Dominican Republic-Central American Free Trade Agreement (DR-CAFTA)

1. Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) An Overview by: Quinn O’Reilly, Joshua Lin, and Abdirisak Mohamed

2. Background • The agreement • Opposition • Analysis • Conclusion Outline

3. Trade agreement between Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic and the United States • Countries finalized August 4th, 2004 • First free trade agreement between U.S. and smaller developing economies The Countries

4. Population: 4,253,877 • GDP: $48.63 billion • By sector: Agriculture: 6.5% Industry: 25.5% Services: 68% Costa Rica

5. Population: 7,185,218 • GDP: $42.92 billion • By Sector: Agriculture: 11.1% Industry: 28.2% Services: 60.7% Dollarized in 2001 El Salvador

6. Population: 13,276,517 • GDP: $69.21 billion • By sector: Agriculture: 13.5% Industry: 25.1% Services: 61.4% Guatemala

7. Population: 7,833,696 • GDP: $33.17 billion • By sector: Agriculture: 14.2% Industry: 27.9% Services: 57.9% Honduras

8. Population:5,891,199 • GDP: $16.53 billion • By sector: Agriculture: 17.8% Industry: 25.8% Services: 56.5% Nicaragua

9. Population: 9,650,054 • GDP: $80.53 billion • By sector: Agriculture: 10.5% Industry: 21.3% Services: 68.2% Dominican Republic

10. Population: 307,212,123 • GDP: $14.26 trillion • By sector: Agriculture: 1.2% Industry: 21.9% Services: 76.9% United States of America

11. Part of President Bush’s free trade plan • Well established ties through CBI • Politically feasible Why?

15. Importance of textiles

16. Diversity

17. Trade Openness

18. Tariff Schedule

20. Countries encouraged to allow competition and privatization of state agencies. • Costa Rica: opening of insurance and telecom industries • Universal access for all insurance providers by Jan. 1st 2011 Competition

21. Foreign entities ensured same access as domestic ones • Limited to certain government entities • In Honduras, this would apply to 169 government entities Equal Access

22. Opposed by many labor leaders • Massive protests in Central America • Worries about workers’ rights International Opposition

23. Strongly opposed by labor and Democrats • House vote: 217-215 • Senate vote: 55-45 • Signed by President Bush August 2nd, 2005 U.S. Politics

24. There was a huge opposition to the DR-CAFTA from both sides. • Central American countries’ opposition was greater and thus resistance to the agreement was more intense in Central America. Opposition

26. In the U.S. there was strong opposition from several industry groups • Domestic textile and apparel producers • Sugar producers

27. El Salvador experienced strong objections from the leftist Farabundo Marti Liberation Front. • 76% of Salvadorans polled in late 2005 said that CAFTA would not improve the situation in El Salvador, or make matters worse.

28. In Nicaragua opponents were concerned that the FTA may lead to the privatization of public services • In Guatemala a 2005 March 3 vote had to be postponed because of ongoing popular protests. • lack of transparency in the negotiations for CAFTA in Central America

29. Three main opposition reasons: • Agriculture • Jobs • Environment

30. In lower income countries, the economy often depends heavily on agriculture and small scale farming. • This fact made the trade agreement less appealing to the citizens of Central America for fear of being flooded with cheap subsidized American products. • NAFTA was looked at as an example of how subsidized American crops could destroy the local markets. Agriculture

31. There was fear of losing jobs from both the United States and the Latin American countries. • Americans feared outcomes similar to the ones caused by NAFTA. • Many American companies outsourced to Mexico after the signing of NAFTA costing a staggering amount of jobs. Jobs

33. Developing countries may have an “unfair” competitive advantage. • lower standards being the basis for their lower costs. • this in turn is reflected in lower prices for goods that compete with those produced in developed countries. U.S. Job Concerns

36. Labor advocates concerned with countries lack for adequate protection for workers’ rights. • Central American countries also feared job loss in the agricultural sector. • Small farmers would not be able to compete with subsidized goods. Central America Job Concern

38. Fear of negative effects of trade, such as pollution. • Concerned with weak laws and lax enforcement mechanisms. • NAFTA also looked at as an example. Environment

39. More trade • Increased welfare for CA • Increased Credibility for CA Expectations of CAFTA

40. More trade • Increased welfare for CA • Who Wins? Who Loses? • Increased Credibility for CA • What will this mean? Expectations/Unkowns of CAFTA

41. Effects of CAFTA: Growth GDP growth jumped as free trade was implemented In 2006 Central America experienced 6% growth Urban population increases purchasing power

43. Consumers and Producers took advantage of new incentives • Total imports and total exports rose universally for CA • Especially true for imports and exports to the US • In 2006: Nicaragua’s total exports to the US grew by 29% , • Costa Rica’s exports to the US grew by 35% • In 2006: Honduras’ imports from the US grew by almost 30% Effects of CAFTA: Increased Openness

46. Investor confidence in CA increased • This is due to credibility added from US partnership • This caused FDI and Capital Stock to rise rapidly • Ex. Foreign investment Guatemala rose from ~$200 million in 2004 to over $600 million in 2006 • Note: The majority of the increase was in the manufacturing sector Effects of CAFTA: Increased Investment

48. Investment went to manufacturing • Lead to fall in US manufacturing • Lead to decrease in agriculture Who Gained, Who Lost?

50. Remember: Early criticisms • Agriculture seems to have fallen • Two Explanations: • Growth in manufacturing (shown before) • US farms Agriculture