Everything about Cafta totally explained
» 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 agreement (legally a
treaty under international law, but not under US law). Originally, the agreement encompassed the
United States and the
Central American countries of
Costa Rica,
El Salvador,
Guatemala,
Honduras, and
Nicaragua, and was called CAFTA. In 2004, the
Dominican Republic joined the negotiations, and the agreement was renamed DR-CAFTA.
DR-CAFTA together with
NAFTA and active bilateral Free Trade Agreements including: Canada-Costa Rica. Panama has completed negotiations with the US for a bilateral free trade agreement (ratification of which is pending), and Belize is a member of the Caribbean Community (
CARICOM). Haiti, also a CARICOM member, was expected to be given certain additional trade preferences with the US under the Haitian Hemispheric Opportunity through Partnership Encouragement Act before Congress adjourned during 2006.
Ratification
The agreement is a
treaty under international law, but not under the
United States Constitution. In the US, 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 approved the DR-CAFTA on
June 30 2005 by a vote of 54-45, and the
United States House of Representatives approved the pact on
July 27 2005 by a vote of 217-215, with two representatives not voting. 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 — who had been absent on
June 30 — in favor of the agreement. The implementing legislation became
Public Law 109-053 when it was signed by President
George W. Bush on
August 2,
2005.
The Dominican Republic, El Salvador, Guatemala, Nicaragua, Honduras, and Costa Rica 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 (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.
Aims
The goal of the agreement is the creation of a
free trade area, 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
Free Trade Area of the Americas (FTAA), another (more ambitious) free trade agreement that would encompass all the
South American and
Caribbean as well as those of North and Central America nations except
Cuba. Canada is negotiating a similar treaty called the
Canada Central American Free Trade Agreement.
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 doesn't 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.
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 $15 billion
U.S. dollars of goods a year. Two-way trade amounts to about USD$32 billion annually.
While not necessarily a part of
Plan Puebla Panama, CAFTA is a necessary precursor to the execution of Plan Puebla Panama by the
Inter-American Development Bank. The plan includes construction of highways linking Panama City to Mexico City, Texas, 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 President 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
February 20,
2004, Bush informed the US Congress he supported CAFTA. On
May 28,
2004,
United States Trade Representative Robert Zoellick,
Costa Rican 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. 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.
Robert Zoellick and lobbyists such as the US
National Association of Wheat Growers claim the agreement will open new markets to US manufacturers, and help the Central American nations modernize their economies, create worker rights protections that will enforce and improve
labor laws, and improve environmental standards. DR-CAFTA is endorsed by the
U.S. High-Tech Trade Coalition, 52 food and agriculture organizations,
Microsoft, the
National Association of Manufacturers, the
National Foreign Trade Council,
Citizens Against Government Waste, the
Heritage Foundation, the
US Chamber of Commerce, and several Central American environmental organizations including Caribbean Conservation Corporation, Global Alliance for Humane Sustainable Development, and the Honduran Ecologist Network for Sustainable Development.
Some supporters maintain that CAFTA will prevent the
People's Republic of China from gaining influence, preventing an
encirclement of the US.
Also, most economists tend to support free trade. They might disagree on the proper role and size of the government, but free trade is generally considered a win-win situation. The main critique from economists is that bilateral and regional free trade agreements might undermine the push for a global trade agreement through the
WTO — which has greater potential for increasing total social welfare since all members of the WTO would be bound by its terms. Some economists, however, point out that the familiar "win-win" free trade model assumes parity between trading partners, lack of subsidies or other market warping policies on either side, and full employment on both sides.
Opposition
Public Citizen, the U.S. advocacy group founded by
Ralph Nader, says DR-CAFTA is based on the same "failed
neoliberal model" as
NAFTA and serves to "push ahead the corporate
globalization model that has caused the 'race to the bottom' in labor and environmental standards and promotes privatization and deregulation of key public services." Public Citizen claims that independent farmers in the US, Canada and Mexico have been hit particularly hard by NAFTA, with thousands wiped out and farmland shifting into the hands of huge
agribusiness concerns such as
Tyson Foods and
Cargill.
Many environmental groups are opposed to the agreement, including the U.S. based
Sierra Club,
EnviroCitizen and the
Safe Earth Alliance.
Another worry is that the U.S.'s historical dominance of the Central American domestic product market would expand under reduced taxes, "
crowding out" local businesses due to their inability to compete on
economies of scale. Supporters of this view claim that depressing the delicate native innovative
capacity of Central American firms would force Central American consumers into US
product dependency.
In May 2004 the
Salvadoran American National Network, the largest national association of Central American community-based organizations in the U.S., along with other organizations representing Central American immigrants to that country, expressed its opposition to CAFTA, saying:
» Our opposition to CAFTA isn't ideological. As immigrants, we've a deep understanding of the potential benefits of improved transnational cooperation. We would welcome an agreement that would increase economic opportunity, protect our shared environment, guarantee workers' rights and acknowledge the role of human mobility in deepening the already profound ties between our countries. However, the CAFTA agreement falls far short of that vision.
Public health organizations oppose CAFTA's provisions for "
test data exclusivity" for pharmaceuticals, because they say that it would prevent poor people from receiving life-saving medications. In most countries, drug companies must test drugs on human subjects and submit data to regulatory agencies demonstrating the drug's safety and effectiveness. When the patent expires on brand name drugs, generic drug companies manufacture a cheaper version of the drug, and cite the same data as proof of the drug's safety and effectiveness. 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'd 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.
The transfer of authority contained in CAFTA to various supranational and UN entities such as the
Codex Alimentarius, the
World Trade Organization (WTO), and the
International Labour Organization (ILO) was one of the key reasons CAFTA had been deliberated on since January 2003. While pro-globalization US administration officials have been pushing to pass CAFTA they only barely were able to rally key Republican members of the House to their side who opposed CAFTA on grounds of preserving national sovereignty. Further, Congressman
Ron Paul opposes CAFTA due to it being
unconstitutional.
Ratification of
CAFTA by
Nicaragua coincided with the announcement of an end to a political crisis whereby the Nicaraguan
Liberal and
Sandinista parties ended an impeachment process of President
Enrique Bolaños. The previous week, the US had threatened to withhold US$175 million in aid to Nicaragua if Bolaños were impeached.
Prominent among the critics of CAFTA is economist
Joseph Stiglitz, who argues that without fairer trade agreements, the benefits from trade won't 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 don't 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're not free-trade agreements. More generally, he argues that bilateral agreements fail to produce all the benefits expected, in part because of the inequality of the negotiating position of the parties involved.
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 protect domestic products.
- Agriculture: CAFTA-DR requires that tariffs and quotas be administered in a manner that's 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
- 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 can't 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.
- Labor standards: CAFTA-DR contains provisions for the enforcement of the International Labour Organization's core labor standards.
- Transparency: 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 exclusivity 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
Articles and papers
BTA supports trade agreement (Del Rio News Herald)
Further Information
Get more info on 'Cafta'.
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