The Central America-Dominican Republic-United States Free Trade Agreement, which was signed on August 5, 2004, is designed to eliminate tariffs and trade barriers and expand regional opportunities for the workers, manufacturers, consumers, farmers, ranchers and service providers of all the countries. CAFTA-DR immediately eliminates tariffs on more than 80 percent of U.S. exports of consumer and industrial products, phasing out the rest over 10 years. Eighty percent of CAFTA-DR imports already enter the United States duty free under the Caribbean Basin Initiative, Generalized System of
Preferences and Most Favored Nation programs; the CAFTA-DR provides reciprocal access for U.S. products and services.
In addition to tariff reduction, CAFTA-DR provides new market access for U.S. consumer and industrial products and agricultural products. It also provides unprecedented access to government procurement in the partner countries, liberalizes the services sectors, protects U.S. investments in the region, and strengthens protections for U.S. patents, trademarks, and trade secrets. The Agreement covers customs facilitation and provides benefits to small and medium-sized exporters.
Imagine an export market of nearly 46 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 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 the recently implemented free trade agreement, an area to which more than 80 percent of U.S. goods can now be imported – duty-free.
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. It should be noted that Costa Rica has not yet approved the agreement, which will be the subject of a national referendum this month.
Introduction to the CAFTA-DR market
Central America connects to the Colombian Pacific Lowlands in northwestern South America. Alternatively, the Trans-Mexican Volcanic Belt delimits the region on the north. Central America has an area of some 592,000 square kilometers (367 851.746 miles).
The Pacific Ocean lies to the southwest, the Caribbean Sea lies to the northeast, and the Gulf of Mexico lies to the north.
Central America has a population of nearly 36.5 million add to that the Dominican Republic and the population for the CAFTA-DR Region is nearly 45.8 million people and an aggregate GDP of nearly $160 billion. The United States is Central America's biggest trading partner exporting nearly $19.6 billion in goods to Central America in 2006, more than U.S. exports to Russia, India and Indonesia combined. Two-way trade was over $32 billion in 2006. This strong trading partnership helped to increase Central America's 2004 per capita income of about $1,240.
Strengthening Honduras' IPR protection regime to conform with and in many areas exceed WTO norms. CAFTA-DR obligations also provide stronger deterrence to piracy and counterfeiting by criminalizing end-user piracy and requiring Honduras to authorize the seizure, forfeiture, and destruction of counterfeit and pirated goods and the equipment used to produce them.
U.S. Investment in Honduran Financial Sector: CAFTA has expanded regional opportunities for financial service providers, particularly in the commercial banking sector.
Implementation of this FTA has encouraged U.S. corporate groups such as GE Finance and Citigroup to finalize important acquisitions as part of their expansion strategies for emerging markets. The country is committed to promote regulatory transparency in financial services, and banking supervision has also been strengthened through Honduras’ National Banking Commission.
In an effort to facilitate dissemination of public bidding opportunities, the Honduran government recently established an online Contracting and Procurement Information System known as "Honducompras", where companies can obtain information on
Product or service requirements for different government agencies whether it be at the national, departmental, or municipal level.
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.
In Guatemala CAFTA has been in the vision of investors for more than 5 years. Investors are establishing a presence and increasing their operations in Guatemala as a platform to the largest market in the region, the largest port of entry to the SE of Mexico, Central America and a great location to take advantage of the access that DR-CAFTA offers to the U.S.
Companies like WalMart are increasing their holdings in the last year. GE Capital and Citibank have set up operations not only in Guatemala and Honduras but also in all of Central America. Citibank strategically bought Banco Uno for their credit cards portfolio and Banco Cuscatlán for the corporate business portfolio. GE Capital bought BAC with a large regional presence and the largest presence in Guatemala. They will be focusing on housing development in the region.
According to US Ambassador to Guatemala James Derham Guatemala has become a very attractive destination for foreign companies seeking to operate and sell in Central America. It is expected that direct investments in Guatemala for 2007 will reach 570 million dollars compared to the 325 million dollars generated in 2006 and the 208 million in 2005.
Guatemala has the second largest economy ($37.9 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.
El Salvador’s inward investment agency, PROESA reported that from June 2004 to May 2006, El Salvador attracted 56 foreign companies that created $242.8 million in investment and 13,850 jobs, according to the National Agency for Investment Promotion of El Salvador most of the investments came from the textile and garment industries, in which 33 companies created $172 million in investment and 7,233 jobs. Four electronics/auto parts makers created $22 million in investment and 3,000 jobs; 10 call center/business process outsourcing/ software development firms created $17.1 million in investment and 2,418 jobs; three agro industry firms created $16.5 million in investment and 554 jobs; and five distribution centers invested $12.2 million and created 575 jobs. And the businesses keep coming.
Saturn announced it would invest $2 million in an auto components operation in El Salvador, creating 500 jobs.
Saturn’s Vice- president of Operations Mario Okubo
“We found in El Salvador competitive and stable labor, a labor market open to foreign investment, and government plans and private initiative well focused on investment attraction,” said Okubo. CAFTA-DR also contributed to Saturn’s choice of El Salvador, according to the VP of Operations.
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.
Nicaragua appears to be the early winner in attracting new investment interest as a result of the CAFTA hope, low labor costs, and relative personal security. U.S. Cone Denim has planned a $100 million textile investment (yarn of US origin) that will create numerous jobs in Nicaragua, with other companies looking at the country thanks to the attention CAFTA has brought.
Nicaragua offers considerable business opportunities in the tourism sector that are augmented by attractive tax incentives. Nicaragua 's emerging tourism industry allows for good opportunities for those entrepreneurs who are willing to make a long-term investment.
The Millennium Challenge Corporation Compact, with a total value of $175 million, was signed by the US and Nicaraguan governments in July 2005, and it promises to upgrade transportation infrastructure both along the Pacific Corridor highway and among rural secondary roads in order to provide better links between producers and commercial markets.
Besides tourism investment there are other market opportunities in the following sectors: vehicles, auto parts and equipment, construction equipment and materials, consumable goods, computer equipment and peripherals, telecommunication equipment and services, medical and dental equipment, agricultural inputs, food processing and refrigeration equipment, wheat, yellow corn for animal feed, and rice.
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.
Costa Rica used to be known principally as a producer of bananas and coffee. Its principal exports are still listed as coffee, bananas, cocoa, sugar, lumber, wood products and beef. In recent years, however the country has successfully attracted important investments by such companies as Intel Corporation, which employs nearly 2,000 people at its custom built $300 million microprocessor plant; Procter & Gamble, which is establishing its administrative center for the Western Hemisphere in Costa Rica; and Abbott Laboratories and Baxter Healthcare from the health care products industry likewise. Manufacturing and industry's contribution to GDP overtook agriculture over the course of the 1990s, led by foreign investment in Costa Rica's free trade zones. Well over half of that investment has come from the U.S. Tourism also is booming, with the number of visitors up from 780,000 in 1996 through more than 1 million in 1999 to 1.5 million by 2004. Tourism now earns more foreign exchange than bananas and coffee combined.
The country has not discovered sources of fossil fuels--apart from minor coal deposits-- but its mountainous terrain and abundant rainfall have permitted the construction of a dozen hydroelectric power plants, making it self-sufficient in all energy needs, except oil for transportation. Costa Rica exports electricity to Central America and has the potential to become a major electricity exporter if plans for new generating plants and a regional distribution grid are realized. Mild climate and trade winds make neither heating nor cooling necessary, particularly in the highland cities and towns where some 90% of the population lives.
Costa Rica boasts the second largest per capita income after El Salvador 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.
The United States remains a vital economic and cultural partner of the Dominican Republic, with over one million Dominicans residing in the US. The U.S. and the Dominican Republic enjoy a very strong commercial relationship. Bilateral trade amounted to US $9.3 billion in 2005. This represents United States exports totaling US$4.7 billion and imports from the Dominican Republic totaling US$4.6 billion. Representing a 60% market share for U.S. goods. In the Western Hemisphere, the Dominican Republic is the seventh largest trading partner of the United States (following Canada, Mexico, Brazil, Venezuela, Chile and Colombia). Furthermore, the Dominican Republic is the 28th largest commercial partner of the United States in the world. During the past two administrations, the government has increasingly adopted policies directed toward economic liberalization, including privatizing most state-owned enterprises, improving intellectual property rights protection, and working constructively in multilateral form, such as the World Trade Organization (WTO), the Free Trade Area of the Americas (FTAA) and DR's recent inclusion in the Central American Free Trade Agreement.
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.
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
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.
The CAFTA-DR region, as an export destination, represented the largest market for the state of Florida in
2006. In addition, CAFTA-DR was the second largest export market for North Carolina, fifth largest for both Louisiana and Mississippi, seventh largest for Georgia, and eighth largest for New Mexico and Alabama.
Florida was the largest state exporter to the CAFTA-DR region in 2006, shipping $3.8 billion worth of merchandise (19 percent, or almost one-fifth, of the U.S. total to the region). Florida was followed by Texas ($2.5 billion, or 13 percent of the U.S. total), then by North Carolina ($1.8 billion, or 9 percent of the U.S. total), Louisiana ($1.7 billion, or almost 9 percent), and California, New York and Georgia, each with over $700 million, or nearly 4 percent each of the U.S. total.
In dollar terms, Texas’ exports to the CAFTA-DR region grew the most of any states’ in 2006 compared to 2005, increasing by $495 million. Other states that had the largest dollar increases were Florida (up $459 million in 2006), Louisiana (up $352 million), Oregon (up $340 million), New York (up $180 million), North Carolina (up $159 million), and Arizona (up $113 million). In percentage terms, several states with modest 2005 base values had the fastest growth to the CAFTA-DR countries in 2006, led by Hawaii (up 2,377 percent), Alaska (1,487 percent), Wyoming (208 percent), and South Dakota (158 percent). Other states with substantial percentage increases in 2006 include: Kansas (121 percent), Oregon (120 percent), Washington (88 percent), Arizona (72 percent), Colorado (59 percent), Nevada (51 percent), Nebraska (48 percent), New Hampshire (45 percent), Idaho (37 percent), Rhode Island (37 percent), Iowa (36 percent), and New York (33 percent).
Telecommunications equipment and Services
Security and Safety Equipment
Automotive Parts / Service Equipment
Textile Machinery, Equipment and fabrics
Food Processing and Packaging
Computer and Peripherals
Electrical Power Systems and Components
Hotel and Restaurant Equipment
Consumer-Oriented Products, Wheat, Rice, Corn, Soybeans
Automotive Parts and Service Equipment
Electrical Power Systems
Textile Fabrics and Machinery
Travel and Tourism
Agricultural, Food Processing and Refrigeration Equipment
Corn (for animal feed)
Vehicles, Auto Parts and Equipment
Construction Equipment and Materials
Automotive: Accessories and Service Equipment
Food processing and Packaging
Construction Equipment and Building Products
Hotel and Restaurant Equipment
Computers and Peripherals
Apparel: Textile Machinery and Supplies
Electric Power Systems
Consumer-Oriented Products, Wheat, Rice, Corn, Soybeans
Automotive Parts and Service Equipment
Electrical Power Systems
Textile Fabrics and Machinery
Travel and Tourism
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 Economic Section of the U.S. Embassy represents the Commercial Service in Nicaragua.) 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.
Contours Express (Fitness Centers for Women)
"I attended a Gold Key program last December (2005) in Central America on behalf of and in my capacity as President of Contours Express International. I am writing to report to you how extremely impressed and pleased I was with the extra efforts and complete professionalism from each one of the commercial specialists from your offices in Guatemala, El Salvador, and Costa Rica. The marketing counsel that I received from each specialist certainly paid off more than any other previous Gold Key program. We not only had a full list of qualified candidates for each day from each country, but we also had a waiting list on call in the event of cancellations! The meetings were all well organized and each of the candidates with whom I met had been briefed on the nature of our business, which saved valuable time in our short meetings.
Softee Supreme Diaper Corporation
Softee Supreme Diaper Corporation, a small to medium-sized company located in Decatur, Georgia, is a manufacturer and marketer of quality disposable baby diapers. The Commercial Service in Central America and the Atlanta Export Assistance Center helped introduce the company to potential buyers in the CAFTA region. Softee Supreme has benefited from the tariff reduction as a result of CAFTA and has reported significant export sales in the region.
The HACH Company
The HACH Company, located in Loveland, Colorado, provides advanced analytical water quality instrumentation and systems and technical support for water quality testing. International Sales Director Hermes Gonzalez participated in the CAFTA Business Development Mission led by Secretary Gutierrez in October 2005, the first trade mission to the region following the approval of the Agreement by the U.S. Congress that summer. The U.S. Commercial Service in Central America and the Denver Export Assistant Center provided additional follow-up support to HACH’s marketing efforts. The company reported significant export sales during 2006 to water and environmental authorities in Guatemala and El Salvador. CAFTA secured duty-free treatment for laboratory and analytical instrumentation, which should continue to make the region an attractive market for the products supplied by the HACH Company.
PriceSmart Inc., headquartered in San Diego, California, owns and operates U.S.-style membership shopping warehouse clubs in Central America and the Caribbean, selling high quality merchandise at low prices to PriceSmart members. CAFTA-DR has provided a strong boost to PriceSmart's sales in Central America. For example, at the two warehouse clubs in El Salvador, sales of half of the top twenty U.S. imports have increased by 30 percent or more, with the increase significantly correlated to duty savings resulting from CAFTA-DR. Not only is PriceSmart’s business benefiting from CAFTA-DR, but even more Central American consumers are enjoying quality products at even lower prices.