Dominican Republic-Central America Free Trade Agreement
Encyclopedia
- 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
Free trade
Under a free trade policy, prices emerge from supply and demand, and are the sole determinant of resource allocation. 'Free' trade differs from other forms of trade policy where the allocation of goods and services among trading countries are determined by price strategies that may differ from...
agreement (legally a treaty
Treaty
A treaty is an express agreement under international law entered into by actors in international law, namely sovereign states and international organizations. A treaty may also be known as an agreement, protocol, covenant, convention or exchange of letters, among other terms...
under international law, but not under US law). Originally, the agreement encompassed the United States and the Central American countries of Costa Rica
Costa Rica
Costa Rica , officially the Republic of Costa Rica is a multilingual, multiethnic and multicultural country in Central America, bordered by Nicaragua to the north, Panama to the southeast, the Pacific Ocean to the west and the Caribbean Sea to the east....
, El Salvador
El Salvador
El Salvador or simply Salvador is the smallest and the most densely populated country in Central America. The country's capital city and largest city is San Salvador; Santa Ana and San Miguel are also important cultural and commercial centers in the country and in all of Central America...
, Guatemala
Guatemala
Guatemala is a country in Central America bordered by Mexico to the north and west, the Pacific Ocean to the southwest, Belize to the northeast, the Caribbean to the east, and Honduras and El Salvador to the southeast...
, Honduras
Honduras
Honduras is a republic in Central America. It was previously known as Spanish Honduras to differentiate it from British Honduras, which became the modern-day state of Belize...
, and Nicaragua
Nicaragua
Nicaragua is the largest country in the Central American American isthmus, bordered by Honduras to the north and Costa Rica to the south. The country is situated between 11 and 14 degrees north of the Equator in the Northern Hemisphere, which places it entirely within the tropics. The Pacific Ocean...
, and was called CAFTA. In 2004, the Dominican Republic
Dominican Republic
The Dominican Republic is a nation on the island of La Hispaniola, part of the Greater Antilles archipelago in the Caribbean region. The western third of the island is occupied by the nation of Haiti, making Hispaniola one of two Caribbean islands that are shared by two countries...
joined the negotiations, and the agreement was renamed DR-CAFTA.
DR-CAFTA together with the North American Free Trade Agreement
North American Free Trade Agreement
The North American Free Trade Agreement or NAFTA is an agreement signed by the governments of Canada, Mexico, and the United States, creating a trilateral trade bloc in North America. The agreement came into force on January 1, 1994. It superseded the Canada – United States Free Trade Agreement...
(NAFTA) and active bilateral free trade agreements, including the Canada-Costa Rica Free Trade Agreement
Canada-Costa Rica Free Trade Agreement
The Canada-Costa Rica Free Trade Agreement is a free trade agreement between Costa Rica and Canada. It was signed on April 23, 2001 in Ottawa, Ontario, and came into effect on November 1, 2002. It is the first bilateral free trade agreement to include innovative stand-alone procedures on trade...
, are seen as bloc agreements instead of a Free Trade Area of the Americas
Free Trade Area of the Americas
The Free Trade Area of the Americas , , ) was a proposed agreement to eliminate or reduce the trade barriers among all countries in the Americas but Cuba. In the last round of negotiations, trade ministers from 34 countries met in Miami, United States, in November 2003 to discuss the proposal...
(FTAA) agreement. Panama has completed negotiations with the US for a bilateral free trade agreement (ratification of which is pending), and Belize
Belize
Belize is a constitutional monarchy and the northernmost country in Central America. Belize has a diverse society, comprising many cultures and languages. Even though Kriol and Spanish are spoken among the population, Belize is the only country in Central America where English is the official...
is a member of the Caribbean Community
Caribbean Community
The Caribbean Community is an organisation of 15 Caribbean nations and dependencies. CARICOM's main purposes are to promote economic integration and cooperation among its members, to ensure that the benefits of integration are equitably shared, and to coordinate foreign policy...
(CARICOM). Haiti
Haiti
Haiti , officially the Republic of Haiti , is a Caribbean country. It occupies the western, smaller portion of the island of Hispaniola, in the Greater Antillean archipelago, which it shares with the Dominican Republic. Ayiti was the indigenous Taíno or Amerindian name for the island...
, also a CARICOM member, was expected to be given certain additional trade preference
Trade Preference
A Trade Preference is when one country prefers buying goods from some other country more than it would from other countries. It grants special support to one country over another. It is the opposite of a Trade Prohibition.-See also:*Trade Mandate...
s with the US under the Haitian Hemispheric Opportunity through Partnership Encouragement Act before Congress adjourned during 2006.
Ratification
United States Constitution
The Constitution of the United States is the supreme law of the United States of America. It is the framework for the organization of the United States government and for the relationship of the federal government with the states, citizens, and all people within the United States.The first three...
. In the U.S., 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
United States Senate
The United States Senate is the upper house of the bicameral legislature of the United States, and together with the United States House of Representatives comprises the United States Congress. The composition and powers of the Senate are established in Article One of the U.S. Constitution. Each...
approved the DR-CAFTA on June 30, 2005 by a vote of 54–45, and the United States House of Representatives
United States House of Representatives
The United States House of Representatives is one of the two Houses of the United States Congress, the bicameral legislature which also includes the Senate.The composition and powers of the House are established in Article One of the Constitution...
approved the pact on July 27, 2005 by a vote of 217–215, with two representatives not voting. Controversy arose over this vote because it was held open 1 hour and 45 minutes longer than the normal 15 minutes in order to get some members to change their votes. 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
Joe Lieberman
Joseph Isadore "Joe" Lieberman is the senior United States Senator from Connecticut. A former member of the Democratic Party, he was the party's nominee for Vice President in the 2000 election. Currently an independent, he remains closely affiliated with the party.Born in Stamford, Connecticut,...
—who had been absent on June 30—in favor of the agreement. The implementing legislation became Public Law
Public law
Public law is a theory of law governing the relationship between individuals and the state. Under this theory, constitutional law, administrative law and criminal law are sub-divisions of public law...
109-053 when it was signed by President George W. Bush
George W. Bush
George Walker Bush is an American politician who served as the 43rd President of the United States, from 2001 to 2009. Before that, he was the 46th Governor of Texas, having served from 1995 to 2000....
on August 2, 2005.
The Dominican Republic, Costa Rica, El Salvador, Guatemala, Nicaragua and Honduras have also approved the agreement. They are all the current members of DR-CAFTA.
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
Organization of American States
The Organization of American States is a regional international organization, headquartered in Washington, D.C., United 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 necessary implementation laws have been approved and the agreement took effect January 1, 2009.
Aims
The goal of the agreement is the creation of a free trade areaFree trade area
A free trade area is a trade bloc whose member countries have signed a free trade agreement , which eliminates tariffs, import quotas, and preferences on most goods and services traded between them. If people are also free to move between the countries, in addition to FTA, it would also be...
, 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 FTAA, another (more ambitious) free trade agreement that would encompass all the South American and Caribbean
Caribbean
The Caribbean is a crescent-shaped group of islands more than 2,000 miles long separating the Gulf of Mexico and the Caribbean Sea, to the west and south, from the Atlantic Ocean, to the east and north...
nations as well as those of North and Central America except Cuba
Cuba
The Republic of Cuba is an island nation in the Caribbean. The nation of Cuba consists of the main island of Cuba, the Isla de la Juventud, and several archipelagos. Havana is the largest city in Cuba and the country's capital. Santiago de Cuba is the second largest city...
. Canada is negotiating a similar treaty called the Canada Central American Free Trade Agreement
Canada Central American Free Trade Agreement
The Canada Central American Free Trade Agreement is a proposed free trade agreement between Canada and the Central American states of Guatemala, El Salvador, Honduras, and Nicaragua, collectively referred to as the CA4. Canada already has a bilateral FTA with Costa Rica.The U.S...
.
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
Caribbean Basin Initiative
The Caribbean Basin Initiative was a unilateral and temporary United States program initiated by the 1983 "Caribbean Basin Economic Recovery Act" . The CBI came into effect on January 1, 1984 and aimed to provide several tariff and trade benefits to many Central American and Caribbean countries....
.
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 US$15 billion of goods a year. Two-way trade amounts to about US$32 billion annually.
While not necessarily a part of Plan Puebla Panama
Plan Puebla Panama
The Puebla-Panama Plan is a multi-billion dollar development plan formally initiated in 2001, which is intended to "promote the regional integration and development" of the nine southern states of Mexico with all of Central America and Colombia...
, CAFTA is a necessary precursor to the execution of Plan Puebla Panama by the Inter-American Development Bank
Inter-American Development Bank
The Inter-American Development Bank is the largest source of development financing for Latin America and the Caribbean...
. The plan includes construction of highways linking Panama City
Panama City
Panama is the capital and largest city of the Republic of Panama. It has a population of 880,691, with a total metro population of 1,272,672, and it is located at the Pacific entrance of the Panama Canal, in the province of the same name. The city is the political and administrative center of the...
to Mexico City, Texas
Texas
Texas is the second largest U.S. state by both area and population, and the largest state by area in the contiguous United States.The name, based on the Caddo word "Tejas" meaning "friends" or "allies", was applied by the Spanish to the Caddo themselves and to the region of their settlement in...
, 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.
Support
US PresidentPresident of the United States
The President of the United States of America is the head of state and head of government of the United States. The president leads the executive branch of the federal government and is the commander-in-chief of the United States Armed Forces....
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 May 28, 2004, United States Trade Representative Robert Zoellick
Robert Zoellick
Robert Bruce Zoellick is the eleventh president of the World Bank, a position he has held since July 1, 2007. He was previously a managing director of Goldman Sachs, United States Deputy Secretary of State and U.S. Trade Representative, from February 7, 2001 until February 22, 2005.President...
, Costa Rica
Costa Rica
Costa Rica , officially the Republic of Costa Rica is a multilingual, multiethnic and multicultural country in Central America, bordered by Nicaragua to the north, Panama to the southeast, the Pacific Ocean to the west and the Caribbean Sea to the east....
n 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
Organization of American States
The Organization of American States is a regional international organization, headquartered in Washington, D.C., United 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.
Opposition
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.
Since pro-globalization US administration officials have been pushing to pass CAFTA, they faced little opposition to CAFTA among members of their party. Ron Paul
Ron Paul
Ronald Ernest "Ron" Paul is an American physician, author and United States Congressman who is seeking to be the Republican Party candidate in the 2012 presidential election. Paul represents Texas's 14th congressional district, which covers an area south and southwest of Houston that includes...
opposes CAFTA out of fears of eroding national sovereignty.
Ratification of CAFTA by Nicaragua coincided with the announcement of an end to a political crisis whereby the Nicaraguan Liberal
Constitutional Liberal Party
The Constitutionalist Liberal Party is an opposition political party in Nicaragua. At the legislative elections, held on 5 November 2006, the party won 25 of 92 seats in the National Assembly....
and Sandinista parties ended an impeachment process of President Enrique Bolaños
Enrique Bolaños
Enrique José Bolaños Geyer was the President of Nicaragua from 10 January 2002 to 10 January 2007. President Bolaños is of Spanish and German heritage and was born in Masaya ....
. The previous week, the US had threatened to withhold US$175 million in aid to Nicaragua if Bolaños was impeached.
Prominent among the critics of CAFTA is economist Joseph Stiglitz, who 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 that they are not free-trade agreements.
Provisions
CAFTA-DR encompasses the following components:- Cross-border trade in services: Each member country must treat service suppliers of another member country no less favorably than its own suppliers or those of any other member country. The Agreement requires firms to establish a local presence as a condition for supplying a service on a cross-border basis.
- Financial services: CAFTA-DR imposes rules requiring member countries to treat service suppliers of another member country no less favorably than its own suppliers or those of any other country, prohibits certain quantitative restrictions on market access of financial institutions, and bars restrictions on the nationality of senior management.
- Investment: CAFTA-DR establishes rules to protect investors from one member country against unfair or discriminatory government actions when they make or attempt to make investments in another member country's territory. Investors enjoy six basic protections: (1) non-discriminatory treatment relative to domestic investors as well as investors of non-Parties; (2) limits on “performance requirements”; (3) free transfer of funds related to an investment; (4) protection from expropriation other than in conformity with customary international law; (5) a “minimum standard of treatment” in conformity with customary international law; (6) and the ability to hire key managerial personnel without regard to nationality.
- Government procurement: Each member country must apply fair and transparent procurement procedures and rules and prohibiting each government and its procuring entities from discriminating in purchasing practices against goods, services, and suppliers from the other member countries.
- Market access: Governments pledge to reduce and eventually eliminate tariffs and other measures that protectProtectionismProtectionism is the economic policy of restraining trade between states through methods such as tariffs on imported goods, restrictive quotas, and a variety of other government regulations designed to allow "fair competition" between imports and goods and services produced domestically.This...
domestic products. - Agriculture: CAFTA-DR requires that tariffs and quotas be administered in a manner that is transparent, nondiscriminatory, responsive to market conditions and minimally burdensome on trade and allows importers to fully utilize import quotas. Each member country will eliminate export subsidies on agricultural goods destined for another CAFTA-DR country.
- Intellectual property rights: Member countries are obligated to ratify or accede to several international agreements on intellectual property rights, like, for example, the WIPO Copyright Treaty. Each member country must provide protection for marks and geographical indications, including protecting preexisting trademarks against infringement by later geographical indications. Member countries must provide efficient and transparent procedures governing the application for protection of marks and geographical indications. Each member country must provide copyright protection for the life of the author plus 70 years (for works measured by a person's life), or 70 years (for corporate works). The Agreement also includes provisions on anticircumvention, under which member countries commit to prohibit tampering with technology used to protect copyrighted works. Member countries agree to make patents available for any invention, subject to limited exclusions, and confirm the availability of patents for new uses or methods of using a known product. To guard against arbitrary revocation of patents, each member country must limit the grounds for revoking a patent to the grounds that would have justified a refusal to grant the patent.
- Antidumping and countervailing rights: Antidumping and countervailing duty measures may not be challenged under the Agreement’s dispute settlement procedures.
- Dispute resolution: If a dispute over an actual or proposed national rule cannot be resolved after a 30-day consultation, the matter may be referred to a panel comprising independent experts that the parties select. Once the procedure before the panel is concluded, the panel will issue a report. The parties will attempt to resolve the dispute based on the panel's report. If no amicable resolution is possible, the complaining party may suspend trade benefits equivalent in effect to those it considers were impaired, or may be impaired, as a result of the disputed measure. If a dispute arises under both CAFTA-DR and the WTO Agreement, the complaining party may choose either forum.
- Environmental protection: CAFTA-DR contains provisions for the enforcement of environmental laws and improvement of the environment. The CAFTA-DR Environmental Cooperation Agreement, signed in concert with the FTA, provides for environmental cooperation on issues of mutual environmental concern.
- Labor standards: CAFTA-DR contains provisions for the enforcement of the International Labour OrganizationInternational Labour OrganizationThe International Labour Organization is a specialized agency of the United Nations that deals with labour issues pertaining to international labour standards. Its headquarters are in Geneva, Switzerland. Its secretariat — the people who are employed by it throughout the world — is known as the...
's core labor standards. - TransparencyTransparency (humanities)Transparency, as used in science, engineering, business, the humanities and in a social context more generally, implies openness, communication, and accountability. Transparency is operating in such a way that it is easy for others to see what actions are performed...
: Parties are obligated to make it a criminal offense to offer or accept a bribe in exchange for favorable government action in matters affecting international trade or investment. - Test data exclusivityTest data exclusivityTest data exclusivity refers to protection of clinical test data required to be submitted to a regulatory agency to prove safety and efficacy of a new drug, and prevention of generic drug manufacturers from relying on this data in their own applications...
for pharmaceutical corporations: CAFTA-DR protects test data that a company submits in seeking marketing approval for such products by precluding other firms from relying on the data.
External links
- Official U.S. Government CAFTA-DR website
- CAFTA-DR Environmental Cooperation Website includes links to CAFTA-DR Environmental Cooperation Agreement
- "The Case for CAFTA: Consolidating Central America's Freedom Revolution" 2004 CATO InstituteCato InstituteThe Cato Institute is a libertarian think tank headquartered in Washington, D.C. It was founded in 1977 by Edward H. Crane, who remains president and CEO, and Charles Koch, chairman of the board and chief executive officer of the conglomerate Koch Industries, Inc., the largest privately held...
whitepaper - Costa Rica CAFTA protest report, 24 October 2006
- "Vivir la lucha como una fiesta" - Video about the cultural movement against DR-CAFTA in Costa Rica
- CAFTA-DR: Can Free Trade Hold Up to Special Interest Siege? (CEI, 2005) by Frances B. Smith
- Global Trade Watch anti-CAFTA website
- Citizens' Trade Campaign anti-CAFTA website
- "CAFTA: Last Nail in the Coffin?" by Pat BuchananPat BuchananPatrick Joseph "Pat" Buchanan is an American paleoconservative political commentator, author, syndicated columnist, politician and broadcaster. Buchanan was a senior adviser to American Presidents Richard Nixon, Gerald Ford, and Ronald Reagan, and was an original host on CNN's Crossfire. He sought...
, The American ConservativeThe American ConservativeThe American Conservative is a monthly U.S. opinion magazine published by Ron Unz. Its first editor was Scott McConnell, his successors being Kara Hopkins and the present incumbent, Daniel McCarthy....
, May 9, 2005. - "DR-CAFTA, Textiles, and Apparel" 2005 Congressional Research Service Report
- "Central America and the Dominican Republic in the Context of the Free Trade Agreement (DR-CAFTA) with the U.S." 2005 Congressional Research Service Report
- "DR-CAFTA Labor Rights Issues" 2006 Congressional Research Service Report
- "The Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR)" 2009 Congressional Research Service Report
- TradeRoots U.S. Chamber of Commerce FTA advocacy website
- CAFTA-US TEXTILE AND COTTON TRADE PROSPECTS: THE CHINA EFFECT (2006 study)
- House approves CAFTA, Michigan and Ohio Democrats blast it as bad deal (2005 Associated PressAssociated PressThe Associated Press is an American news agency. The AP is a cooperative owned by its contributing newspapers, radio and television stations in the United States, which both contribute stories to the AP and use material written by its staff journalists...
news report)