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CAFTA-DR: A Trade Partnership that Works

Posted by Jason Hafemeister, Trade Counsel, U.S. Department of Agriculture in Trade
Mar 02, 2018
Under Secretary for Trade and Foreign Agricultural Affairs Ted McKinney touring the terminal at Port Quetzal
In Guatemala this week, Under Secretary for Trade and Foreign Agricultural Affairs Ted McKinney (right) toured the terminal at Port Quetzal where 60 percent of U.S. bulk grain exports to Guatemala are received. Since enactment of the CAFTA-DR trade agreement, U.S. agricultural exports to Guatemala have nearly doubled.

Under Secretary for Trade and Foreign Agricultural Affairs Ted McKinney is leading a USDA trade mission to Central America this week, making it a good time to review where we stand as far as CAFTA-DR, the United States’ free trade agreement with five Central America countries and the Dominican Republic. It’s been just over 10 years since we started cutting agricultural tariffs on both sides, and the deal has delivered exactly as trade agreements are supposed to. Going forward, a deal that has been a solid positive for U.S. agriculture has the potential to get even better as further market openings create more opportunities for U.S. exports.

The promise of trade agreements, by cutting tariffs and integrating economies, is that agricultural producers can operate in larger markets. Competitive producers, like U.S. grain, oilseed, produce, and livestock farmers, and our potent agribusinesses, get access to more customers. Consumers benefit from more choices, including access to counter-seasonal produce and products that are not grown here at home. CAFTA-DR is a classic example of all partner countries benefitting from open and transparent markets.

U.S. agricultural exports to the CAFTA-DR countries were $1.6 billion in 2003, the last year before the deal was inked. We were selling a lot of corn, wheat, soybean meal, and rice. But, as lead agricultural negotiator for the United States in CAFTA-DR, my job was to bring down high tariffs in the foreign markets on grains, livestock, processed products, and many fruits and vegetables. We imported $2.4 billion in the same year, mostly tropical products.

After a year of negotiations with the Central Americans, and then the conclusion of a deal with the Dominican Republic the following spring, we had a deal. All tariffs would be eventually phased out, except for a hand-full of sensitive products where access would be provided through tariff-rate quotas. Recognizing the challenge of adjusting to a free trade environment, a number of products tariff phase-outs were extended for up to 20 years. In the interim, the United States provided capacity-building assistance to its CAFTA-DR partners to facilitate trade going both ways.

What have the results been? Nothing short of great. While all the countries in the CAFTA-DR region face significant challenges, the GDP of the region has effectively doubled even as barriers to U.S. exports have fallen. U.S. ag exports have grown to $4.3 billion. Exports of dairy, livestock and poultry products, all of which were less than $70 million each in 2003, have seen large gains. By 2017, exports of dairy products increased to $165 million, livestock to $336 million, and poultry products to $283 million. Exports of fresh fruits and processed vegetables all now exceed $100 million each. Corn and rice exports have nearly doubled to reach $663 million and $171 million respectively. Although soybeans and products faced fewer barriers, exports have also benefitted by increased demand in the region and annual exports are now almost $1 billion.

For the CAFTA-DR countries, agricultural exports to the United States have more than doubled to $5.8 billion in 2017, led by imports of bananas ($1.6 billion), coffee ($1.1 billion), and pineapples ($518 million) – all basically double the pre-CAFTA-DR levels.

The good news is there is plenty of room to grow. Tariffs are still being phased out on many products (the last tariff comes off in 2026). U.S. exporters are developing new contacts, including through this week’s trade mission captained by Under Secretary McKinney. And the prospects for further economic growth in the region are good, particularly if all countries continue to pull together to facilitate trade.

Category/Topic: Trade