The Free Trade Agreement between Dominican Republic, Central America and the United States, formerly known as CAFTA, is now referred to as DR-CAFTA since 2004 when Dominican Republic joined the negotiations for the treaty. This free trade agreement represents the elimination of all tariffs imposed on almost all trade between these countries and other stipulations that support free markets and economic growth in the region.
This agreement encompasses Honduras, El Salvador, Nicaragua, Guatemala, Costa Rica, Dominican Republic and the United States of America and it was approved by the U.S. Senate on June 30, 2005 and ratified by the U.S. Congress on August 2, 2005. Honduras, implemented CAFTA on April 1, 2006
The Central American and Dominican market represents the second largest Latin American trading partner for the U.S. after Mexico and the thirteenth in the world surpassing countries like Brazil, Singapore and Australia. Together, these Latin American countries have a population of 45 million people and GDP for the whole region amounts to $204 billion and, in 2003, trading activities between the U.S. and the region was of about $31.9 billion which represents a significant portion of each party’s commercial activities. This gave rise to the interest in the importance of establishing a free trade zone in this particular region.
Besides the elimination of the commercial barriers existing before the treaty, DR-CAFTA offers stronger legal protection for investors and traders and reformed the customs system in order to make it more transparent and efficient. In addition, significant changes will also be made to strengthen the protection for intellectual property rights making countries like Honduras more attractive for foreign investment.
CAFTA offers important new benefits to U.S. companies:
- tariffs on U.S exports to the region are eliminated, phased out, or substantially lowered
- legal protections to protect investors and traders are significantly strengthened
- customs procedures are more transparent and streamlined
- intellectual property rights enjoy significant new protections
Most U.S. companies will benefit from the elimination of tariffs on 80% of export products currently subject to tariff. These tariff reductions will be coupled with improved transparency, streamlined customs procedures, and wide-ranging enhancements to protections for investors. CAFTA will lock in democratic reforms, improve labor law enforcement, and boost economic growth throughout the region.
Over the next few years, CAFTA will have a significant impact on 98% of the products and services that are manufactured in, exported to, or imported from Honduras. If you are a U.S. company engaged in international trade, it is probable that CAFTA will prove advantageous to your company.