Dominican Republic–Central America Free Trade Agreement
|This article is outdated. (March 2009)|
- Note: Within this article, "CAFTA" refers to the agreement as it stood before January 2004, and "CAFTA-DR" is used after that.
The Dominican Republic – Central America Free Trade Agreement, commonly called CAFTA-DR, is a free trade agreement (legally a treaty under international law, but not under US law). Originally, the agreement encompassed the United States and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, and was called CAFTA. In 2004, the Dominican Republic joined the negotiations, and the agreement was renamed CAFTA-DR.
CAFTA-DR together with the North American Free Trade Agreement (NAFTA) and active bilateral free trade agreements, including the Canada-Costa Rica Free Trade Agreement, are seen as bloc agreements instead of a Free Trade Area of the Americas (FTAA) agreement. Panama has completed negotiations with the US for a bilateral free trade agreement (ratification of which is pending), and Belize is a member of the Caribbean Community (CARICOM). Haiti, also a CARICOM member, was expected to be given certain additional trade preferences with the US under the Haitian Hemispheric Opportunity through Partnership Encouragement Act before Congress adjourned during 2006.
Nearly all Central American exports to the United States were already tariff-free since the Caribbean Basin Initiative was first enacted in 1984.
The agreement is a treaty under international law, but not under the United States Constitution. In the U.S., laws require majority approval in both houses, while treaties require two-thirds approval in the Senate only. Under U.S. law, CAFTA-DR is a congressional-executive agreement.
The United States Senate approved the CAFTA-DR on June 30, 2005 by a vote of 54–45, and the United States House of Representatives approved the pact on July 28, 2005 by a vote of 217–215, with two representatives not voting. Controversy arose over this vote because it was held open 1 hour and 45 minutes longer than the normal 15 minutes in order to get some members to change their votes. For procedural reasons, the Senate took a second vote on CAFTA on July 28 and the pact garnered an additional vote from Sen. Joe Lieberman—who had been absent on June 30—in favor of the agreement. The implementing legislation became Public Law 109-053 when it was signed by President George W. Bush on August 2, 2005.
The Dominican Republic, Costa Rica, El Salvador, Guatemala, Nicaragua and Honduras have also approved the agreement. They are all the current members of CAFTA-DR.
On March 1, 2006, El Salvador led the way as CAFTA went into effect for that country, following completion of all necessary steps, including delivery of signed Treaty copies to the Organization of American States (OAS), which was the final step. On April 1, 2006, Honduras and Nicaragua joined El Salvador as countries that have fully implemented the agreement. On May 18, 2006, Guatemala's Congress ratified CAFTA-DR and on July 1, 2006, the treaty went into effect for that country. The Dominican Republic implemented the agreement on March 1, 2007. In the referendum on October 7, 2007, the voters of Costa Rica narrowly backed the free trade agreement, with 51.6 percent of "Yes" votes; The necessary implementation laws have been approved and the agreement took effect January 1, 2009.
The goal of the agreement is the creation of a free trade area, similar to the North American Free Trade Agreement (NAFTA) which currently encompasses the US, Canada, and Mexico. CAFTA-DR is also seen as a stepping stone towards the FTAA, another (more ambitious) free trade agreement that would encompass all the South American and Caribbean nations as well as those of North and Central America except Cuba. Canada is negotiating a similar treaty called the Canada Central American Free Trade Agreement.
If passed by the countries involved, tariffs on about 80 percent of US exports to the participating countries will be eliminated immediately and the rest will be phased out over the subsequent decade. As a result, CAFTA-DR does not require substantial reductions in US import duties with respect to the other countries, as the vast majority of goods produced in the participating countries already enter the US duty-free due to the US Government's Caribbean Basin Initiative.
With the addition of the Dominican Republic, the trade group's largest economy, the region covered by CAFTA-DR is the second-largest Latin American export market for US producers, behind only Mexico, buying US$15 billion of goods a year. Two-way trade amounts to about US$32 billion annually.
While not necessarily a part of Plan Puebla Panama, CAFTA is a necessary precursor to the execution of Plan Puebla Panama by the Inter-American Development Bank. The plan includes construction of highways linking Panama City to Mexico City, Texas, and the rest of the US.
CAFTA-DR reduces tariffs, which are a form of tax. However, every nation in CAFTA remains free to set its overall tax level as it sees fit.
US President George W. Bush announced in January 2002 that CAFTA was a priority in his administration, and Congress gave his administration "fast track" authority to negotiate it. Negotiations began in January 2003, and agreement was reached with El Salvador, Guatemala, Honduras, and Nicaragua on December 17, 2003, and with Costa Rica on January 25, 2004. That same month, negotiations began with the Dominican Republic to join CAFTA.
On May 28, 2004, United States Trade Representative Robert Zoellick, Costa Rican Minister of Trade Alberto Trejos, Salvadoran Economy Minister Miguel Lacayo, Guatemalan Economy Minister Marcio Cuevas, Honduran Minister of Industry and Commerce Norman García, and Nicaraguan Minister of Development, Industry and Commerce Mario Arana signed the 2,400-page document at headquarters of the Organization of American States. Negotiations with the Dominican Republic concluded on March 15, 2004, and a second signing ceremony including Dominican Republic Minister of Industry and Commerce Sonia Guzmán was held on August 5, 2004.
In May 2004 the Salvadoran American National Network, the largest national association of Central American community-based organizations in the U.S., along with other organizations representing Central American immigrants to that country, expressed its opposition to CAFTA, saying, "Our opposition to CAFTA is not ideological. As immigrants, we have a deep understanding of the potential benefits of improved transnational cooperation. We would welcome an agreement that would increase economic opportunity, protect our shared environment, guarantee workers' rights and acknowledge the role of human mobility in deepening the already profound ties between our countries. However, the CAFTA agreement falls far short of that vision."
While manufacturing costs of generic drugs are relatively cheap, the costs of human tests are relatively expensive, and tests take months or years. If generic manufacturers had to redo the tests, the generic drug would be more expensive, and generic manufacturers might not be able to do the tests at all. Furthermore, if generic manufacturers had to redo the tests, they would have to compare the new, effective drugs to less-effective drugs, which according to Doctors Without Borders, would be unethical. In the United States, drug manufacturers must make test data public for generic manufacturers. Under CAFTA's test data exclusivity, drug manufacturers could keep test data secret, which would make it more difficult for local companies to produce generic drugs, and enable multinational pharmaceutical companies to keep a monopoly on branded drugs, including those used to treat AIDS, malaria, and tuberculosis.
Ratification of CAFTA by Nicaragua coincided with the announcement of an end to a political crisis whereby the Nicaraguan Liberal, PLC, and Sandinista, FSLN, parties ended an impeachment process of President Enrique Bolaños. The previous week, the US had threatened to withhold US$175 million in aid to Nicaragua if Bolaños was impeached.
Prominent among the critics of CAFTA is economist Joseph Stiglitz, who argues that without fairer trade agreements, the benefits from trade will not be realized. He says that NAFTA and CAFTA will increase poverty because they prematurely open markets to US agricultural goods which are subsidized, making local farmers unable to compete with imports, and the nations in question do not have the ability to bear the costs of switching resources with their available capital, nor deal with the consequences of even short-term unemployment. He argues that these agreements have been more geo-political than economic, and that the essential problem with recent bilateral agreements, including CAFTA, is that they are not free-trade agreements.
Impact of CAFTA-DR 
|This section does not cite any references or sources. (March 2013)|
Though supporters and opposition of CAFTA-DR contend that there are substantial gains and/or losses to be presented with the implementation of the multilateral trade agreement, results thus far are at best ambiguous. Results stemming from two-way ANOVA support these findings.
Two-way ANOVA analyses were run based on data provided by the World Bank and the World Trade Organization and compared in terms of bilateral trade between the United States and the bloc or all countries encompassed in the agreement from 1999–2012, comparing annual averages in each category to determine if there have been statistically significant changes in from pre-CAFTA-DR years, 1999–2005, and again from 2006-2012. Additionally, data was controlled to hold constant for effects of the date of entry for each individual country. Comparisons were made in terms of GDP, inflation, unemployment, agricultural imports and exports, trade volume, manufactured goods, and merchandise.
Of the analyses that were conducted, only one, unemployment proved to be statistically significant. The implications support the notion that while CAFTA-DR has eased tariffs between the trading bloc, statistically significant changes, e.g. annual averages in GDP, inflation, unemployment, agricultural imports and exports, trade volume, manufactured goods and merchandise did not rise or fall more so than in the years immediately preceding the its implementation. Moreover, while unemployment did rise in the United States and CAFTA-DR, other economic factors have greatly affected the annual rate of unemployment in each country, namely the Great Recession of 2010, and even the recession experienced at the turn of the century.
Trade volume increased, as is expected, however not at a different rate than other years. Imports from the United States to Latin American Countries rose 31% from 2005 to 2010; and, exports rose 43% during that same time span.
Though regression analysis is preferred over a simple two-way ANNOVA analysis, not enough data is available at this point in time. And, even if such data were available, shifts in trade, unemployment, manufactrured goods, GDP, agricultural imports and exports, and merchandise would also be at best ambiguous as other economic factors must be taken into account.
Other implications such as human and employee rights violations merit further examination, specifically minimum wage criteria; however, as is the case with many developing countries, data collection methods and infrastructure must first be improved upon.
CAFTA-DR encompasses the following components:
- Cross-border trade in services: Each member country must treat service suppliers of another member country no less favorably than its own suppliers or those of any other member country. The Agreement requires firms to establish a local presence as a condition for supplying a service on a cross-border basis.
- Financial services: CAFTA-DR imposes rules requiring member countries to treat service suppliers of another member country no less favorably than its own suppliers or those of any other country, prohibits certain quantitative restrictions on market access of financial institutions, and bars restrictions on the nationality of senior management.
- Investment: CAFTA-DR establishes rules to protect investors from one member country against unfair or discriminatory government actions when they make or attempt to make investments in another member country's territory. Investors enjoy six basic protections: (1) non-discriminatory treatment relative to domestic investors as well as investors of non-Parties; (2) limits on “performance requirements”; (3) free transfer of funds related to an investment; (4) protection from expropriation other than in conformity with customary international law; (5) a “minimum standard of treatment” in conformity with customary international law; (6) and the ability to hire key managerial personnel without regard to nationality.
- Government procurement: Each member country must apply fair and transparent procurement procedures and rules and prohibiting each government and its procuring entities from discriminating in purchasing practices against goods, services, and suppliers from the other member countries.
- Market access: Governments pledge to reduce and eventually eliminate tariffs and other measures that protect domestic products.
- Agriculture: CAFTA-DR requires that tariffs and quotas be administered in a manner that is transparent, nondiscriminatory, responsive to market conditions and minimally burdensome on trade and allows importers to fully utilize import quotas. Each member country will eliminate export subsidies on agricultural goods destined for another CAFTA-DR country.
- Intellectual property rights: Member countries are obligated to ratify or accede to several international agreements on intellectual property rights, like, for example, the WIPO Copyright Treaty. Each member country must provide protection for marks and geographical indications, including protecting preexisting trademarks against infringement by later geographical indications. Member countries must provide efficient and transparent procedures governing the application for protection of marks and geographical indications. Each member country must provide copyright protection for the life of the author plus 70 years (for works measured by a person's life), or 70 years (for corporate works). The Agreement also includes provisions on anticircumvention, under which member countries commit to prohibit tampering with technology used to protect copyrighted works. Member countries agree to make patents available for any invention, subject to limited exclusions, and confirm the availability of patents for new uses or methods of using a known product. To guard against arbitrary revocation of patents, each member country must limit the grounds for revoking a patent to the grounds that would have justified a refusal to grant the patent.
- Antidumping and countervailing rights: Antidumping and countervailing duty measures may not be challenged under the Agreement’s dispute settlement procedures.
- Dispute resolution: If a dispute over an actual or proposed national rule cannot be resolved after a 30-day consultation, the matter may be referred to a panel comprising independent experts that the parties select. Once the procedure before the panel is concluded, the panel will issue a report. The parties will attempt to resolve the dispute based on the panel's report. If no amicable resolution is possible, the complaining party may suspend trade benefits equivalent in effect to those it considers were impaired, or may be impaired, as a result of the disputed measure. If a dispute arises under both CAFTA-DR and the WTO Agreement, the complaining party may choose either forum.
- Environmental protection: CAFTA-DR contains provisions for the enforcement of environmental laws and improvement of the environment. The CAFTA-DR Environmental Cooperation Agreement, signed in concert with the FTA, provides for environmental cooperation on issues of mutual environmental concern.
- Labor standards: CAFTA-DR contains provisions for the enforcement of the International Labour Organization's core labor standards.
- Transparency: Parties are obligated to make it a criminal offense to offer or accept a bribe in exchange for favorable government action in matters affecting international trade or investment.
- Test data exclusivity for pharmaceutical corporations: CAFTA-DR protects test data that a company submits in seeking marketing approval for such products by precluding other firms from relying on the data.
See also 
- 30 June 2005 Senate Roll Call Vote on Passage of S. 1307
- 27 July 2005 House Roll Call Vote on Passage of H.R. 3045
- "With push from Bush, CAFTA is approved" 28 July 2005 St. Petersburg Times article
- 28 July 2005 Senate Roll Call Vote on Passage of H.R. 3045
- Latinamerica Press: Article[dead link]
- Central American Immigrant Organizations Oppose CAFTA[dead link]
- "Data exclusivity in international trade agreements: What consequences for access to medicines?" Médecins Sans Frontières whitepaper
- "Deal to end crisis in Nicaragua" (BBC News report)
- "The Dominican Republic - Central America - United States Free Trade Agreement with amendments". U.S. Trade Representative. 2004-2011. Retrieved 27 October 2011.
- Official U.S. Government CAFTA-DR website
- CAFTA-DR Environmental Cooperation Website includes links to CAFTA-DR Environmental Cooperation Agreement
- "The Case for CAFTA: Consolidating Central America's Freedom Revolution" 2004 CATO Institute whitepaper
- Costa Rica CAFTA protest report, 24 October 2006
- "Vivir la lucha como una fiesta" - Video about the cultural movement against CAFTA-DR in Costa Rica(Spanish)
- CAFTA-DR: Can Free Trade Hold Up to Special Interest Siege? (CEI, 2005) by Frances B. Smith
- Global Trade Watch anti-CAFTA website
- Citizens' Trade Campaign anti-CAFTA website
- "CAFTA: Last Nail in the Coffin?" by Pat Buchanan, The American Conservative, May 9, 2005.
- "CAFTA-DR, Textiles, and Apparel" 2005 Congressional Research Service Report
- "Central America and the Dominican Republic in the Context of the Free Trade Agreement (CAFTA-DR) with the U.S." 2005 Congressional Research Service Report
- "CAFTA-DR Labor Rights Issues" 2006 Congressional Research Service Report
- "The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR)" 2009 Congressional Research Service Report
- TradeRoots U.S. Chamber of Commerce FTA advocacy website
- CAFTA-US TEXTILE AND COTTON TRADE PROSPECTS: THE CHINA EFFECT (2006 study)
- House approves CAFTA, Michigan and Ohio Democrats blast it as bad deal (2005 Associated Press news report)