Unlike the Caribbean Basin Initiative, FTA doesn’t require renewal, gives preferential access to US goods – by Bill Armbruster, blog anchor.
“You hafta have CAFTA,” was a mantra in trade circles during the mid-2000s as the Bush administration negotiated the Central America Free Trade Agreement and then pushed it through Congress. The deal, known as DR-CAFTA, covers US trade with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.
Census Bureau statistics show that it’s been a winner for US exporters. Merchandise exports to the five Central American nations in CAFTA totaled $23.1 billion last year, up from $12.7 billion in 2005, the year before it took effect in most countries. That represents an 82% increase, slightly higher than the overall increase of 72% in worldwide US merchandise exports during those same years, which rose from $900 billion to $1.55 billion.
A separate FTA with Panama took effect last October. Exports there totaled $5.5 billion in the fourth quarter of 2012 and the first quarter of 2013, a 17% increase over the $4.7 billion in the same periods in 2011 and 2012. Panama is by far the largest market in Central America due both to its role as a trade hub and major infrastructure projects, particularly the Panama Canal expansion. Exports to Panama totaled $10 billion last year, a fivefold increase over the $2 billion in 2005. [See my column on Panamanian Prospects.]
The US has benefited far more from the FTA than its CAFTA partners, according to Francisco Gonzalez of Johns Hopkins University’s School of Advanced International Studies. “For the US, the agreement gave preferential access for its products into these economies, which had not been asked to lower their tariffs for US goods under the Caribbean Basin Initiative,” he noted.
Because the markets in Central America are small, the Commerce Department advises exporters to consider taking a regional approach and finding a regional distributor who may be able to reduce costs and sell more efficiently.
[For more advice to exporters, read my interview with the Commerce Department.]
About 80% of the imports from Central America that have arrived duty-free since 2006 were already enjoying similar status since 1984 under the CBI. However, the CBI has to be reapproved by Congress every few years. CAFTA solved that problem for the Central American nations by making the trade benefits permanent, Gonzalez noted.
The FTA barely touched the quota on sugar, a potentially huge export for many countries, due to the powerful US sugar lobby. When the quota reductions take full effect in 2020, sugar imports from the DR-CAFTA nations will be limited to just 1.7% of annual US production.
Barbara Kotschwar, a Latin America specialist with the Petersen Institute for International Economics, pointed out that CAFTA has spurred intra-regional trade. Exports among CAFTA nations grew an average of 10% annually between 2005 and 2011, even more than the 8% annual rate for CAFTA exports to the US.
“CAFTA forced Central American countries to negotiate together and to further integrate their market. If CAFTA helps Central American countries overcome some of their gaps in infrastructure and bolster their competitiveness, then it should be seen as a success” for them, she noted.
I believe that will help US exporters because faster economic growth will increase the market for US goods.
Bill Armbruster, the anchor for the Datamyne Blog has covered shipping and trade for 30 years as a reporter and editor with The Journal of Commerce and Shipping Digest. “I’ll be blogging on headline news and current issues in oceangoing commerce, trying to shed some light on the backstories and, wherever I can, supply some sound advice for shippers.” Write Bill care of [email protected]
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