Market of the Month Central America - Dominican Republic – United States Free Trade Agreement (CAFTA - DR)
Table Of Contents Why CAFTA-DR? A Little Background, Please… Countries More information on CAFTA-DR Agreement Early (Positive) Results What Are the Best Prospects and Who Knows More About Them? Many Countries, One Program Success! Upcoming Events Web Resources and Contacts

>>CAFTA-DR Fact Sheet
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Why CAFTA-DR?

Imagine an export market of nearly 47 million people that…

is one of the most stable regions in the world, with democratically elected governments in place in each country;

you can travel to – directly -- in a matter of a few hours from such major U.S. airline hubs as Atlanta, Miami, Dallas, Houston, Washington, DC, and Los Angeles (and soon – Denver!);

represents the 13th largest destination for U.S. goods worldwide, and where the U.S. was the dominant exporter at US$19.6 billion in 2006;

takes in more U.S. product than Indonesia, Russia, and India – combined;

and, perhaps most importantly, under a recently implemented free trade agreement, an area to which more than 80 percent of U.S. goods can now be imported – duty-free.

That market is the six countries that make up the Central American-Dominican Republic Free Trade Agreement (CAFTA-DR): the Dominican Republic, Guatemala, El Salvador, Costa Rica, Honduras and Nicaragua. (Note: Throughout this article, for the purposes of discussing the regional market, Costa Rica is listed as one of the countries making up CAFTA-DR. It should be noted that Costa Rica has not yet approved the agreement, which will be the subject of a national referendum there in October.)

CATFA-DR

A Little Background, Please…

To look at the CAFTA-DR market today requires a little perspective. Into the early 1990’s, the economies in this region were largely based on the production of a few agricultural products such as coffee, bananas, and pineapple. Today, these economies have diversified to the point where tourism and other services have taken on a prominent role. In fact, in Costa Rica, over 200 companies can be listed as involved in the “information technology” field, with Intel as the country’s leading exporter and over 20 medical equipment companies as major investors. El Salvador serves as the hub for the Central American carrier, TACA, and also builds small airplanes and provides maintenance services for Boeing and Airbus planes – in addition to traditional cut-and-sew operations.

The CAFTA-DR region should be considered at the top of the list in terms of political stability. As U.S. companies tend to go where the political and social conditions in markets are stable, the CAFTA-DR region leaps to the fore. In contrast to the situation in the 1980’s and early 1990’s where dictatorships ruled and civil war was rampant throughout the region, the leaders and legislators of the CAFTA-DR countries are now all popularly elected and their societies are largely peaceful and orderly.

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Countries

Costa Rica boasts the largest per capita income for any country in the CAFTA-DR region, along with the longest period of political stability. Last year, the country’s growth rate rose by 6.8 percent. The economy is diversified with tourism/hospitality services, information technology, and medical equipment/instrumentation taking prominent roles. English is the dominant second language, and over one million tourists visit this country annually.	Culture Square, Costa Rica
Dominican Republic has the largest economy of all six of the CAFTA-DR countries and is the seventh largest trading partner for U.S. goods in the Western Hemisphere, taking in $5.3 billion in U.S. goods in 2006. The country’s economy jumped by 10.7 percent last year. During the past two administrations, the government has increasingly adopted policies directed toward economic liberalization, including privatizing most state-owned enterprises and improving intellectual property rights protection.
El Salvador has the most open trade and investment environment in Central America, according to the Heritage Foundation. El Salvador has a dollarized economy and enjoys excellent macroeconomic stability, low inflation, and relatively low interest rates. The U.S. is the country’s leading trading partner, with a 40 percent import market share while consuming 57 percent of its exports.. As the headquarters for Taca Airlines, El Salvador serves as the hub for air travel in the region.
Guatemala has the second largest economy ($35 billion GDP) in the CAFTA-DR grouping. The economy has grown at a solid pace over the last several years and increased by 4.6 percent in 2006. U.S. exports to the country are growing and amounted to $3.5 billion last year.	Guatemala City
Honduras claims the largest port in Central America, Puerto Cortes, which is part of the Container Security Initiative. U.S. companies account for over 40 percent of foreign direct investment. The U.S. is also the chief trading partner for Honduras, accounting for nearly half of the country’s trade.   U.S. exports to Honduras in 2006 amounted to $3.7 billion, up approximately 14 percent from the previous year.
Scenes from Honduras
Nicaragua enjoys a reputation of safety and security and is attempting to diversify its economy and shift to other forms of production and services, particularly tourism. The U.S. is the major investor, with Cone-Denim recently initiating a $100 million plant near Managua.

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More information on CAFTA-DR Agreement

The U.S., Nicaragua, El Salvador, Guatemala, Honduras, the Dominican Republic, and Costa Rica signed CAFTA-DR in August 2004. The U.S. Congress approved the CAFTA-DR in July 2005 and the President signed it into law on August 2, 2005.

CAFTA-DR Area Map

The United States has implemented CAFTA-DR on a “rolling basis” as countries made sufficient progress to complete their commitments under the Agreement. The Agreement first entered into force between the United States and El Salvador on March 1, 2006, followed by Nicaragua and Honduras (April 1, 2006), Guatemala (July 1, 2006), and the Dominican Republic (March 1, 2007). Costa Rica will hold a national referendum on the agreement on October 7, 2007.

Among the highlights of the Agreement are:

About 80 percent of US exports of consumer and industrial goods became duty-free immediately upon implementation.

Tariffs on remaining consumer and industrial products will be phased out within 5 or 10 years.

Key U.S. export sectors that benefit from immediate duty elimination include information technology products, construction and agricultural equipment, paper products, pharmaceuticals, and medical and scientific equipment.

More than half of U.S. farm exports became duty-free immediately, including cotton, wheat, soybeans, key fruits and vegetables, and processed food products.

Tariffs on most remaining U.S. farm products will be phased out within 15 years.

Nearly all textile and apparel goods that meet the Agreement’s rules of origin are now traded duty-free and quota-free, promoting opportunities for U.S. and regional fiber, yarn, fabric, and apparel manufacturing.

Substantial market access is provided across the entire services regime (e.g. telecom, engineering, transportation, financial services).

Higher standards are agreed upon for protecting intellectual property rights (IPR) such as copyrights, patents, and trademarks, and the accord enhances means for enforcing those rights.

CAFTA-DR requires the use of fair and transparent government procurement procedures, including advance notice of purchases and timely and effective bid review procedures.

The agreement also:

Establishes a more secure and predictable legal framework for U.S. investors in the region.

Requires transparency and efficiency in administering customs procedures, facilitating entry of goods into these countries.

Loosens restrictive “dealer protection” regimes that have locked U.S. firms into exclusive or inefficient distributor arrangements

Provides strong anti-corruption provisions against bribery in matters related to trade and investment.

Protects labor and the environment, requires effective enforcement of laws and establishes cooperative programs to build local enforcement capacity.

Creates strong dispute settlement procedures. Emphasis is on promoting compliance through consultation, but enforcement mechanisms include monetary penalties to enforce obligations of the Agreement.

Secretary Gutierrez with CAFTA Heads
of State in El Salvador, October 2005

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Early (Positive) Results

The initial results of CAFTA-DR have been impressive: U.S. exports to these countries have jumped compared to 2005 levels and, with the exception of Nicaragua, U.S. trade deficits have turned into trade surpluses, regionally and bilaterally. For the four countries that implemented CAFTA-DR during 2006, U.S. exports were up:

16 percent to El Salvador;

13 percent to Honduras;

20 percent to Nicaragua; and

24 percent to Guatemala.

U.S. exports to the entire CAFTA-DR region increased by 16 percent in 2006, and rose by 11 percent for the first five months of 2007. Leading U.S. exports included petroleum products, machinery, textile fabrics/yarns, plastics, grains, and motor vehicles.

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What Are the Best Prospects and Who Knows More About Them?

Apparel and Textiles and Equipment - Maria Irene Rivera (CAFTA) and Maria Elena Portorreal (Dominican Republic)

I.T./Computer Equipment and Software - Víctor Cambronero (CAFTA) and Isolda Frias (Dominican Republic)

Security and Safety Equipment - Rossana Lobo (CAFTA) and Isolda Frias (Dominican Republic)

Hotel and Restaurant Equipment - Ana Maria Solares (CAFTA) and Maria Elena Portorreal (Dominican Republic)

Medical Equipment and Pharmaceutical Products - Lidia Sosa (CAFTA) and Isolda Frias (Dominican Republic)

Telecom Equipment and Services - Rodrigo Rojas (CAFTA) and Isolda Frias Dominican Republic)

Franchising - Roy Fernández

Automotive Parts and Service Equipment - Ana Polanco (CAFTA) and Isolda Frias (Dominican Republic)

Construction Equipment and Services - Javier Fortín (CAFTA) and Sheila Andujar (Dominican Republic)

The e-mail addresses for the above mentioned are: FirstName.LastName@mail.doc.gov. (Once again, “CAFTA”, for the purposes of this report, consists of Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua)

Secretary Gutierrez with CAFTA Heads of State and Business
Development Mission Members, October 2005, San Salvador

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Many Countries, One Program

The five countries of Central America are increasingly seen as one regional market. The countries cooperate on a number of different programs, ranging from electricity-sharing to highways and customs. Similarly, the private sector operates or is established in a number of different countries in the region, including the likes of Citibank, Walmart, the POMA group of El Salvador, and several franchises.

The Commercial Service has taken the same approach, regionalizing its operations and programs for the five Central American countries participating in CAFTA. The regional CS office is based in El Salvador and oversees operations in Costa Rica, Guatemala, Honduras, and Nicaragua. (The Commercial Service in Nicaragua is represented by the Economic Section of the U.S. Embassy.) The current Regional Senior Commercial Officer is Michael McGee. His contact information is in the section on “Web Resources” below.

The Commercial Service offers programs on a regional basis in the five CAFTA-DR countries, which minimizes the time and maximizes the results for a visiting U.S. exporter. Perhaps most prominent among these programs is the Regional Gold Key Service (GKS). Under a “normal” Gold Key, a company pays a first-day fee of $735 and a second-day fee of about half that amount -- in one post/country. Under the Regional GKS, the company pays the first-day fee for its first stop, and then a second-day fee for subsequent stops in other countries. In other words, if an exporter visits El Salvador as his/her first stop and then Guatemala as the second, etc., s/he would pay the first-day fee only in El Salvador. The second-day fee would apply for Guatemala and all other stops.

The Commercial Service also offers Contact Lists on a regional pricing basis and coordinates International Buyer Programs to Certified Trade Shows in the U.S. For more information on current and future regional programs in the CAFTA countries, please check our (regional!) website at www.buyusa.gov/centralamerica.

Success!

>>Read success stories from Contours Express, Softee Supreme Diaper Corporation, The HACH Company and PriceSmart.

Upcoming Events

>>View calendar information on CAFTA-DR events.

Web Resources and Contacts

>>View recourses and contacts.

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