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Bush, George W.

Central America and the Dominican Republic Open Up to US Trade Through CAFTA

Strategic Insights

— 2 min read

The Dominican Republic- Central America-United States Free Trade Agreement (CAFTA) was signed into law by President George W. Bush on August 2, 2005, marking a significant opportunity for U.S. companies to expand their presence in Central America and the Dominican Republic. This new trade agreement aims to facilitate the exchange of goods and services between the U.S. and the seven CAFTA countries: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, the Dominican Republic, and the United States. The CAFTA is expected to come into effect on January 1, 2006, allowing for 80% of U.S. consumer and industrial exports to the CAFTA countries to be duty-free immediately.

Key Takeaways:

  • The CAFTA creates new opportunities for U.S. companies to export goods and services to the CAFTA countries, with 80% of U.S. consumer and industrial exports to be duty-free immediately upon entry into force of the Agreement.
  • The Agreement's rules of origin are crucial in determining which goods are entitled to duty preferences, with a de minimis threshold of 10% and specific rules of origin based on a tariff shift, regional value content requirement, or combination thereof.
  • CAFTA requires the CAFTA countries to release goods meeting customs rules within 48 hours of arrival, allowing goods to be released at the arrival point without transfer to a storage facility, and allowing importers to withdraw goods from customs before a final determination on duties and fees is made.
  • The Agreement aims to improve customs administration, enhance transparency, and eliminate certain export fees in the Dominican Republic.
  • CAFTA creates new opportunities for U.S. companies to compete for government procurement contracts in the CAFTA region, with the total value of government procurement estimated to be between $8 and $12 billion.
  • U.S. companies will have guarantees of non-discriminatory and transparent treatment when competing for government contracts, including build-operate-transfer (BOT) contracts.
  • CAFTA guarantees U.S. investors non-discriminatory treatment, the right to repatriate profits, and protection against expropriation without prompt, adequate, and effective compensation.
  • The Agreement provides for mandatory arbitration of investor-state disputes and includes provisions for settling disputes among the CAFTA Parties regarding the interpretation or application of the Agreement.
  • CAFTA introduces features not found in the WTO dispute settlement system, including the ability of Parties to consult on proposed measures and to present their individual or collective views on issues of interpretation or application of the Agreement arising in administrative or judicial proceedings.

Statistics:

  • 80% of U.S. consumer and industrial exports to the CAFTA countries will be duty-free immediately upon entry into force of the Agreement.
  • The de minimis threshold for goods to qualify as originating is 10%.
  • The Agreement requires the CAFTA countries to release goods meeting customs rules within 48 hours of arrival.
  • The total value of government procurement by the six CAFTA trading partners is estimated to be between $8 and $12 billion.
  • The value thresholds for procurements by specified government entities will be adjusted for inflation and will generally be somewhat higher for the Central American Parties and the Dominican Republic during an initial three-year period after the CAFTA enters into force.

Sources:

  • Mondaq Ltd, 2005 - Tel. +44 (0)20 8544 8300 - http://www.mondaq.com
  • Sidley Austin Brown & Wood LLP
  • CAFTA Free Trade Agreement
  • World Trade Organization's (WTO) Government Procurement Agreement

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