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President Bush Signs CAFTA

Latin America Update
Laura McMahon , Ana Ibarra

On August 2, 2005, President Bush signed CAFTA, The Central America Free Trade Agreement, following narrow approval by the U.S. House of Representatives the day before and by the U.S. Senate earlier this summer.

CAFTA is a trade accord among the United States, El Salvador, Guatemala, Honduras, Nicaragua, Costa Rica and the Dominican Republic. Nicaragua and Costa Rica remain the only countries who have not yet ratified the agreement.

According to the U.S. Trade Representative Office (USTR), the value to the United States of the trade relationship with the CAFTA countries is worth more than $32 billion, making it the second largest U.S. export market in Latin America and the 14th largest U.S. export market in the world. The agreement will eliminate 80% of tariffs immediately, with the remaining tariffs to be phased out over a period of 10 years. With nearly 80% of products (99% of agricultural products) from Central America already entering the United States duty-free, the USTR expects this pact to level the playing field for U.S. products, services and farm goods. From 2000 through 2004, exports to CAFTA destinations grew by almost 16%, compared to a less than 5% increase overall for U.S. exports.

The American Farm Bureau Federation estimates that CAFTA will expand U.S. farm exports by approximately $1.5 billion a year and the National Association of Manufacturers estimates that CAFTA will result in an additional $1 billion a year in exports of manufactured goods. In addition, according to a study by the U.S. International Trade Commission, the effect of CAFTA will be to reduce our trade deficit with the member countries by $756 million. The leading states exporting to CAFTA countries are Florida, North Carolina, Texas, Louisiana, California, Georgia, Alabama, Massachusetts, South Carolina and Pennsylvania.

In addition to providing economic incentives for U.S. investment in CAFTA countries, the pact commits the Central American countries and the Dominican Republic to implement important legal reforms to help improve transparency of government actions, strengthen the rule of law, improve protection and enforcement of intellectual property rights and achieve stronger labor and environmental protection.

CAFTA also promises to provide momentum for the World Trade Organization�s Doha round talks, as well as negotiations for other regional trade agreements such as the one with the Andean countries and the Free Trade Area of the Americas.

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