CAFTA-DR Revisited


U.S. Agriculture Secretary Ed Schafer led a trade and investment mission with 17 U.S. agribusinesses to Central America to meet with 70 local companies from CAFTA-DR countries. The seven countries (the U.S., Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua) signed the Central American – Dominican Republic Free Trade Agreement (CAFTA-DR) in August of 2004. Agricultural trade was already growing between the U.S. and the six countries and has since accelerated.

The U.S. and El Salvador where the first to put the agreement into affect in March of 2006. Honduras and Nicaragua followed in April of 2006, as did Guatemala in July of 2006 and the Dominican Republic in March of 2007. Costa Rica will implement it beginning October 1, 2008. Half of U.S. farm exports enter tariff-free when the agreement takes affect. These include high-quality beef, soybeans, cotton, wheat, many fruits and vegetables, and processed food products. Tariffs on most other U.S. farm products are phased out over 15 years with almost all tariffs eliminated in 20 years. All products are included in the agreement with increased market access through tariff reductions and/or tariff-rate quota (TRQ) expansions. The U.S. provides the same tariff treatment for each country, but has country-specific commitments on TRQs. Tariffs will ultimately be eliminated for all products, except for sugar to the U.S., fresh potatoes and fresh onions to Costa Rica, and white corn to the other Central American countries.

In 2004 when CAFTA-DR was finalized U.S. agricultural exports to the six countries totaled $1.71 billion, up 8.9 percent from 2003. Exports increased 9.9 percent in 2005. Exports increased another 18.6 percent in 2006 when the agreements began to be implemented in four of the six countries. Exports were up by 26.0 percent in 2007 to $2.81 billion, but that was partly influenced by the rapid increase in commodity prices that began in October 2006. For the first seven months of 2008 exports were up 48.4 percent over the same period in 2007.

In 2004 bulk commodity exports at $942 million, mostly wheat, course grains and rice, accounted for 55.2 percent of total agricultural exports. This remained almost unchanged for the following three year and was at 53.8 percent for the first seven months of 2008. Intermediate products at $390 million in 2004, led by soybean meal and oil, animal fats and animal feeds and fodders, have had a steadily growing share of U.S. agricultural exports from 22.9 percent in 2004 to 28.4 percent in the first seven months of 2008. Consumer-oriented products at $373 million in 2004 trended downward as a percent of total agricultural exports from 21.9 percent in 2004 to 17.7 percent in 2008. Exports of consumer-oriented products were up 36.3 percent in the first seven months of 2008, but were out paced by growth in intermediate products of 59.9 percent and bulk commodities at 47.1 percent.

Imports of agricultural products from the CAFTA-DR countries have grown from $2.47 billion in 2004 to $3.43 billion in 2007 with imports for the first seven months of 2008 up 10.8 percent from a year earlier. Imports are dominated by bananas and plantains at $752 million, unroasted coffee at $739 million and fresh fruit at $625 million. Sugar and sweetener imports totaled $280 million. The other imports are mostly consumer-oriented products such as fruits, vegetables, juices, nursery products and cut flowers.

The next step in U.S. exports will be in intermediate and consumer-oriented products. Many of those products were not provided immediate tariff-free access. They mostly had high tariffs before CAFTA-DR, and TRQs were created with increasing volumes over the next 15-20 years. Some products have immediate zero tariffs within the TRQs and other have tariffs that decline at some point in the future. Individual countries have the right to increase TRQ volumes and lower tariffs at a faster rate than the minimum.

The countries agreed to use the science-based disciplines of the World Trade Organization Agreement on Sanitary and Phytosanitary (SPS) Measures. The U.S. also agreed to provide the six countries with technical assistance and training for programs to standardize SPS requirements for animal and plant health and food safety programs and to improve customs procedures and protect intellectual property rights. These efforts have begun and have reduced disagreements over meats and other animal products.

U.S. agricultural exports to the CAFTA-DR countries in coming years will be largely driven by economic growth. Since more open trade helps to increase economic growth, a general approach toward freer trade for a country, not just an agreement with the U.S., is important. A recent analysis by the Heritage Foundation indicated that the CAFTA-DR countries are relatively open to trade. The U.S. was ranked 13th out of 179 countries with a score of 86.8. Costa Rica and El Salvador were tied at 53rd with a score of 81.8. Nicaragua was 77th at 79.2, followed closely by Guatemala at 81st with 78.4 and Honduras ranked 84th with a score of 78.0. The Dominican Republic was 99th with a 73.0. For comparison purposes, China was ranked 111 with a score of 71.4, S. Korea at 120 with a 70.2 and Russia at 152 with a 60.8.

Economic growth has been moderately strong in most of the countries with the Dominican Republic leading at 8.5 percent in 2007 followed by Costa Rica at 6.8 percent and Honduras at 6.3 percent. Guatemala was slower at 5.7 percent GDP growth in 2007 followed by El Salvador at 4.7 percent and Nicaragua at 3.8 percent. Higher commodity prices and a slowing world economy may present more challenges for the seven countries in the months ahead, but CAFTA-DR has had a promising beginning on which to build further increases in agricultural trade.

Ross Korves

Ross Korves

Ross Korves served Truth about Trade & Technology, before it became Global Farmer Network, from 2004 – 2015 as the Economic and Trade Policy Analyst.

Researching and analyzing economic issues important to agricultural producers, Ross provided an intimate understanding regarding the interface of economic policy analysis and the political process.

Mr. Korves served the American Farm Bureau Federation as an Economist from 1980-2004. He served as Chief Economist from April 2001 through September 2003 and held the title of Senior Economist from September 2003 through August 2004.

Born and raised on a southern Illinois hog farm and educated at Southern Illinois University, Ross holds a Masters Degree in Agribusiness Economics. His studies and research expanded internationally through his work in Germany as a 1984 McCloy Agricultural Fellow and study travel to Japan in 1982, Zambia and Kenya in 1985 and Germany in 1987.

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