Dominican Republic–Central America Free Trade Agreement
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- Note: Within this article, "CAFTA" refers to the agreement as it stood before January 2004, and "DR-CAFTA" is used after that.
The Dominican Republic–Central America Free Trade Agreement, commonly called DR-CAFTA, is a free trade agreement (legally a treaty under international law, but not under US law). Originally, the agreement encompassed the United States and the Central American countries of Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua, and was called CAFTA. In 2004, the Dominican Republic joined the negotiations, and the agreement was renamed DR-CAFTA.
CAFTA together with NAFTA and active bilateral Free Trade Agreements including: Canada-Costa Rica, CARICOM-Costa Rica, Mexico-Costa Rica, Mexico-Central America, Central America-Canada, and Panama-US together make a patchwork of Free Trade Areas in all of North America excepting Cuba.
Bordering Central American nations not in the agreement include Belize, and Panama on the mainland, and Haiti which is on the island of Hispaniola with the Dominican Republic. 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, is expected to be given certain additional trade preferences with the US under the Haitian Hemispheric Opportunity through Partnership Encouragement Act before Congress adjourns during 2006.
The agreement is a treaty under international law, but not under the United States Constitution. In the US, laws require majority approval in both houses, while treaties require two-thirds approval in the Senate only. Under U.S. law, DR-CAFTA is a congressional-executive agreement.
The United States Senate approved the DR-CAFTA on June 30 2005 by a vote of 54-45, and the United States House of Representatives approved the pact on July 27 2005 by a vote of 217-215, with two representatives not voting. 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 Dominican Republic, El Salvador, Guatemala, Nicaragua, Honduras, and Costa Rica have also approved the agreement.
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 DR-CAFTA 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 goal of the agreement is the creation of a free trade zone, similar to the North American Free Trade Agreement (NAFTA) which currently encompasses the US, Canada, and Mexico. DR-CAFTA is also seen as a stepping stone towards the Free Trade Area of the Americas (FTAA), another (more ambitious) free trade agreement that would encompass all the South American and Caribbean as well as those of North and Central America nations 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, DR-CAFTA 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 DR-CAFTA is the second-largest Latin American export market for US producers, behind only Mexico, buying $15 billion U.S. dollars of goods a year. Two-way trade amounts to about USD$32 billion.
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.
DR-CAFTA 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.
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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 February 20, 2004, Bush informed the US Congress he supported 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.
Robert Zoellick and corporate backers such as the US National Association of Wheat Growers claim the agreement will open new markets to US manufacturers, and help the Central American nations modernize their economies, create worker rights protections that will enforce and improve labor laws, and improve environmental standards. DR-CAFTA is endorsed by the U.S. High-Tech Trade Coalition, 52 food and agriculture organizations, Microsoft, the National Association of Manufacturers, the National Foreign Trade Council, Citizens Against Government Waste, the Heritage Foundation, the US Chamber of Commerce, and several Central American environmental organizations including Caribbean Conservation Corporation, Global Alliance for Humane Sustainable Development, and the Honduran Ecologist Network for Sustainable Development.
Also, most liberal and conservative (capitalist) economists tend to support free trade. They might disagree on the proper role and size of the government, but free trade is generally considered a win-win situation. The main critique from economists is that bilateral and regional free trade agreements might undermine the push for a global trade agreement through the WTO — which has greater potential for increasing total social welfare since all members of the WTO would be bound by its terms. Some economists, however, point out that the familiar "win-win" free trade model assumes parity between trading partners, lack of subsidies or other market warping policies on either side, and full employment on both sides.
Public Citizen, the U.S. advocacy group founded by Ralph Nader, says DR-CAFTA is based on the same "failed neoliberal model" as NAFTA and serves to "push ahead the corporate globalization model that has caused the 'race to the bottom' in labor and environmental standards and promotes privatization and deregulation of key public services." Public Citizen claims that independent farmers in the US, Canada and Mexico have been hit particularly hard by NAFTA, with thousands wiped out and farmland shifting into the hands of huge agribusiness concerns such as Tyson Foods and Cargill.
Another worry is that the U.S.' historical dominance of the Central American domestic product market would expand under reduced taxes, "crowding out" local businesses due to their inability to compete on economies of scale. Supporters of this view claim that depressing the delicate native innovative capacity of Central American firms would force Central American consumers into US product dependency.
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.
Public health organizations oppose CAFTA's provisions for "test data exclusivity" for pharmaceuticals, because they say that it would prevent poor people from receiving life-saving medications. In most countries, drug companies must test drugs on human subjects and submit data to regulatory agencies demonstrating the drug's safety and effectiveness. When the patent expires on brand name drugs, generic drug companies manufacture a cheaper copy of the drug, and cite the same data as proof of the drug's safety and effectiveness. 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.
The transfer of authority contained in CAFTA to various supranational and UN entities such as the Codex Alimentarius, the World Trade Organization (WTO), and the International Labour Organization (ILO) was one of the key reasons CAFTA had been deliberated on since January 2003. While pro-globalization US administration officials have been pushing to pass CAFTA they only barely were able to rally key Republican members of the House to their side who opposed CAFTA on grounds of preserving national sovereignty. Further, Congressman Ron Paul opposes CAFTA due to it being unconstitutional.
Ratification of CAFTA by Nicaragua coincided with the announcement of an end to a political crisis whereby the Nicaraguan Liberal and Sandinista 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 were impeached.
Prominent among the critics of CAFTA is economist Joseph Stiglitz, who supports free trade, but 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 not that they are not free-trade agreements. More generally, he argues that bilateral agreements fail to produce all the benefits expected, in part because of the inequality of the negotiating position of the parties involved.
DR-CAFTA encompasses the following components:
- Services: all public services are to be open to private investment.
- Investment: governments promise to grant ironclad guarantees to foreign investment.
- Government procurement: All government purchases must be open to transnational bids.
- Market access: governments pledge to reduce and eventually eliminate tariffs and other measures that protect domestic products.
- Agriculture: duty-free import and elimination of subsidies on agricultural products (not including sugar).
- Intellectual property rights: privatization of and monopoly over technological know-how.
- Antidumping rules, subsidies and countervailing rights: governments commit to phase out protectionist barriers in all sectors.
- Competition policy: the dismantling of national monopolies.
- Dispute resolution: the right of transnationals to sue countries in private international courts.
- Environmental protection: the enforcement of environmental laws and improvement of the environment.
- Labor standards: the enforcement of the International Labour Organization's core labor standards.
- Transparency: the reduction of government corruption.
- Test data exclusivity for pharmaceutical corporations
Articles and papers
- 30 June 2005 Senate Roll Call
- 27 July 2005 House Roll Call
- 28 July 2005 Senate Roll Call
- Free Trade: Why are Economists and Noneconomists So Far Apart?
- Central American Immigrant Organizations Oppose CAFTA
- Data exclusivity in international trade agreements: What consequences for access to medicines?
- CAFTA: More Bureaucracy, Less Free Trade
- Link no longer goes to article, needs replaced
- Link no longer goes to article, needs replaced
- Deal to end crisis in Nicaragua
- Official U.S. Government CAFTA Website which includes the full agreement and a summary of it
- The Case for CAFTA: Consolidating Central America's Freedom Revolution
- Protesting in Costa Rica 10/24/2006
- CAFTA Video Documentary
- Coverage of the CAFTA referendum in Costa Rica
- CAFTA-DR: Can Free Trade Hold Up to Special Interest Siege? (CEI, 2005) by Frances B. Smith
- An Activist's Guide to Stopping CAFTA
- Global Trade Watch Site on CAFTA
- Citizens' Trade Campaign Site on CAFTA
- CAFTA: Last Nail in the Coffin? by Pat Buchanan, The American Conservative, May 9, 2005.
- NO AL TLC
- U.S. International Trade Commisssion Report on CAFTA
- Congressional Research Service Report on "Central America and the Dominican Republic in the Context of the Free Trade Agreement (DR-CAFTA) with the United States"
- Congressional Research Service Report on "DR-CAFTA Labor Rights Issues"
- Congressional Research Service Report on "DR-CAFTA, Textiles, and Apparel"
- Congressional Research Service Report on "The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR)"
- DR-CAFTA: The Downfall of Costa Rica’s Economy?
- DR-CAFTA discussion forum, open to both supporters and detractors.