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

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The next major trade agreement likely to come before Congresswill be the Central American Free Trade Agreement. The agreementwould eliminate almost all trade barriers between the UnitedStates, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua andalso the Dominican Republic.

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

Two glaring exceptions to free trade in the agreement are sugarand apparel. CAFTA grudgingly expands the existing quota on sugarimports from the region, denying U.S. consumers and sugar-usingindustries the benefits of lower prices. Its apparel provisionscontain restrictive "rules of origin" requiring use of U.S.-madetextiles, which will add to the cost of production in the regionand ultimately undermine demand for U.S. inputs. Nonetheless, CAFTAmarks a major step toward liberalizing trade.

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

Objections that the agreement does not adequately protectenvironmental and labor standards are unwarranted. All sixcountries have adopted laws consistent with core labor standards asestablished through the International Labor Organization. All sixhave made measurable progress on a range of social indicators.Promoting trade and development through CAFTA would further thatprogress.

Daniel Griswold and Daniel J. Ikenson

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.