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Key Takeaways

• CAFTA-DR eliminated most tariffs between the U.S. and Central American nations.
• The agreement aims to boost exports and job creation by removing trade barriers.
• Special rules are in place for sensitive products like clothing and food.
• CAFTA-DR faced criticism for harming Central America's small farmers.
• The U.S. exports more to the region than it imports, benefiting from the trade pact.
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Central America Free Trade Area-Dominican Republic (CAFTA-DR): Overview

The Central America Free Trade Area-Dominican Republic (CAFTA-DR) is a treaty that abolishes tariffs and encourages trade between the U.S. and a number of Central American nations, including Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. The Dominican Republic, a Caribbean island nation, was added to the deal later.1 CAFTA-DR is often referred to as CAFTA.

Comprehensive Details of CAFTA-DR

CAFTA was signed into law by U.S. President George W. Bush in 2005 and was formally adopted by the other member nations between 2006 and 2009.2

The agreement, along with NAFTA and a number of other bilateral agreements, was intended to form the basis for the eventual integration of every Western Hemisphere economy–with the exception of Cuba–into a Free Trade Area of the Americas (FTAA).

Negotiations for the proposed mega-deal fell apart after missing a 2005 deadline.3 The much larger NAFTA was revised and became the United States Mexico Canada Agreement in 2020.4

Important

CAFTA has been criticized as destructive to the livelihoods of small farmers in Central America, who now have to compete with American agribusiness.

CAFTA-DR provides for the progressive elimination of almost all customs duties and associated fees between the countries over a period of 20 years. Most tariffs were removed immediately, but special rules were adopted for politically and economically sensitive products including clothing and food.5

The intention of CAFTA-DR was to boost exports and job creation in all of the member nations by eliminating barriers to trade. It also included commitments to improve working conditions for laborers throughout Central America.

Criticisms and Opposition to CAFTA-DR

It had many opponents. Among them, the AFL-CIO denounced the pact as "utterly devoid of compassion and opportunity for those who need it most–the 37 million Central Americans struggling in poverty and the millions of hard-working immigrants in this nation most vulnerable to layoffs and mistreatment."6

In the years since its passage, CAFTA-DR has been criticized for destroying the livelihoods of small farmers in Central America, who were forced into competition with the giants of American agribusiness.

Economic Impact of CAFTA-DR on Member Nations

According to a 2012 Congressional Research Service report, U.S. trade fell relative to the other signatory countries after the deal was signed. However, economic integration among the Central American countries rose, making it the "region that trades the most with itself," according to the International Monetary Fund.7

In the years since the pact was signed, the U.S. has consistently exported more to the region than it has imported. In 2018, the U.S. exported about $7.5 billion more in goods than it imported.8

The primary products exported from the U.S. to Central America include petroleum products, machinery, grains, plastics, and medical instruments, according to Britannica.com, while its primary imports from Central America are coffee, sugar, fruits and vegetables, cigars, and petroleum products.