Order Code RL31870
CRS Report for Congress
Received through the CRS Web
The Dominican Republic-Central America-United
States Free Trade Agreement (CAFTA-DR)
Updated January 4, 2006
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 (CAFTA-DR)
Summary
On August 5, 2004, the United States, Costa Rica, El Salvador, Guatemala,
Honduras, Nicaragua, and the Dominican Republic signed the CAFTA-DR. Nearly
one year later, it faced a contentious debate and close vote in both houses of the U.S.
Congress. The Senate passed implementing legislation 54 to 45 on June 30, 2005,
with the House following in kind 217 to 215 on July 28, 2005. President Bush
signed the legislation into law on August 2, 2005 (P.L. 109-53, 119 STAT. 462). El
Salvador, Honduras, Guatemala, the Dominican Republic, and Nicaragua also have
ratified the agreement. The CAFTA-DR was expected to enter into force on January
1, 2006, but none of these countries completed legal and regulatory changes needed
to implement the agreement. The USTR announced that the CAFTA-DR will enter
into force with each country on a rolling basis once these changes have been made,
which is expected in early 2006. Costa Rica stands alone in still needing to vote on
implementing legislation, which may not be completed until mid-2006.
The CAFTA-DR is a regional agreement with all parties subject to “the same
set of obligations and commitments,” but with each country defining its own market
access schedule. It is a reciprocal trade agreement, basically replacing U.S. unilateral
preferential trade treatment extended to these countries under the Caribbean Basin
Economic Recovery Act (CBERA), the Caribbean Basin Trade Partnership Act
(CBTPA), and the Generalized System of Preferences (GSP). It liberalizes trade in
goods, services, government procurement, intellectual property, and investment, and
addresses labor and environment issues. Most commercial and farm goods attain
duty-free status immediately. Remaining trade will have tariffs phased out
incrementally over five to twenty years. Duty-free treatment will be delayed longest
for the most sensitive agricultural products. To address asymmetrical development
and transition issues, the CAFTA-DR specifies rules for transitional safeguards, tariff
rate quotas, and trade capacity building.
The CAFTA-DR is not expected to have a large effect on the U.S. economy as
a whole, but some sectors and groups will 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 wanted better trade adjustment
and capacity building policies to address the potentially 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 argued that the labor provisions in the
CAFTA-DR needed strengthening. This report addresses the CAFTA-DR and 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
(CAFTA-DR) with the United States, coordinated by K. Larry Storrs.

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Contents
U.S. Congressional Action . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Why Trade More Freely? . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
The Impetus for a CAFTA-DR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
U.S. Trade Relations with Central America and the Dominican Republic . . . . . 10
U.S.-Central America Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
U.S. Imports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
U.S. Exports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
U.S.-Dominican Republic Trade . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
U.S. Foreign Direct Investment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Review of the CAFTA-DR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Market Access . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Textiles and Apparel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Agriculture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Investment and Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
Government Procurement and Intellectual Property Rights . . . . . . . . . . . . 24
Pharmaceutical Data Protection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Labor and Environment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Labor Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Environmental Issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Dispute Resolution and Institutional Issues . . . . . . . . . . . . . . . . . . . . . . . . . 31
Trade Capacity Building . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Appendix 1. Chronology of CAFTA-DR Negotiations . . . . . . . . . . . . . . . . . . . 34
Appendix 2. Selected Economic Indicators . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
Appendix 3. U.S. Merchandise Trade with CAFTA-DR Countries . . . . . . . . . . 37
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 . . . 13
Table 3. Top Eight U.S. Merchandise Exports to Central America, 2004 . . . . . 15
Table 4. U.S.-Dominican Republic Merchandise Trade, 2004 . . . . . . . . . . . . . . 16
Table 5. U.S. Foreign Direct Investment (FDI) in CAFTA-DR 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 (the CAFTA-DR; see Appendix 1, Chronology of Negotiations).1
The CAFTA-DR is a regional trade agreement with all parties subject to “the same
set of obligations and commitments,” but with each country defining its own market
access schedule. It is a comprehensive and reciprocal trade agreement, basically
replacing U.S. unilateral preferential trade treatment extended to these countries
under the Caribbean Basin Economic Recovery Act (CBERA), the Caribbean Basin
Trade Partnership Act (CBTPA), and the Generalized System of Preferences (GSP).
After the agreement was signed, it took nearly a year for the implementing
legislation to come before the U.S. Congress, where it faced contentious debate and
close votes in both houses. On June 30, 2005, the Senate passed S. 1307 by a vote
of 54 to 45. The House followed on July 28, 2005, passing H.R. 3045 by 217 to
215. President Bush signed the bill into law on August 2, 2005 (P.L. 109-53, 119
STAT. 462). El Salvador, Honduras, Guatemala, the Dominican Republic, and
Nicaragua have also ratified the agreement, in that order. Costa Rica has yet to pass
implementing legislation, which will require hearings and two votes in Congress
before it can be sent to the president. The CAFTA-DR is a controversial issue in
Costa Rica and the legislative process is unlikely to be completed until after the
February 5, 2006 national elections, and may extend beyond inauguration day,
scheduled for May 8, 2006.
The CAFTA-DR was expected to enter into force on January 1, 2006, but none
of the ratifying countries had completed the legal and regulatory measures needed to
comply with the agreement. The USTR announced that the CAFTA-DR will take
effect on a rolling basis when countries fulfill their obligations, which may be as soon
as February 1, 2006, for some. Others may require more time, but should be able to
complete the necessary legal changes in early 2006, with the possible exception of
Costa Rica. Until CAFTA-DR is implemented, each country’s trade with the United
States will still be subject to provisions under earlier agreements (e.g. CBI and
CBTPA). This report will be updated.
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 (CAFTA-DR) with
the United States, coordinated by K. Larry Storrs.

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CRS-2
U.S. Congressional Action
The CAFTA-DR was the most controversial free trade agreement (FTA) vote
since the North American Free Trade Agreement (NAFTA) implementing legislation
was passed in 1993. Many lawmakers were 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 was also caught up in an overarching
congressional controversy over how trade negotiation objectives are defined in FTAs
based on the Trade Promotion Authority (TPA) framework, as well as 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 on 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 have extended the
trade adjustment assistance program to cover workers in 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 CAFTA-DR countries and the United States to
build capacity on labor issues,” and a provision requiring monitoring of CAFTA-
DR’s 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. It included a new Section 403, the House amendment requiring that the
Administration transmit biennial reports on progress made in implementing the labor
provisions, including the Labor Cooperation and Capacity Building Mechanism. It
also called for monitoring 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
CAFTA-DR countries. 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.
The Senate Finance Committee acted 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 June 30, 2005, where, following 20 hours of floor debate, S. 1307
passed 54 to 45. H.R. 3045 did not come before the House until July 28, 2005,
where, following two hours of debate, it narrowly passed 217 to 215. On the same
day, the Senate voted 56 to 44 to substitute H.R. 3045 for S. 1307, a necessary
procedural vote to comply with the constitutional requirement that revenue bills
originate in the House.2 President Bush signed H.R. 3045 into law on August 2, 2005
(P.L. 109-53, 119 Stat. 462).
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
Passage in the Senate was by a slimmer margin than with earlier trade
agreements and required accommodation outside the implementing legislation to
labor, textile, and sugar interests. In a letter from USTR Rob Portman to Senator Jeff
Bingaman, the Administration promised to allocate $40 million of fiscal 2006 foreign
operations appropriations 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 funding
International Labor Organization (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.
In another letter, Secretary of Agriculture Mike Johanns assured Senator Saxby
Chambliss and Representative Bob Goodlatte, the respective agriculture committee
chairs, that the Administration would not allow the CAFTA-DR to interfere with the
operation of the sugar program as defined in the Farm Security and Rural Investment
Act of 2002 (the Farm Bill) through FY2007, when it expires. In particular, he
promised to take steps should additional sugar imports due to the CAFTA-DR,
NAFTA, and other trade agreements cause the import trigger threshold of 1.532
million short tons per year be exceeded and jeopardize the sugar program operations.
Should this occur, the U.S. Secretary of Agriculture agreed to preclude entry of
additional sugar imports into the domestic sweetener market by either making direct
payments to exporters or using agricultural commodities to purchase sugar to be used
for nonfood use (ethanol production).
Separately, for the textile and apparel issues, promises were made to: 1) change
the rules of origin to require that all pocketings and linings come from the CAFTA-
DR countries (rather than third party countries like China); 2) negotiate a new stricter
customs enforcement agreement with Mexico before the CAFTA-DR cumulation
rules take effect allowing Mexican inputs to be used in CAFTA-DR textile and
apparel products; and 3) require Nicaragua to increase use of U.S. fabric to qualify
as duty-free under their tariff preference levels.
Other accommodations were made to win House support of H.R. 3045,
including passage in the House on July 27, 2005, of the U.S. Trade Rights
Enforcement Act (H.R. 3283). This bill would allow greater recourse to pursue trade
complaints against China and other non-market economies. Not all interest groups,
however, could be appeased. Despite efforts to win over all groups, the sugar
industry and some textile groups chose not to support the bill and strong Democratic
opposition remained over a number of other issues that may prove to be enduring
challenges to future trade agreements, if crafted from the CAFTA-DR framework.
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

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CRS-4
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
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
CAFTA-DR, and FTAs more generally.6
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
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
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
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 CAFTA-DR. 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
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
(continued...)

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CRS-6
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 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
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 CAFTA-DR
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 CAFTA-DR. Proponents expect the CAFTA-DR 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 CAFTA-DR may also be a way to expand support
for U.S. positions in the Free Trade Area of the Americas (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 CAFTA-DR 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 CAFTA-DR countries. The CAFTA-DR 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
9 (...continued)
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-7
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 made the CAFTA-DR 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,
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
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.
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.

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CRS-8
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.
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 CAFTA-DR 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 CAFTA-DR countries are heavily concentrated in products
previously covered by quotas, the dominance of China and other low-cost Asian
producers is likely to continue. CAFTA-DR 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
12 See CRS Report RL31723, Textile and Apparel Trade Issues, and CRS Report RL32895,
Textile Exports to Trade Preference Regions, 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.
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.
(continued...)

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CRS-9
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-
quota trading world, these advantages may allow a certain portion of textile and
apparel production to remain in the CAFTA-DR countries. Although CAFTA-DR
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 CAFTA-DR 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 will 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
16 (...continued)
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 CAFTA-DR 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
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.

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CRS-10
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 CAFTA-DR also makes permanent and expands U.S. benefits given
under the CBTPA legislation, but which require 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 CAFTA-DR 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
matter of development policy, by CAFTA-DR 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 CAFTA-DR to work well, the United States needed some
assurance that goods could flow efficiently within the region, which will 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 six
trading partners covered by the CAFTA-DR 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
19 To date, Congress has reauthorized and often expanded every U.S. trade preference
program upon expiration.
20 The CAFTA-DR 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 CAFTA-DR countries see the FTA as supporting this strategy.

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CRS-11
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 an earlier version of 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.
Figure 1. Central America’s Direction of Merchandise Trade, 2003
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
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.
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%

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CRS-12
(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
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).
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
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 CAFTA-DR 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
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.
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.

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CRS-13
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 are further relaxed under the CAFTA-DR.23 The USITC points out that
the CAFTA-DR countries have been losing market share to Asia since at least 1997,
and the CAFTA-DR is seen as a way to help abate this trend.24
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
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
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
The CAFTA-DR 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
CAFTA-DR 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, eligible Central
American apparel exports receive preferential treatment under production-sharing
arrangements. 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 CAFTA-DR countries along
with capital goods (machinery and parts) and agricultural products.
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 CAFTA-DR 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.
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.
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-15
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
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.)
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 CAFTA-DR trading partners, U.S. exports grew by only 1.6% in
2004 as the Dominican Republic continued to recover from a severe recession.
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.

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CRS-16
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
U.S. Foreign Direct Investment
The CAFTA-DR 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 CAFTA-DR 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 stagnated or grown erratically in recent years. Some countries have fared better
than others and net foreign investment may increase or decrease because of both

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CRS-17
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.
Review of the CAFTA-DR
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
its final report in August 2004. This report provides quantitative and qualitative
estimates of the CAFTA-DR 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 CAFTA-DR will 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 increase U.S. exports more than imports with the region. The
USITC model estimates that when the CAFTA-DR is fully implemented, U.S.
exports to the CAFTA-DR countries will increase by $2.7 billion or 15%, while
imports will increase by $2.8 billion, or 12%. The effect of this trade growth on
aggregate U.S. output and employment is estimated 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 CAFTA-DR will be small,
but positive for the U.S. economy as a whole, given the CAFTA-DR 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 and issues expected to be most
affected by the agreement, or that generated the most contentious policy debate.
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. CAFTA-DR replaces and enhances in
a permanent agreement U.S. preferential market access extended unilaterally under
the Caribbean Basin Economic Recover Act (CBERA), the Caribbean Basin Trade
Partnership Act (CBTPA), and the Generalized System of Preferences (GSP), which
28 USITC, U.S.-Central America-Dominican Republic Free Trade Agreement, p. 64. The
study reviews literature on the CAFTA-DR and makes estimates of the economywide and
sectoral effects of trade liberalization under CAFTA-DR 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
require periodic congressional reauthorization (except CBERA). 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 will be eliminated. Each
country negotiated a list of its most sensitive products for which duty-free treatment
is delayed. For manufactured goods, duties on 80% of U.S. exports are 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 are 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 will not begin for 7 or 12 years after the agreement
takes effect. For the CAFTA-DR countries, 100% of non-textile and non-agricultural
goods 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 CAFTA-DR, leaving all U.S. and other country trade
remedy laws fully enforceable, as required under TPA.
Textiles and Apparel. The CAFTA-DR has less restrictive provisions
governing textile and apparel imports than those in the CBTPA. It removes all duties
on textile and apparel imports that qualify under the agreement’s rules of origin,
retroactive to January 1, 2004, and allows 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 generate 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
Central American and Dominican apparel has been entering the United States
duty free for years, if it is assembled from U.S. yarn and fabric under the so-called
“yarn forward” rule. The difference from the CBTPA is that duty-free access applies
to textiles and garments assembled from components made in either the CAFTA-DR
countries or the United States, rather than just the United States.33 Exceptions to this
rule include an enhanced “cumulation rule,” which allows duty-free treatment for a
limited quantity of woven apparel assembled from components made in Canada and
Mexico, to help U.S. textile firms invested in these countries. In addition, there are
exceptions for specified products (affecting less than 10% of trade), goods with
limited amounts of material from third countries, and for tariff preference levels
(TPLs) given to a few imports from Nicaragua and Costa Rica.
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, CAFTA-DR: Textiles and Apparel, by Bernard A. Gelb. p. 4.

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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 CAFTA-DR firms that produce for the U.S. market wanted as
much flexibility as possible to use fabrics from third countries. Others feared,
however, that they are too generous and that if customs procedures are not well
implemented, they could harm U.S. producers by increasing opportunities for the
illegal transshipment of fabrics or goods originating from outside the region, such as
China. 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 CAFTA-DR 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
Concerns raised by certain sectors of the textile and apparel industry required
assurances from the Bush Administration before support would be given to the
CAFTA-DR. Promises were made to: 1) change the rules of origin for textiles and
apparel to require that all pocketings and linings come from the CAFTA-DR
countries (rather than third party countries like China); 2) negotiate a new stricter
customs enforcement agreement with Mexico before the CAFTA-DR cumulation
rules take effect allowing Mexican inputs to be used in CAFTA-DR textile and
apparel products; and 3) require Nicaragua to increase use of U.S. fabric to qualify
as duty-free under their tariff preference levels. These are not part of the formal
CAFTA-DR, but may be expected to be implemented nonetheless.35
Agriculture. Domestic support programs were not addressed in the CAFTA-
DR, which focused on reducing tariffs and increasing quota levels, the most costly
trade-distorting policies. Average applied tariffs on agricultural goods by most
CAFTA-DR 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.36 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
34 CRS Report RL32895, Textile Exports to Trade Preference Regions, 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 Washington Trade Daily, Tide Rising for CAFTA — Portman, July 26, 2005.
36 For more details, including sanitary and phytosantiary (SPS) provisions, see CRS Report
RL32110, Agricultural Trade in the U.S.-Dominican Republic-Central American Free
Trade Agreement (CAFTA-DR), by Remy Jurenas.

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acknowledges that the agricultural sectors bear most of the trade adjustment costs and
that they will require time to make the transition to freer trade.37
All agricultural trade eventually becomes 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 will continue
to be subject to quotas that will increase, after a certain period, by approximately 2%
each year in perpetuity, with no decrease in the size of the above-quota tariff.38 Over
half of current U.S. farm exports to Central America will 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 are 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.39 Export subsidies are eliminated except when
responding to third party export subsidies.
Sugar was the most controversial agricultural issue to resolve and U.S. sugar
growers and processors were vehement opponents of the agreement to the end. The
U.S. agreed 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. Raw sugar
receives the largest quota by volume, 28% of the total U.S. sugar quota for the world
was filled by the CAFTA-DR 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.40
The CAFTA-DR raises 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 increases 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
37 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.
38 CRS Report RL32110, Agriculture in the U.S.-Dominican Republic-Central American
Free Trade Agreement (CAFTA-DR), by Remy Jurenas.
39 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.
40 USITC, U.S.-Central American-Dominican Free Trade Agreement, p. 35.

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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.41 The United States may 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 was
defining precisely how this mechanism will work.
The sugar producing industry, however, was unsatisfied with these provisions.
The Bush Administration responded in a letter from Secretary of Agriculture Mike
Johanns to Senator Saxby Chambliss and Representative Bob Goodlatte, the
respective agriculture committee chairs, assuring them that the CAFTA-DR would
not be allowed to interfere with the operation of the sugar program as defined in the
Farm Security and Rural Investment Act of 2002 (the Farm Bill) through FY2007,
when it expires. In particular, he agreed to act should additional sugar imports due
to the CAFTA-DR, NAFTA, and other trade agreements cause the import trigger
threshold of 1.532 million short tons per year to be exceeded and threaten the sugar
program operations. The U.S. Secretary of Agriculture agreed that in such a case, he
would preclude entry of additional sugar imports into the domestic sweetener market
by either making direct payments to exporters or using agricultural commodities to
purchase sugar to be used for nonfood use (ethanol production). This effort also
proved inadequate to bring about sugar industry support for the CAFTA-DR.
Increasing grain exports was another important goal for the United States.
Wheat is not grown in the CAFTA-DR countries and there is already largely free
trade in this commodity. Staples for the CAFTA-DR 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 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 may 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.”42
Despite the lengthy transition period toward freer trade under the CAFTA-DR,
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.43 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’
41 Ibid., pp. 38-40.
42 Ibid., pp. 43-47.
43 Oxfam International. A Raw Deal for Rice Under CAFTA-DR. Briefing Paper #68. 2004.

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CRS-22
produce generally does not reach the market, they are not likely be affected greatly
by changes in market prices.44
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 CAFTA-DR, there is also a
critical need for increased investment in transportation and communications
infrastructure, education, and more fully developed financial services. This will
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 may remain vulnerable to
the effects of freer trade.45
Investment and Services
In 2003, the United States’ stock of foreign direct investment (FDI) in the
CAFTA-DR 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 CAFTA-DR countries
went to Costa Rica, followed by the Dominican Republic with 20%. The United
States has 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 CAFTA-DR clarifies
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 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 allows investors alleging a breach in investment obligations to seek binding
arbitration against the state through the dispute settlement mechanism 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
44 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.
45 Ibid.

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States. This changed under NAFTA, when 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.46
Although none of the claims filed against the United States has prevailed,
Congress instructed in TPA legislation 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 CAFTA-DR 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 allows for early
elimination of “frivolous” suits, is intended to address congressional concerns, but
there is uncertainty about how well the changes will operate and some would like to
see future FTAs clarify further the intentions expressed in TPA.
Second, the CAFTA-DR 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 CAFTA-DR from interfering in any
sovereign debt restructuring process, and are viewed by the U.S. Treasury as an
accommodation to Central American interests.
The United States is the largest services exporter in the world and 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).47 The CAFTA-DR provides 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 have full rights to establish
subsidiaries, joint ventures, and branches. Regulation of service industries is
46 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.
47 USTR. 2004 National Trade Estimate Report on Foreign Trade Barriers. Washington,
D.C. 2004.

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required to be transparent and applied on an equal basis and e-commerce rules are
clearly defined, a critical component of delivering services.48
The USITC suggests that the CAFTA-DR will have little effect on U.S. services
imports because the market is already open. It does anticipate 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.49 Unlike
the other countries, doing so will 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 if they did not receive 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 CAFTA-DR. Because of this continued sensitivity, however,
a vote on ratifying the CAFTA-DR 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
CAFTA-DR seen as an opportunity to remedy deficiencies and encourage
enforcement of standardized practice in the region. None of the CAFTA-DR
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.50 Some analysts believe
this is due in part to a lack of incentives given that many of these countries will not
be able to compete in the U.S. government procurement market.51
The CAFTA-DR grants 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 also calls 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 agree to adhere to the government procurement
provisions. The CAFTA-DR also makes clear that bribery is a criminal offense
48 USTR, CAFTA Summary, p. 2-3.
49 Salazar-Xirinachs and Granados, op.cit., p. 260.
50 USTR, 2004 National Trade Estimate Report on Foreign Trade Barriers.
51 Salazar-Xirinachs and Granados, op.cit., p. 253.

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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.52
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.53
The IPR provisions in the CAFTA-DR go beyond those in the WTO. They
provide that all businesses receive equal treatment and that the CAFTA-DR countries
ratify or accede to various international IP agreements. Trademarks benefit from a
transparent online registration process and special system to resolve disputes over
internet domain issues, among other benefits. Copyright provisions 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 online, 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 conform more closely with U.S. norms. End-user piracy is criminalized
and all parties are required to authorize the seizure, forfeiture, and destruction of
counterfeit and pirated goods. The CAFTA-DR also mandates statutory damages for
abuse of copyrighted material.54
The CAFTA-DR 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
CAFTA-DR commitments, however, enforcement issues will likely remain and
technical assistance may be needed to help develop the necessary capabilities.55
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
CAFTA-DR. This provision became controversial in November 2004 when the
52 USTR, CAFTA Summary, p. 5.
53 Ibid and 2004 National Trade Estimate Report on Foreign Trade Barriers.
54 Ibid., p. 4-5.
55 USITC, U.S.-Central America-Dominican Republic Free Trade Agreement, p. 101.

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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 argued that this change was a breach of the CAFTA-DR
commitments and threatened to delay implementing legislation until the law was
changed. Guatemala reversed the data protection law, to the disappointment of many
who argued that the CAFTA-DR 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 will be
further inhibited by this provision. An August 5, 2004 side agreement among all
signatories further clarifies that “obligations” under Chapter 15 of the CAFTA-DR
do not affect a country’s ability “to take necessary measures [e.g. compulsory
licensing for generic drugs] 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, however, would have preferred that
the side agreement include an explicit exception to the data protection requirement
for cases where compulsory licencing under the WTO rules might be invoked.56
Labor and Environment
Perhaps the greatest challenge to the CAFTA-DR arises from the labor and
environment chapters. It has become widely accepted that labor and environment
provisions should be part of modern trade agreements. There is considerable
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.57 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, economists have
56 U.S. Congress. House of Representatives. Committee on Ways and Means. Dominican
Republic-Central America-United States Free Trade Agreement Implementation Act.
H.Rept. 109-182. pp. 50-51. 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.
57 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.

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argued that developing countries have a comparative advantage in labor costs
consistent with the free trade model and studies suggest that these cost differentials
are usually not high enough to determine business location alone — productivity
remains the primary decision factor.58 Further, many economists view trade
liberalization as part of the overall development process that, in and off itself, can
promote social change.59 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.
Labor Issues. The labor chapter proved to be the biggest point of contention
in the CAFTA-DR debate, divided largely along party lines. The opening paragraph
of the 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 as: 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.60 Disagreement revolved around three issues. First, whether the
CAFTA-DR countries had laws that complied with ILO basic principles. Second, the
ability of these countries’ to enforce their laws. Third, and most importantly,
capacity of the CAFTA-DR Labor Chapter to compel legal compliance and
enforcement of ILO fundamental principles.
CAFTA-DR Labor Laws and Enforcement. The Central American
countries entered the debate early when they requested the ILO to 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 argument as to whether the CAFTA-DR countries
guarantee core ILO principles.61 Some interpreted the report to affirm that the
CAFTA-DR countries’ laws comply with internationally recognized labor standards.
In response, Democratic Members of the House Ways and Means Committee pointed
58 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. Productivity and wage levels are, however, highly
correlated. See Rodrik, Sense and Nonsense in the Globalization Debate, pp. 30-33.
59 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.
60 Article 16.8 of the Labor Chapter also has 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.”
61 United Nations. International Labor Organization. Fundamental Principles and Rights
at Work: A Labour Law Study: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua.
Geneva, 2003.

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out deficiencies in many of their laws in a letter sent to the USTR’s office. It
identified 20 Central American laws that 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.62
In April 2005, with the assistance of the Inter-American Development Bank, the
CAFTA-DR country ministers of trade and labor released a study of their countries’
shortfalls in meeting and enforcing core labor principles. Although it documented
that all countries had 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.63
The debate over the adequacy of labor laws was not resolved to the satisfaction
of any party, but there was little disagreement that labor law enforcement is an
ongoing problem and that unionization is not widespread. The CAFTA-DR countries
have admitted in their own report that many lack the financial resources and technical
expertise to enforce adequately good labor practices, a problem that will also take
time and resources to overcome.
Labor Provisions in TPA and the CAFTA-DR. The Labor Chapter in the
CAFTA-DR defines certain labor standards for all member countries and the dispute
settlement mechanism for arbitrating formal complaints against noncompliance. It
closely follows language set out in Trade Promotion Authority (TPA) legislation on
the principal negotiating objectives of the United States with respect to labor.64 The
USTR makes note of this fact and further argues that the chapter goes beyond earlier
FTAs through a Labor Cooperation and Capacity Building Mechanism that will
support a mutual approach to improve working conditions in CAFTA-DR countries
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.
Critics argued, however, that the CAFTA-DR labor provisions are too weak
because they give different weight to the following three provisions: 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
62 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.
63 Ministers of Trade and Labor. The Labor Dimension in Central America and the
Dominican Republic. Building on Progress: Strengthening Compliance and Enhancing
Capacity. April 2005.
64 The TPA vote, however, was highly contentious in part because of the disagreement over
how the principal negotiating objectives with respect to labor were defined.

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or reducing protections to encourage trade and investment).65 The first provision,
failure to enforce domestic labor laws, can be formally challenged in the dispute
resolution process as defined in the CAFTA-DR. Dispute resolution is not available
for the other two provisions, although they are supported in principle (Articles 16.2
and 16.6).
There was also concern that the dispute settlement provisions for labor cases
operate differently than for commercial ones. 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 is 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 is paid into a fund and expended for “appropriate labor initiatives.”
An Enforceable Labor Chapter. U.S. labor advocates have charged that
“the labor provisions of the CAFTA-DR will not protect the core rights of workers
in any of the six countries participating in the agreement.”66 Many Members of
Congress concurred, believing that the “enforce your own laws” standard, as well as
the dispute settlement provisions will be ineffective at compelling countries to meet
basic ILO standards. It was further argued that they are a step backward from the
provisions allowing for the suspension of trade benefits found in the unilateral
preferential trade arrangements, such as the Caribbean Basin Initiative (CBI) and the
Generalized System of Preferences (GSP). In these arrangements, the United States
has the option to suspend trade benefits (reimpose tariffs) if a country does not
comply with provisions of the agreement, including the labor section. Democrats
cited a number of examples, including CAFTA-DR countries, where sanctions, or
threats thereof, compelled changes in labor laws.67 Further, capping the assessment
in a labor dispute at $15 million and having the assessment paid into a fund in the
offending country was seen as a largely ineffective mechanism for compliance.
Supporters of the Labor Chapter argue that the agreement encourages countries
to improve their laws, making the “enforce your own laws” a meaningful standard,
that the CBI option for trade sanctions is less appealing in a reciprocal free trade
agreement where the United States is also subject to the discipline, and that trade
sanctions are a “blunt” instrument, punishing all export workers whose products
come under the sanctions, potentially worsening their situation rather than improving
65 Labor Advisory Committee for Trade Negotiations and Trade Policy (LAC). The U.S.-
Central America Free Trade Agreement. March 19, 2004. 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.
66 LAC, ibid., p. 1.
67 See U.S. Congress. House of Representatives. Committee on Ways and Means.
Dominican Republic-Central America-United States Free Trade Agreement Implementation
Act. H.Rept. 109-182. pp. 47-50.

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CRS-30
it. It was also argued that sanctions have not been a widely used tool over the lives
of the CBI and GSP programs, and to the contrary, that an annual $15 million fine
per violation is a potentially significant deterrent for the CAFTA-DR countries.
Finally, technical assistance, cooperation, and transparency are presented as more
effective tools in the long run to bring about change in Central America.68
Only time will tell if the CAFTA-DR labor provisions provide support and
possibly effective punitive responses to encourage deeper labor rights reforms in
Central America. These provisions are similar to those found in other FTAs for
which Congress passed implementing legislation, including Chile, Singapore,
Morocco, and Australia (Jordan’s labor provisions were different in some places).
Many Members may have accepted that those countries had adequate labor laws,
even if there were enforcement or other concerns. This perception was clearly
lacking for the CAFTA-DR countries, despite efforts to make transparent their
deficiencies and to correct some laws and enforcement problems. Hence, broader
support was never reached in Congress over the adequacy of these provision in the
CAFTA-DR.
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.69
The USTR argues that congressional objectives on environmental issues have
been met in the proposed CAFTA-DR 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 agree to commit to establish
high levels of environmental protection and to open proceedings in the administration
and enforcement of laws and regulations.70
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 CAFTA-DR.
Many of these same advocates have conceded that trade agreements have not led to
68 Ibid., pp. 4-6. See also: Gresser, Edward. The Progressive Case for CAFTA. Progressive
Policy Institute. Policy Brief. July 2005. pp. 4-6.
69 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.
70 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.

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CRS-31
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.71
The Trade and Environment Policy Advisory Committee supported most of the
environment provisions in the CAFTA-DR and particularly the enhanced public
participation process negotiated by the State Department in a 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 CAFTA-
DR is able to meet congressional objectives on capacity building without concrete
funding for the program.72 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.
Dispute Resolution and Institutional Issues
The dispute resolution chapter 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 will be handled slightly differently (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.
71 See Audley, John. Environment and Trade: The Linchpin to Successful CAFTA
Negotiations? Carnegie Endowment for International Peace. Washington, D.C. July 2003.
72 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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CRS-32
Trade Capacity Building
Even before detailed discussions began on the CAFTA-DR, 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 may be classified into three distinct areas beyond trade negotiation
capabilities. First, the ability to identify priorities, 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 CAFTA-
DR.73 The agreement will 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. 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 CAFTA-DR includes a Committee on Trade Capacity Building to
coordinate these types of activities. U.S. inter-agency funding in support of CAFTA-
DR 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
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
commitments, is one challenge supporters of these programs emphasize. This is also
true for the trade capacity building efforts in specific non-commercial areas, such as
enforcing labor and environmental commitments.

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CRS-34
Appendix 1. Chronology of CAFTA-DR 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 CAFTA-DR agreement in
Washington, D.C.
December 17, 2004
Salvadoran legislature ratifies the CAFTA-DR 49 to 35.
March 3, 2005
Honduran legislature ratifies the CAFTA-DR 100 to 28.

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CRS-35
Date
Milestone
March 10, 2005
Guatemalan legislature ratifies the CAFTA-DR 126-12.
April 13, 2005
Senate Finance Committee holds hearing on implementing
CAFTA-DR.
April 21, 2005
House Ways and Means Committee holds hearing on
implementing CAFTA-DR.
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 CAFTA-DR 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, 25 to 16.
June 30, 2005
S. 1307 agreed to in the Senate, 54 to 45.
July 25, 2005
H.R. 3045 reported by the House Committee on Ways and
Means (H.Rept. 109-182).
July 26, 2005
House Committee on Rules provides a closed rule for
consideration of H.R. 3045 under which debate is limited to
two hours and all points of order against consideration of
H.R. 3045 are waived (H.Rept. 109-186).
July 28, 2005
H.R. 3045 agreed to in the House, 217 to 215.
July 28, 2005
Senate agrees to substitute H.R. 3045 for S. 1307, 56 to 44.
August 2, 2005
President Bush signs H.R. 3045 into law (P.L. 109-53; 119
STAT. 462)
September 6, 2005
Dominican Republic ratifies CAFTA-DR. Chamber of
Deputies passes bill 118 to 4, Senate passed bill 27 to 3 on
August 26.
October 9, 2005
Nicaraguan General Assembly ratifies CAFTA-DR by a vote
of 49 to 37.

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CRS-36
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-37
Appendix 3. U.S. Merchandise Trade with CAFTA-DR
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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