Trade and Tariffs

The capital goods sector includes the agriculture and construction equipment sectoral initiatives, as well as other machinery and equipment products. Capital goods accounted for 12 percent of total U.S. industrial exports to Central America in 2003, totaling $663 million. Machinery parts, tractors, pumps, and switches lead U.S. exports in this sector. Costa Rica is the United States’ leading Central American export market in the sector, accounting for 28 percent of total U.S. capital goods exports to the region.

Central American tariffs on capital goods range from 0 to 15 percent, with the average varying by country from 1.1 to 2.3 percent. Tariffs in this sector tend to be highest on air conditioning and refrigeration equipment, and hand tools.

Central America exports to the United States in this sector were about $61.5 million in 2003, or about 2 percent of the region’s total exports to the United States. Costa Rica is the leading exporter of the five countries, accounting for 85 percent of Central American exports in the sector.

The United States imposes tariffs on capital goods of 0 to 14 percent, with an average of 1.8. The highest tariffs are applied to railway cars. All products in this sector receive duty-free treatment under the Caribbean Basin Initiative (CBI) and Caribbean Basin Trade Partnership Act (CBTPA).

Tariff Elimination

Tariffs will be phased out according to four tariff elimination categories: immediate elimination, equal cuts over five years, equal cuts over 10 years, and non-equal cuts over 10 years. Duties on products in the last category will decrease by 2 percent for the first two years, by 8 percent for the next four years, and by 16 percent for the last four years.

Overall, 94 percent of U.S. industrial exports will receive duty-free treatment immediately upon implementation of the agreement. Tariffs on 1 percent of exports will be eliminated over five years. Duties on the remaining 5 percent of U.S. exports will be eliminated over ten years. Only 1 percent of exports will be subject to non-linear tariff elimination. Trailers and semi-trailers, pneumatic tires, air-conditioning machinery, and refrigeration display counters are examples of products that will be subject to non-linear 10-year staging. Tariffs on high value capital goods including air-conditioning equipment and dumpers will, in most cases, be phased out immediately or in 5 years.

Subsectors: Agricultural Equipment, Construction Equipment, Printing, Publishing, and Converting Equipment, and Woodworking Machinery

One hundred percent of U.S. agricultural equipment and printing, publishing and converting equipment exports will be duty-free immediately upon implementation of the agreement. Ninety-nine percent of U.S. construction equipment exports will be duty-free immediately upon implementation of the agreement. Duties on the remaining 1 percent of U.S. exports will be eliminated over ten years. Ninety-four percent of U.S. woodworking machinery exports will be duty-free immediately upon implementation of the agreement. Duties on the remaining 6 percent of exports will be eliminated over ten years.

The United States agreed to consolidate all CBI and CBTPA tariff preferences into the final tariff elimination schedules. As a result, all Central American capital goods exports will continue to receive duty-free treatment.

Non-Tariff Barriers

Many U.S. exporters face consular transactions – complex paperwork requirements stipulating that documents be certified in the United States at the embassy or consulate of the Central American country that will receive the goods. Consular transactions will be eliminated immediately upon implementation of the agreement.

Dealer protection laws have led to severe consequences for U.S. exporters when they terminate a contract with a dealer or distributor in Central America. The agreement requires each Central American country to amend its laws such that U.S. products cannot be denied the right of importation due to contract disputes.