Trade Briefing Paper No. 21

The Case for CAFTA: Consolidating Central America’s Freedom Revolution

The next major trade agreement likely to come before Congress will be the Central American Free Trade Agreement. The agreement would eliminate almost all trade barriers between the United States, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and also the Dominican Republic.

If approved, CAFTA would establish free trade with nearby countries that together make up the United States’ 13th-largest trading partner and second-largest export market in Latin America, behind only Mexico. Upon implementation, goods in 98 percent of the product categories from which the CAFTA countries could export to the United States would enter duty-free. For U.S. companies, CAFTA would offer guaranteed reciprocal access for our most competitive exports, including agricultural products.

Two glaring exceptions to free trade in the agreement are sugar and apparel. CAFTA grudgingly expands the existing quota on sugar imports from the region, denying U.S. consumers and sugar-using industries the benefits of lower prices. Its apparel provisions contain restrictive “rules of origin” requiring use of U.S.-made textiles, which will add to the cost of production in the region and ultimately undermine demand for U.S. inputs. Nonetheless, CAFTA marks a major step toward liberalizing trade.

CAFTA would enhance important U.S. foreign policy goals by promoting freedom and democracy in a region that has been troubled in the recent past by wars and political oppression. Today, all six CAFTA partners are democracies pursuing political, economic, and trade reforms.

Objections that the agreement does not adequately protect environmental and labor standards are unwarranted. All six countries have adopted laws consistent with core labor standards as established through the International Labor Organization. All six have made measurable progress on a range of social indicators. Promoting trade and development through CAFTA would further that progress.

Read the Full Trade Briefing Paper

Daniel Griswold is director of the Cato Institute�s Center for Trade Policy Studies, and Daniel Ikenson is a trade policy analyst with the center.