requiring national and most-
favored-nation (nondiscriminatory) treatment. The DR-CAFTA would clarify rules
on expropriation and compensation, investor-state dispute settlement, and the
expeditious free flow of payments and transfers related to investments, with certain
exceptions in cases subject to legal proceedings (e.g. bankruptcy, insolvency,
criminal activity). Transparent and impartial dispute settlement procedures would
provide recourse to investors.
Two investment issues stand out. First, an investor-state provision, common in
U.S. bilateral investment treaties (BITs) and used in earlier FTAs, has been included.
It would allow investors alleging a breach in investment obligations to seek binding
arbitration against the state directly, using the dispute settlement panel defined in the
Investment chapter. U.S. investors have long supported the inclusion of investor-
state rules to ensure that they have recourse in countries that do not adequately
protect the rights of foreign investors. Since bilateral investment treaties are usually
made with developing countries that have little foreign investment in the United
States, it was not anticipated that these provisions would greatly affect the United
States. This changed under NAFTA where investor-state provisions gave rise to
numerous “indirect expropriation” claims against subnational (state) governments in
the United States, Mexico, and Canada over environmental and other regulations.45
Although none on these claims has prevailed in the United States, Congress
instructed in TPA that future trade agreements ensure “that foreign investors in the
United States are not accorded greater substantive rights with respect to investment
protections than United States investors.” In response, Annex 10-C of the DR-
CAFTA states that “except in rare circumstances, nondiscriminatory regulatory
actions by a Party that are designed and applied to protect legitimate welfare
objectives, such as public health, safety, and the environment, do not constitute
indirect expropriations.” This provision, and one that would allow for early
elimination of “frivolous” suits, is intended to address congressional concerns, but
there is uncertainty about how well the changes would operate.
Second, the DR-CAFTA countries requested greater flexibility in the treatment
of certain sovereign debt. Annex 10-A allows sovereign debt owed to the United
States that has been suspended and rescheduled not to be held subject to the dispute
settlement provisions in investment chapter, with the exception that it be given
national and MFN treatment. Annex 10-E extends from six months to one year the
amount of time required before a U.S. investor may seek arbitration related to
sovereign debt with a maturity of less than one year. Both provisions are intended,
in the event of a financial crisis, to keep the DR-CAFTA from interfering in any
sovereign debt restructuring process, and are viewed by the U.S. Treasury as an
accommodation to Central American interests.
45 Indirect expropriation refers to regulatory and other actions that can adversely affect a
business or property owner in a way that is “tantamount to expropriation.” This issue and
many cases are discussed in CRS Report RL31638, Foreign Investor Protection Under
NAFTA Chapter 11, by Robert Meltz. See pp. 3-5, and 11.

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CRS-23
The United States is the largest services exporter in the world, and not
surprising, services trade presented a number of hurdles given that the Central
American countries have adopted few commitments of the WTO’s General
Agreement on Trade in Services (GATS). There are also many industry-specific
barriers that exist, such as: barriers to foreign insurance companies in Guatemala;
“heavy” regulation licensing of foreign professionals in Honduras; local partner
requirements in some financial services in Nicaragua; and numerous services
monopolies in Costa Rica (insurance and telecommunications).46 The DR-CAFTA
would provide broader market access and greater regulatory transparency for most
industries including telecommunications, insurance, financial services, distribution
services, computer and business technology services, tourism, and others. Banks and
insurance firms would have full rights to establish subsidiaries, joint ventures, and
branches. Regulation of service industries is required to be transparent and applied
on an equal basis and e-commerce rules are clearly defined, a critical component of
delivering services.47
The USITC suggests that the DR-CAFTA would have little effect on U.S.
services imports because the market is already open and sees opportunities for U.S.
firms to expand into Central America. In particular, Costa Rica agreed to the
eventual opening of its state-run telecommunications and insurance industries, where
there has been strong political resistence to privatization and deregulation.48 Unlike
the other countries, doing so would constitute a major structural adjustment for the
Costa Rican economy, have implications for Costa Rican social policy, and require
amending domestic laws, all of which, the Costa Ricans argued, would be difficult
for their legislature to support without concrete tradeoffs in other areas, such as
agriculture and textiles. These issues were resolved in two week-long discussions
held in January 2004 and their detailed commitments are presented in the relevant
chapters of the DR-CAFTA. Because of this continued sensitivity, however, a vote
on ratifying the DR-CAFTA is highly controversial in the Costa Rican Congress.
Government Procurement and Intellectual Property Rights
These two areas were also of particular interest to the United States, with the
DR-CAFTA seen as an opportunity to remedy deficiencies and encourage
enforcement of standardized practice in the region. None of the DR-CAFTA
countries is a signatory to the WTO Agreement on Government Procurement and
complaints against purchasing processes vary from dissatisfaction with opaque and
cumbersome procedures in Costa Rica to outright corruption in Guatemala. El
Salvador, Nicaragua, and Honduras passed new government procurement laws in
2000/01, and in general, there have been improvements in all countries in dealing
with project bidding, although transparency issues remain.49 Some analysts believe
46 USTR. 2004 National Trade Estimate Report on Foreign Trade Barriers. Washington,
D.C. 2004.
47 USTR, CAFTA Summary, p. 2-3.
48 Salazar-Xirinachs and Granados, op.cit., p. 260.
49 USTR, 2004 National Trade Estimate Report on Foreign Trade Barriers.

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CRS-24
this is due in part to a lack of incentives given that many of these countries would not
be able to compete in the U.S. government procurement market.50
The DR-CAFTA would grant non-discriminatory rights to bid on contracts from
Central American ministries, agencies, and departments, with the exception of “low-
value contracts” and other exceptions. It would also call for procurement procedures
to be transparent and fair, including clear advance notices of purchases and effective
review. Specific schedules detailing exceptions and limitations were written by each
country, covering such diverse issues as the sale of firearms to supplying school
lunch programs. In addition, each country provided a list of subnational governments
(e.g. states and municipalities) that would adhere to the GP provisions. The DR-
CAFTA would also make clear that bribery is a criminal offense under the laws of
all countries. In general, the provisions are supported by U.S. businesses interested
in doing or expanding opportunities in the region.51
All Central American countries are revising, or have revised, their intellectual
property rights (IPR) laws and are closing in on complying with the WTO Agreement
on Trade-Related Aspects of Intellectual Property Rights (TRIPS). That said, all
countries are subject to criticism for falling short of either clarifying or enforcing
penalties for noncompliance and in some cases have simply not adopted reforms that
many U.S. industries (e.g., sound and video recordings, pharmaceuticals, book
publishing, computer software) consider necessary to protect their intellectual
property. Piracy, incomplete or inadequate legal protection, and enforcement
capacity remain problems and ongoing concerns exist across the range of IPR issues
of patents, trademarks, and copyrights, covering print, electronic, and other media.52
The IPR provisions in the DR-CAFTA would provide that U.S. and DR-CAFTA
businesses receive equal treatment in all areas and that the DR-CAFTA countries
ratify or accede to various international IP agreements. Trademarks would benefit
from a transparent on-line registration process and special system to resolve disputes
over internet domain issues, among other benefits. Copyright provisions would
clarify use of digital materials (exceeding TRIPS standards) including rights over
temporary copies of works on computers (music, videos, software, text), sole author
rights for making their work available on-line, extended terms of protection for
copyrighted materials, strong anti-circumvention provisions to prohibit tampering
with technologies, the requirement that governments use only legitimate computer
software, the prohibition of unauthorized receipt or distribution of encrypted satellite
signals, and rules for liability of internet service providers for copyright infringement.
Patents and trade secrets rules would conform more closely with U.S. norms. End-
user piracy would be criminalized and all parties would be required to authorize the
seizure, forfeiture, and destruction of counterfeit and pirated goods. The DR-CAFTA
would also mandate statutory damages for abuse of copyrighted material.53
50 Salazar-Xirinachs and Granados, op.cit., p. 253.
51 USTR, CAFTA Summary, p. 5.
52 Ibid and 2004 National Trade Estimate Report on Foreign Trade Barriers.
53 Ibid., p. 4-5.

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The DR-CAFTA goes a long way toward meeting U.S. business IPR protection
needs and the USITC suggests that many industries will benefit from higher revenue
if the new standards can be enforced. Even if laws are changed to conform to the
DR-CAFTA commitments, however, enforcement issues will likely remain and
technical assistance may be needed to help develop the necessary capabilities.54
Pharmaceutical Data Protection. To bring a patented drug to market, a
drug company must demonstrate through clinical trials that the drug is safe and
effective. Under U.S. patent law, the data used to establish these claims are protected
from use by generic manufacturers for five years from the time the drug is introduced
in a country’s market. Similar language was adopted in the IPR chapter of the DR-
CAFTA. This issue became controversial in November 2004 when the Guatemala
legislature changed its laws, adopting World Trade Organization (WTO) language
that would have limited data protection to five years from the time a drug is brought
to market in the first country (e.g. the United States), rather than from the presumably
later time that it might be introduced in a second country (e.g. Guatemala).
The USTR insisted that this change was a breach of the DR-CAFTA
commitments and threatened to delay implementing legislation until the law was
changed. Guatemala chose to reverse the data protection law, to the disappointment
of many who argued that the DR-CAFTA provisions could delay access to future
generic drugs. Given that data protection and patent protection often run
concurrently, however, it is debatable whether the introduction of future generic
drugs would be further inhibited by this provision.
An August 5, 2004 side agreement among all signatories further clarifies that
data protection obligations under the DR-CAFTA do not affect a country’s ability “to
take measures [e.g. compulsory licensing for generic drugs] necessary to protect
public health by promoting access to medicines for all,” in particular those needed
to combat epidemics such as HIV/AIDS, tuberculosis, and malaria, among others.
Critics contend that the side agreement still does not provide an explicit exception
to the data protection requirement for cases where compulsory licencing under the
WTO rules is invoked, and others even challenge the entire WTO provision as
inadequate.55
Labor and Environment
Perhaps the greatest challenge to the DR-CAFTA arises from the environment
and labor chapters. It has become widely accepted that environmental and labor
provisions should be part of modern trade agreements. There is considerable
54 USITC, U.S.-Central America-Dominican Republic Free Trade Agreement, p. 101.
55 The legal issue is complicated and perhaps subject to interpretation as to whether the five-
year data exclusivity could, under some circumstances, limit access to generic drugs beyond
the patent period. The side agreement is available at [http://www.ustr.gov] and for a
summary of the debate, see Brevetti, Rosella. CAFTA Opponents Blast U.S. Stance on
Guatemalan Data Protection Law. International Trade Reporter. BNA, Inc. March 10,
2005. See also: CRS Report RS21609, The WTO, Intellectual Property Rights, and the
Access to Medicines Controversy, by Ian F. Fergusson.

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disagreement, however, over how aggressive language in trade agreements should be
in addressing these issues.
From an economic perspective, labor and environment advocates in the United
States argue that developing countries may have an “unfair” competitive advantage
because their lower standards are the basis for their lower costs, which in turn are
reflected in lower prices for goods that compete with those produced in developed
countries.56 It follows from this argument that the difference in costs is an enticement
to move U.S. investment and jobs abroad. On the other hand, others have argued that
developing countries have a comparative advantage in labor costs consistent with the
free trade model, and in any case, studies suggest that these cost differentials are
usually not high enough to determine business location alone — productivity remains
the primary decision factor.57 Further, many economists view trade liberalization as
part of the overall development process that, in and off itself, can promote social
change.58 Developing countries are also concerned with sovereignty issues related
to specifying standards in trade agreements and the possibility that they can be
misused as a disguised form of protectionism.
Environmental Issues. Major goals include protecting and assuring strong
enforcement of existing domestic environmental standards, ensuring that multilateral
environmental agreements are not undermined by trade rules, promoting strong
environmental initiatives to evaluate and raise environmental performance,
developing a systematic program of capacity-building assistance, and assuring that
environmental provisions in FTAs are subject to the same dispute resolution and
enforcement mechanisms as are other aspects of the agreement.59
56 The difference is that in most developing countries, the social costs associated with
environmental degradation, pollution, and poor working conditions may not be captured in,
or are external to, the market price (so-called external costs). Through legal, regulatory, and
tax measures, developed countries require that businesses correct, or pay for, many of these
social problems, thereby internalizing these costs to the business, where they are then
reflected in the final (relatively higher) price of the good or service in the market place.
57 See Stern, Robert M. Labor Standards and Trade. In: Bronckers, Marco and Reinhard
Quick, eds. New Directions in International Economic Law: Essays in Honor of John H.
Jackson. The Hague: Kluwer Law International. 2000. pp. 427-28 and 436 and CRS
Report 98-742, Trade with Developing Countries: Effects on U.S. Workers, by J.F.
Hornbeck. September 2, 1998, pp 11-13. Productivity and wage levels are, however, highly
correlated. See Rodrik, Sense and Nonsense in the Globalization Debate, pp. 30-33.
58 In addition to the external costs addressed in this section, it is interesting to note that there
is some broader evidence that FTAs have not “forced a race to the bottom of regulatory
standards,” but to the contrary, that policy convergence is affected more by countries
agreeing to “norms of governance” via cooperation through international agreements. See
Drezner, Daniel W. Globalization and Policy Convergence. International Studies Review.
Vol. 3, Issue 1, Spring 2001. pp. 75 and 78.
59 See [http://www.sierraclub.org/trade/fasttrack/letter.asp], Principles for Environmentally
Responsible Trade. Another important issue for the United States is ensuring that its higher
environmental standards defined in law and regulation not be compromised by challenges
of protectionism. See CRS Report RL31638, Foreign Investor Protection Under NAFTA
Chapter 11, by Robert Meltz.

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CRS-27
The USTR summary states that congressional objectives on environmental
issues have been met in the proposed DR-CAFTA agreement. It includes language
requiring all countries to enforce their laws and regulations and also creates an
environmental cooperation agreement with a framework for establishing a
cooperation commission and a process to conduct capacity building. All parties
would agree to commit to establish high levels of environmental protection and to
open proceedings in the administration and enforcement of laws and regulations.60
Advocates raise the issue of the environmental effects of trade, particularly in
developing countries that may have weak laws and lax enforcement mechanisms, but
the environmental provisions are not the most contentious issues in the DR-CAFTA.
Many of these same advocates have conceded that trade agreements have not led to
catastrophic pollution problems nor encouraged a “regulatory race to the bottom.”
In fact, there has also been a certain acknowledged degree of success, by having
environmental issues addressed in the body of FTAs, in side agreements on
environmental cooperation, and through technical assistance programs, the latter of
which developing countries can use to respond to specific problems. Advocates still
note that much can be improved, such as tightening enforcement language and
ensuring that the United States allocates financial resources to back up promises of
technical assistance, particularly in the case of Central America, where commitment
to “public accountability” is questioned in some cases.61
The Trade and Environment Policy Advisory Committee supports most of the
environment provisions in the DR-CAFTA and particularly the enhanced public
participation process negotiated by the State Department in a environmental
cooperation side agreement. The dispute settlement provisions, effectively the same
rules governing labor disputes, were accepted as striking the “proper balance.” The
advisory committee still raised a number of specific environmental concerns, and
questioned whether the DR-CAFTA would be able to meet congressional objectives
on capacity building without concrete funding for the program.62 In response, the
seven countries signed a supplemental Environmental Cooperation Agreement (ECA)
on February 18, 2005. It calls for a new unit to be established in the Secretariat for
Central American Integration to administer public submissions or complaints made
on enforcement issues. The ECA is intended to address both short- and long-term
environmental goals, including providing for a monitoring process, but does not
address concerns over funding for the implementation of environmental initiatives.
Labor Issues. Arguably, the most contentious issue in the DR-CAFTA is the
labor chapter. Two broad themes have emerged given that labor standards in many
of these countries can be weak. First, the extent to which the DR-CAFTA countries
60 For more details on congressional interest in environmental provisions in trade
agreements, see CRS Report RS21326, Trade Promotion Authority: Environment Related
Provisions in P.L. 107-210, by Mary Tiemann.
61 See Audley, John. Environment and Trade: The Linchpin to Successful CAFTA
Negotiations? Carnegie Endowment for International Peace. Washington, D.C. July 2003.
62 Trade and Environment Policy Advisory Committee on the Central American Free Trade
Agreement. The U.S.-Central American Free Trade Agreement. March 12, 2004.

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have adequate labor laws and enforcement mechanisms, and second, whether the DR-
CAFTA meets the negotiation objectives defined by Congress in TPA.
Labor Laws and Enforcement. Labor advocates argue that some DR-
CAFTA countries lack adequate protection for workers’ rights in their labor codes
and that even where such rights are spelled out, enforcement mechanisms are
woefully inadequate. The first paragraph of the Labor Chapter states that all parties
reaffirm their commitments under the United Nations International Labor
Organization (ILO). These are defined in the ILO’s 1998 Declaration on
Fundamental Principles and Rights at Work: 1) the freedom of association and the
effective recognition of the right to collective bargaining; 2) the elimination of all
forms of forced or compulsory labor; 3) the effective abolition of child labor; and 4)
the elimination of discrimination in respect of employment and occupation.63
In response, the Central American countries requested that the ILO conduct a
study of their labor laws. The final 2003 report is subject to interpretation and has
been used to bolster both sides of the issue of whether the DR-CAFTA countries
guarantee the core ILO principles.64 Those concerned with the adequacy of labor
laws have argued that there is still a need to clarify or change laws in some countries
for them to comply fully with these principles. This argument was further pressed
by several Members of the House Ways and Means Committee in a publicized letter
to the USTR’s office. It pointed to 20 examples in which Central American laws fail
to meet core ILO principles, all cases related to freedom of association or collective
bargaining as opposed to discrimination, compulsory labor, or child labor.65
At the same time, with the assistance of the Inter-American Development Bank,
the DR-CAFTA country ministers of trade and labor released a study of their
countries’ shortfalls in meeting and enforcing core labor principles. Although all
countries have made recent changes to their labor laws, there was clear recognition
for the need to harmonize some laws better with ILO principles, as well as address
enforcement of key infractions such as employment discrimination (pregnancy
testing), abuses in free trade zones (application of labor laws), and the need to
dedicate more resources to enforcement.66
The debate over the adequacy of labor laws continues, but there is little
disagreement that labor law enforcement is a problem and that unionization is not
63 Article 16.8 of the Labor Chapter also includes a list of internationally recognized labor
rights that includes all of these rights plus “acceptable conditions of work with respect to
minimum wages, hours of work, and occupational safety and health.”
64 United Nations. International Labor Organization. Fundamental Principles and Rights
at Work: A Labour Law Study: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua.
Geneva, 2003.
65 Letter to the Honorable Peter Allgeier. April 4, 2005. If Honduras and Guatemala are
eliminated, concerns in this letter would focus on the use of solidarity associations, onerous
strike requirements, and inadequate protection against anti-union discrimination.
66 Minister of Trade and Labor. The Labor Dimension in Central America and the
Dominican Republic. Building on Progress: Strengthening Compliance and Enhancing
Capacity. April 2005.

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widespread. The DR-CAFTA countries have admitted in their own report that they
lack the financial resources and technical expertise to enforce good labor practices,
a problem that will also take time and resources to overcome. This is an area where
the DR-CAFTA could be used to assist countries financially with technical assistance
to achieve higher enforcement standards through the Labor Cooperation and Capacity
Building Mechanism, defined in annex 16.5. As a side note, the DR-CAFTA is a
reciprocal agreement and although most concerns about enforcement are directed at
the region, the United States is not without its own critics in this matter.67
Labor Provisions and TPA. Irrespective of a particular country’s capacity
to legislate and enforce labor standards, there are concerns over the way the labor
chapter was written in the DR-CAFTA. From a technical perspective, the USTR,
makes three claims with respect to the agreement. First, that it fully meets the labor
objectives set out by Congress in the Trade Promotion Act of 2002 and makes labor
obligations a part of the core text of the trade agreement. Second, that it includes
unprecedented provisions that commit DR-CAFTA countries to provide workers with
improved access to procedures that protect their rights. Third, that it goes beyond
Chile and Singapore FTAs through a 3-part cooperative approach to improve
working conditions by: 1) ensuring effective enforcement of existing labor laws; 2)
working with the ILO to improve existing labor laws and enforcement; and 3)
building local capacity to improve workers rights.
U.S. labor advocates charge to the contrary, that “The labor provisions of the
DR-CAFTA will not protect the core rights of workers in any of the six countries
participating in the agreement.”68 The critique centers on the dispute settlement
provisions and the extent to which they are effective in requiring countries to meet
certain standards. It is argued that they are a step backward from the provisions
allowing for the suspension of trade benefits found in the GSP and CBI, which
currently govern much of the U.S. trade with Latin America. Specifically, there are
three provisions given different weight in the DR-CAFTA: 1) the effective
enforcement of domestic labor laws; 2) the reaffirmation of commitments to ILO
basic principles; and 3) “non-derogation” from domestic standards (not weakening
or reducing protections to encourage trade and investment).69
The first provision, failure to enforce domestic labor laws, can be formally
challenged in the dispute resolution process as defined in the DR-CAFTA. Such
recourse is not available for the other two provisions, although they are supported in
principle (Articles 16.2 and 16.6). The USTR points to cooperative mechanisms for
67 Bensusán, Graciela. Labor Regulations and Trade Union Convergence in North America.
In Weintraub, Sidney, ed. NAFTA’s Impact on North America: The First Decade.
Washington, D.C.: CSIS Press. 2004. p. 145.
68 Labor Advisory Committee for Trade Negotiations and Trade Policy (LAC). The U.S.-
Central America Free Trade Agreement. March 19, 2004. p. 1.
69 Ibid, p. 6 and Lee, Thea M. Assistant Director for International Economics, AFL-CIO.
Comments on the Proposed U.S.-Central American Free Trade Agreement, before the USTR
Trade Policy Committee, November 19, 2002.

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CRS-30
improving workers’ rights in the FTA, but labor advocates argue that unless all three
are enforceable, the DR-CAFTA does not provide a meaningful trade discipline.70
In addition, for labor (and environmental) issues, the dispute resolution process
operates differently than for commercial issues. If a commercial dispute remains
unsettled, the country faces the possibility of a suspension of benefits “of equivalent
effect” (Article 20.16), resulting in the raising of tariffs, or payment of a monetary
assessment (fine) equal to 50% of what a dispute panel determines is “of equivalent
effect.” This article does not apply to the disputable labor provision. The difference
is that the option for failing to resolve a labor dispute is a monetary assessment paid
by the country, which would be capped at $15 million per year, per violation, with
recourse to an equivalent dollar value of suspended benefits (higher tariffs) if the fine
is not paid. The fine would also be paid into a fund and expended for “appropriate
labor initiatives.” Those supporting stronger labor provisions argue that by capping
the assessment at $15 million and having the assessment paid into a fund in the
offending country, the labor provisions are rendered largely ineffective. The USTR
argues that for small countries, such a fine levied annually for each violation would
be significant relative to the dollar value of the trade benefits they would receive.71
From a congressional perspective, there is the question of whether differences
in the treatment of the three labor provisions in some way fail to meet the principal
negotiating objectives as outlined in TPA legislation. Although the three provisions
are not accorded the same treatment in the DR-CAFTA, neither are they in the TPA
language. Section 2102(b)(11) of the Trade Act of 2002 (TPA) states that among the
principal labor negotiation objectives is the provision “to ensure that a party to a
trade agreement with the United States does not fail to effectively enforce the
environmental or labor laws.” This may be contrasted with the less stringent
objectives “to strengthen the capacity of United States trading partners to promote
respect for core labor standards,” and, in Sec. 2102(a)(1)(7) to “strive to ensure that
they do not weaken or reduce the protections afforded in domestic environmental and
labor laws as an encouragement for trade.”
The TPA provisions seem to differ with respect to treatment of these three labor
provisions, and under the dispute resolution provision (sec. 2102(b)(12)(G)), one
objective is “to seek provisions that treat United States principal negotiating
objectives equally” with respect to the ability to resort to dispute settlement, the
availability of equivalent procedures, and the availability of equivalent remedies.
Critics argue that this is not the case with labor and commercial disputes, but the
USTR contends that this standard has been met since both commercial and labor
disputes are subject to fines and suspension of benefits. Since the dispute settlement
procedures do not operate identically, it may be a matter of interpretation as to
whether there is a problem in their meeting congressional negotiating objectives.72
70 Ibid. For the Department of State reports on human rights, including labor rights, see
[http://www.state.gov/g/drl/rls/hrrpt/2003].
71 Lee, op. cit., and Labor Advisory Committee Report.
72 It should also be noted that under the principal negotiating objectives in TPA with respect
(continued...)

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CRS-31
The DR-CAFTA labor provisions contain many of the same controversial
provisions found in earlier FTAs for which Congress passed implementing
legislation, including Chile, Singapore, Morocco, Australia (Jordan’s labor
provisions were different in some places.) Many Members may have accepted that
these countries had adequate labor laws, even if there were enforcement or other
concerns. This perception is clearly lacking for the DR-CAFTA countries, despite
efforts to make transparent their deficiencies and to correct some laws and
enforcement problems. A challenge for policymakers is deciding whether the labor
chapter in DR-CAFTA is sufficient to support this next FTA, requires amending in
the text, or could be improved sufficiently in a side agreement or letter, if it is to be
ratified.
Dispute Resolution and Institutional Issues
This negotiation group focused on numerous aspects that define how the trade
agreement will operate, particularly with respect to rules governing procedures for
dispute resolution. Dispute resolution is modeled on previous FTAs, in which
disagreements are intended to be resolved cooperatively via a consultative process.
If this approach is not successful, the process moves to the establishment of the Free
Trade Commission of cabinet-level representatives, and finally an arbitral panel.
Arbitral panels are intended to broker mutually acceptable resolutions, including
providing for compensation, if appropriate. If a mutually-agreed solution is not
found, the complaining party may resort to a suspension of benefits of equivalent
effect. This may also be challenged, and final resolution, as well as, how the
suspension of benefits are to be administered are set out in guidelines. Resolving
labor and environmental disputes would be slightly different (see previous section).
All dispute resolution procedures are defined in Chapter 20. Administrative and
other technical matters (e.g. transparency issues) of trade agreement implementation
were also addressed by this working group.
Trade Capacity Building
Even before detailed discussions began on the DR-CAFTA, the Central
American countries expressed a strong apprehension of being overwhelmed by the
resources and experience that the United States could muster to negotiate and later
comply with liberalized trade rules. Hence, the need for trade capacity building,
which, now that the negotiation process is over, may be classified into three distinct
areas beyond trade negotiation capabilities. First, the ability to identify priorities,
72 (...continued)
to labor is a limiting provision that is reflected almost verbatim in Article 16.2 of the DR-
CAFTA: 1) “to recognize that parties to a trade agreement retain the right to exercise
discretion with respect to investigatory, prosecutorial, regulatory, and compliance matters
and to make decisions regarding the allocation of resources to enforcement with respect to
other labor [or environmental] matters determined to have higher priorities,” 2) that “a
country is effectively enforcing its laws if a course of action or inaction reflects a reasonable
exercise of such discretion;” and 3) “no retaliation may be authorized based on the exercise
of these rights or the right to establish domestic labor standards.” P.L. 107-210, sec.
2102(b)(11)(B).

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CRS-32
including where the major adjustment costs (losers) are expected to be and how to
respond to them. Second, the ability to develop resources to implement the
agreement, including institutional, financial, and analytical resources. Third, the
capacity to benefit from the DR-CAFTA.73 The agreement would create a permanent
Committee on Trade Capacity Building to continue work begun in the negotiation
process, and recommendations in the agreement call for one of its first priorities to
be customs administration.
The third category, however, is arguably the most challenging. Also referred to
as “supply side” capacity, it refers to the ability of a business to: compete in a larger
market; learn how to export and use imports (as inputs) more to its advantage; tap
into global finance; navigate customs and trade logistics problems; and in other ways
make the transition from local producer to international player.74 This will be a
difficult challenge for many Central American firms, particularly if barriers to world
trade are reduced outside the U.S.-Central American relationship (WTO/FTAA)
putting increasing pressure on marginally productive businesses. The joint-
production relationship already established in textiles and garments suggests that
certain firms have already developed some expertise in meeting these challenges.
From the outset of negotiations, the United States advocated assisting the
Central American countries. Each Central American country prepared a National
Action Plan based on a review of its “trade-related” needs. Assistance is being
provided by the United States government through the U.S. Trade and Development
Agency, Agency for International Development, and the Department of State, among
others; private groups (corporate and non-government organizations — NGOs); and
five international organizations (the Inter-American Development Bank — IDB,
Central American Bank for Economic Integration — CABEI, United Nations
Economic Commission on Latin America and the Caribbean — ECLAC,
Organization of American States — OAS, and the World Bank).75
The DR-CAFTA includes a Committee on Trade Capacity Building to
coordinate these types of activities. U.S. inter-agency funding in support of DR-
CAFTA trade capacity building peaked as the agreement came to completion,
including $20 million for labor and environmental technical assistance in the FY2005
budget. Maintaining formal support for these programs, including ongoing financial
commitments, is one challenge supporters of these programs emphasize.
Outlook
Although the DR-CAFTA implementing legislation passed the Senate, it
appeared to require last minute accommodation to sugar, textile, and labor interests.
73 This typology of capacity issues was developed by Bernard Hoekman of the World Bank.
Earlier versions of this report mentioned a fourth area, trade negotiation capacity.
74 Ibid.
75 Details of the program and the Central American National Action Plans may be found at
the USTR website: [http://www.ustr.gov].

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CRS-33
This took the form of various promises to protect sugar and textile interests and
increase monitoring of labor rights in DR-CAFTA countries, while supplying
additional funding to help with labor rights enforcement capacity building in the
region. It is far from clear that such assurances will be sufficient to garner needed
support in the House and as the vote approaches; discussions along those lines may
well continue and the DR-CAFTA, whether implemented or not, may have broad
repercussions for future U.S. trade policy.
Interestingly, despite the lengthy and contentious debate, the DR-CAFTA is not
expected to have a large effect on the U.S. economy as a whole. In fact, it represents
more of a marginal rather than wholesale change from the existing unilateral
(CBI/CBTPA) trade arrangement in place. Nor is it necessarily a referendum on free
trade, but rather a compromise agreement attempting to meld the diverse interests of
the United States with those of six developing countries. Yet, from the outset it has
been highly controversial, centered on myriad issues discussed in this report, which
together also raise some important broader questions with respect to the economics
of U.S. trade policy with developing countries.
First, the ongoing debate over labor and environmental standards reflects a
fundamental congressional disagreement over the trade negotiating objectives as
defined in the equally controversial TPA legislation. No real consensus emerged as
seen in the very slim margin of victory for the TPA legislation in 2002. This lack of
consensus foreshadowed future problems with FTA implementing bills that were
crafted in the image of TPA. Without a stronger (bipartisan) consensus on trade
policy objectives (and the congressional consultation process), future FTAs may
share the similar fate of a close vote and uncertainty of passage. This is a concern
developing countries contemplating expending the resources to negotiate an FTA
with the United States may consider more seriously in the future and one Congress
may be expected to debate at length if and when TPA reauthorization is contemplated
after it expires in June 2007.
Second, U.S. free trade agreements with developing countries carry different
challenges than those with developed countries, especially in the hotly debated areas
of employment outcomes and effects on lower income groups. Technological
advances will continue to nudge employment opportunities in the United States
toward the high-skill end of the job market. Trade with developing countries, given
their abundance of low-skilled workers, will complement this trend, but together,
both point to the need for U.S. (trade) adjustment assistance programs to help the
low-skilled portion of the labor market, which faces the most competition from
developing country trade.
Regarding developing countries, lessons from recent economic case studies
suggest that hoped-for gains in economic growth and poverty reduction from trade
liberalization will not happen automatically. Complementary policies in developing
countries are required to facilitate labor mobility, speed resolution of other transition
problems, and offset the negative income effects that some groups face.76 Trade
76 A rigorous case is made in: Cline, William R. Trade Policy and Global Poverty. Institute
(continued...)

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CRS-34
capacity building can help address this concern, but it may require long-term
dedicated funding. On the positive side, access to the U.S. market may be
particularly helpful for lower-income households in both Central America and the
United States given that Central America’s comparative advantage, simply stated, is
in relatively inexpensive food and clothes, which make up a sizable proportion of
U.S. lower-income household budgets.77
Third, U.S. trade policy has relatively recently emphasized bilateral agreements,
a trend that may be at a crossroads. Congress has, in general, supported trade
liberalizing legislation, but the uncertain fate of the DR-CAFTA suggests this case
could be different. Clearly, the United States is able to expedite its trade agenda in
less unwieldy bilateral agreements than in the consensus-driven multilateral realm.
But should Congress decide not to support the DR-CAFTA, the bilateral approach
may be called seriously into question, particularly given the small amount of trade
that has so far been affected, at least since NAFTA.
Fourth, the United States in recent bilateral agreements has made headway in
areas that so far have proved elusive in the multilateral rounds. This includes
negotiating deeper comprehensive agreements (e.g. services trade, investment,
intellectual property rights), improving the labor chapter beyond previous FTAs
(even if still lacking the flexibility to deny trade benefits unilaterally as available
under the CBI or GSP), and limiting commitments to reduce protection of sensitive
goods (e.g. sugar). If the bilateral approach stalls or collapses, there seems to be little
alternative to the multilateral route. Although many economists have expressed
strong preference for the multilateral approach in any case, it points the United States
back to a negotiating arena where many developing countries are enjoying a
strengthening collective leverage targeted at, among other issues, reducing agriculture
protection in developed countries and resisting inclusion of any labor provisions in
WTO rules.
76 (...continued)
for International Economics, Washington, D.C. June 2004. pp. 25-27, 270-71, and 278-79.
The author makes the interesting point, that “Global free trade is found to raise the median
real wage for unskilled labor in developing countries by 5%.” p. 279-85. This point is
further supported by new research using multiple case studies. See Harrison, Ann.
Globalization and Poverty. Draft Chapter 1. April 11, 2005. pp. 4-8.
77 Birdsall, Nancy, Augusto de la Torre, and Rachel Menezes. Washington Contentious:
Economic Policies for Social Equity in Latin America. Carnegie Endowment for
International Peace and Inter-American Dialogue. Washington, D.C. 2001. pp. 65-66. See
also: Center for Global Development. Global Trade, Jobs, and Labor Standards.
[http://www.cgdev.org]. Mason, Ensuring that the Poor can Benefit from CAFTA, p. 35,
Arce and Jaramillo, El CAFTA y la Agricultura Centroamericano, p. 17, Todd, Winters,
and Arias, CAFTA and the Rural Economies of Central America, pp. 43 and 50, and
Harrison, Globalization and Poverty, pp. 42-43.

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CRS-35
Appendix 1. Chronology of DR-CAFTA Negotiations
Date
Milestone
January 16, 2002
President George W. Bush announces his intention to explore
a free trade agreement (FTA) with Central America.
August 6, 2002
President Bush signs the Trade Act of 2002 (P.L.107-210),
which includes Trade Promotion Authority (TPA).
October 1, 2002
President Bush, as required under TPA, formally notifies
Congress of his intention to negotiate a U.S.-Central America
Free Trade Agreement (CAFTA) with Guatemala, El
Salvador, Honduras, Costa Rica, and Nicaragua.
November 19, 2002
USTR holds public hearings, accepting written and oral
testimony on CAFTA.
January 27, 2003
The first of nine negotiation rounds begins in San Jose, Costa
Rica.
August 4, 2003
USTR Zoellick formally notifies Congress of intent to
negotiate an FTA with the Dominican Republic.
December 17, 2003
CAFTA negotiations concluded in Washington, D.C. Costa
Rica decides not to accept the agreement pending further
discussion on telecommunications, insurance, agriculture, and
textile market access issues.
January 5-9, 2004
Costa Rica and the United States hold first round of bilateral
discussions on CAFTA.
January 12-16, 2004 First round of negotiations with Dominican Republic held.
January 19-24, 2004 Costa Rica and United States hold second round of bilateral
discussions on CAFTA.
January 25, 2004
Costa Rica and United States agree to CAFTA provisions.
January 28, 2004
USTR releases draft version of CAFTA to public.
February 20, 2004
President Bush formally notifies Congress of his intention to
sign CAFTA.
March 15, 2004
The United States and the Dominican Republic conclude a
bilateral FTA and the USTR announces it will be “docked” to
CAFTA.
March 24, 2004
President Bush formally notifies Congress of his intention to
sign the U.S.-Dominican Republic FTA.
April 9, 2004
USTR releases draft text of the FTA with the Dominican
Republic.
May 28, 2004
The USTR and trade ministers from the Central American
countries sign CAFTA in Washington, D.C.
August 5, 2004
The USTR and trade ministers from the Dominican Republic
and Central America sign the DR-CAFTA agreement in
Washington, D.C.
December 17, 2004
Salvadoran legislature ratifies the DR-CAFTA 49 to 35.
March 3, 2005
Honduran legislature ratifies the DR-CAFTA 100 to 28.

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CRS-36
Date
Milestone
March 10, 2005
Guatemalan legislature ratifies the DR-CAFTA 126-12.
April 13, 2005
Senate Finance Committee holds hearing on implementing
DR-CAFTA.
April 21, 2005
House Ways and Means Committee holds hearing on
implementing DR-CAFTA.
June 14, 2005
Senate Finance Committee holds “mock markup” on draft
implementing legislation and informally approves it 11 to 9,
with one non-binding amendment.
June 15, 2005
House Ways and Means Committee holds “mock markup” on
draft implementing legislation, informally approving it 25 to
16 with one non-binding amendment.
June 23, 2005
President Bush sends final text and required supporting
documents of the DR-CAFTA implementing bill to Congress.
June 23, 2005
Identical legislation is introduced in the House and Senate as
H.R. 3045 and S. 1307.
June 29, 2005
Senate Finance Committee orders S. 1307 favorably reported
by voice vote, with no written report.
June 30, 2005
House Ways and Means Committee orders H.R. 3045
favorably reported by a roll call vote of 25 to 16.
June 30, 2005
S. 1307 agreed to in the Senate, 54 to 45.

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CRS-37
Appendix 2. Selected Economic Indicators
(year 2003 data, except where otherwise indicated)
Costa
El
Guat-
Hon-
Nicar-
Dom.
Rica
Salvador
emala
duras
agua
Rep.
GDP ($ billions)
17.5
14.7
24.0
6.8
2.7
20.5
GDP Growth (%)
5.0
2.2
2.4
1.5
2.3
-1.3
GDP Growth 1980-
3.0
0.2
0.8
2.7
-1.9
3.1
1990 (%)*
GDP Growth 1990-
4.9
4.3
4.0
3.1
4.3
6.0
2002 (%)*
PPP Per Capita Gross
8,560
4,190
4,030
2,540
2,350
6,270
National Income**
Inflation (%)
9.3
2.8
5.5
9.8
6.1
28.0
Current Account
-5.9
-4.5
-4.3
-7.6
-17.6
4.5
Balance (% of GDP)
Pop. Below $1 per
2.0
31.1
16.0
23.8
45.1
<2.0
day (%)***
Human Development
42
105
119
115
121
94
Index (HDI) Rank#
Sources: World Bank, World Development Indicators 2004, pp. 14-15, 54-55, and 178-83, United
Nations, Human Development Report, 2003, and IMF website.
* Average annual percent growth.
** Gross national income (GNI) converted to international dollars using purchasing power parity rates.
An international dollar has the same purchasing power over the GNI as a U.S. dollar has in the United
States. GNI, formerly represented as GNP by the World Bank, is a different, but similar measure as
GDP. Data are for year 2002.
*** Percentage of population living on $1 per day or less, most recent survey year.
# HDI is a composite measure (education, income, and life expectancy) of average achievement in
human development. A lower ranking is better: e.g. United States (7), Italy (21), and South Korea
(30). The 2003 report reflects data for year 2001.

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CRS-38
Appendix 3. U.S. Merchandise Trade with DR-CAFTA
Countries
($ millions)
%
%
Country
1999
2000
2001
2002
2003
2004
Change
Change
2003-2004
1999-2004
U.S. Exports
Costa Rica
2,381
2,460
2,502
3,117
3,414
3,304
-3.2%
38.8%
Honduras
2,370
2,584
2,416
2,571
2,826
3,077
8.9%
29.8%
Guatemala
1,812
1,901
1,870
2,044
2,263
2,548
12.6%
40.6%
El Salvador
1,519
1,780
1,760
1,664
1,821
1,868
2.6%
23.0%
Nicaragua
374
379
443
437
502
592 17.9%
58.3%
Dominican Rep
4,100
4,473
4,398
4,250
4,205
4,343
3.3%
5.9%
Total CAFTA
12,556
13,577
13,389
14,083
15,031
15,732
4.7%
25.3%
Mexico
86,909
111,349
101,296
97,470
97,412
110,775
13.7%
27.5%
LAC*
55,153
59,283
58,157
51,551
51,946
61,426
18.3%
11.4%
Latin America
142,062
170,632
159,453
149,021
149,358
172,201
15.3%
21.2%
World
695,797
781,918
729,100
693,103
724,771
817,936
12.9%
17.6%
U.S. Imports
Costa Rica
3,968
3,539
2,886
3,142
3,364
3,333
-0.9%
-16.0%
Honduras
2,713
3,090
3,127
3,261
3,313
3,641
9.9%
34.2%
Guatemala
2,265
2,607
2,589
2,796
2,947
3,155
7.1%
39.3%
El Salvador
1,605
1,933
1,880
1,982
2,020
2,053
1.6%
27.9%
Nicaragua
495
589
604
679
770
991
28.7%
100.2%
Dominican Rep
4,287
4,383
4,183
4,169
4,455
4,528
1.6%
5.6%
Total CAFTA
15,333
16,141
15,269
16,029
16,869
17,701
4.9%
15.4%
Mexico
109,721
135,926
131,338
134,616
138,060
155,843
12.9%
42.0%
LAC*
58,464
73,348
67,370
69,503
78,829
98,749
25.3%
68.9%
Latin America
168,185
209,274
198,708
204,119
216,889
254,592
17.4%
51.4%
World
1,024,618
1,218,022
1,140,999
1,161,366 1,257,121
1,469,671
16.9%
43.4%
U.S. Balance of Trade
Costa Rica
-1,587
-1,079
-384
-25
50
-29
Honduras
-343
-506
-711
-690
-487
-564
Guatemala
-453
-706
-719
-752
-684
-607
El Salvador
-86
-153
-120
-318
-199
-185
Nicaragua
-121
-210
-161
-243
-268
-399
Dominican Rep
-187
90
215
81
-250
-185
Total CAFTA
-2,777
-2,564
-1,880
-1,947
-1,838
-1,969
Mexico
-22,812
-24,577
-30,042
-37,146
-40,648
-45,068
LAC*
-3,311
-14,065
-9,213
-17,952
-26,883
-37,323
Latin America
-26,124
-38,642
-39,256
-55,098
-67,531
-82,391
World
-328,821
-436,104
-411,899
-468,263
-532,350
-651,735
Source: Table created by CRS from U.S. Department of Commerce data.
* Latin America and the Caribbean, except Mexico.

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