SUMMIT OF THE AMERICAS CENTER, FIU. The US FTA with Central America and the Dominican Republic...

SUMMIT OF THE AMERICAS CENTER, FIU.

The US FTA with Central America and the The US FTA with Central America and the Dominican Republic (DR-CAFTA): Dominican Republic (DR-CAFTA):

What Relevance for Asia? What Relevance for Asia?

Carl A. Cira, J.D. Carl A. Cira, J.D. Director, Summit of the Americas CenterDirector, Summit of the Americas Center

Latin American and Caribbean CenterLatin American and Caribbean CenterFlorida International UniversityFlorida International University

Miami, FloridaMiami, Florida

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APEC OFFICIAL SYMPOSIUM:APEC OFFICIAL SYMPOSIUM:IMPACT OF REGIONAL ECONOMIC INTEGRATIONIMPACT OF REGIONAL ECONOMIC INTEGRATION

IN EAST ASIA ON APEC TRADE LIBERALIZATION IN EAST ASIA ON APEC TRADE LIBERALIZATION

Tokyo, 27-28 September 2006Tokyo, 27-28 September 2006

LATIN AMERICAN AND

CARIBBEAN CENTER


US and Central America –Recent US and Central America –Recent HistoryHistory

25 years of US focus on CA – often intense 1980’s - leftist insurgencies and military

governments ending - Peace Accords - Nicaragua, El Salvador, Guatemala, Honduras – Extensive US military and economic development assistance.

1984 – Caribbean Basin Initiative (CBI) - UnilateralUnilateral US trade preferences to CA and Caribbean to promote economic growth, political stability and democratic development.

- (By 2003, 77% of CA exports to US were duty free) 1990’s - democratic elections, gradual economic

recovery. Maquila (assembly) industries and non-traditional agriculture expanded steadily.

All 6 CAFTA countries now have over 50% of their two way commerce with the United States.


Western Hemisphere Trade Negotiations -Western Hemisphere Trade Negotiations -1990’s1990’s

1994 - European Union and Mercosur begin FTA talks.

1994 – Summit of the Americas – Miami – 34 leaders agreed to talks for a Free Trade Area of the Americas (FTAA).

1995 – GATT Uruguay Round ends – World Trade Organization (WTO) begins

1995 – NAFTA takes effect (US, Mexico, Canada) – CBI benefits diluted, CA trade + investment diverted to Mexico. CA begins to lobby US for “NAFTA parity.”

1998 – FTAA negotiations formally begin.


Free Trade Area of the Americas Free Trade Area of the Americas Negotiations Negotiations 1998 - 20031998 - 2003 1998-2003 – FTAA ambition was a hemisphere–wide

“WTO – plus” agreement by January 2005. Hundreds of working group and committee meetings held. Eight Trade Ministerial meetings and Four Summits.

“Single Undertaking” - No partial agreements. Nothing agreed until all is agreed. Nine Chapters and nine negotiating groups. Very broad consensus needed.

New disciplines: Services, Gov. procurement, investment protections, competition policy, trade facilitation, and “TRIPS – plus” for IPR. (Resistance on most of these.)

Reduction of US agricultural subsidies – focus of Brazil, Argentina etc. US unwilling outside WTO Doha context.

(Publication of Bracketed Draft Negotiating Text – July 2001. First time ever to blunt “secret negotiation” criticisms.)


““PLAN B” – 2001 to datePLAN B” – 2001 to date Before 2000 – US preferred multilateral trade

pacts – GATT/WTO. – only 3 bilateral US FTA’s - Canada, Mexico (NAFTA), and Israel. Jordan signed in 2000 absent Fast Track - Congress ratified 2001

2000 – Failure of Seattle WTO Ministerial; FTAA stalled, no Fast Track, Clinton administration opened FTA talks with Singapore and CHILE.

Chile and US had BIT and Chile had sought to join NAFTA since ‘92. Even so, 3 years of negotiations.

July 2002 - US TPA law (a.k.a., “Fast Track”) passed and Congress got back into the FTA game.

July 2003 - US – Chile FTA signed and ratified US – Chile FTA signed and ratified under new TPA. under new TPA. Effective January 2004Effective January 2004.


Why start with Chile?Why start with Chile? Chile’s “Open Regionalism”- fastest, broadest

liberalization of any Latin American nation in ’90s. Chile FTA’s with 2/3 of NAFTA. [CANADA (1997)

and MEXICO (1998)] FTA with Costa Rica + Central America (2001) In 2002, Chile signs Association Agreement (FTA)

with European Union - (commercial, political pacts plus technical and cultural cooperation)

Chile an Associate MERCOSUR member since ‘96, but Chile-EU negotiated apart from MERCOSUR-EU talks, also stalled in 2002 (and to date…..)

Strategically, a US FTA with Chile easiest to overcome US Congressional ratification hurdles.

Solid trade partner, stable market economy, dynamic trade leadership in Latin America.

(And no illegal immigration problems………...)


Why Why Central Central America Next in US LineAmerica Next in US Line?? 2001- FTA’s Chile - Costa Rica + Central America April 2001 - Costa Rica – Canada FTA. July 2001 Costa Rica

president gives Bush draft proposal for a US - Costa Rica or US - Central America FTA.

Latin American leaders rush to join US bilateral queue…. After 2002 TPA passage, USTR pressured heavily for FTAA

progress and delayed on more bilaterals, moving only on Chile. USTR used the implicit openness to other eventual bilaterals to

try to move FTAA ahead. Ultimately unsuccessful……… Brazil - main resisting counterpart. Other policy imperatives,

regional leadership ambitions, limited dependence on US trade. Early 2003: Clear that FTAA not moving. USTR accelerated

“Plan B” - “multiple bilaterals,” opening “discussions” with Central America as next priority after completing Chile.

End 2003: FTAA stalls – “Single Undertaking” abandoned – Two tier structure decided, but February 2004 Vice Ministers meeting unable to progress. Moribund since then.


Brazil and Mercosur – “Brazil and Mercosur – “China Ex China Ex Machina”?Machina”?

Brazil “Plan B” – After FTAA stall, pushed revival of EU-Mercosur FTA. Still not moving today. EU has other internal priorities. EU Agriculture - main obstacle.

MERCOSUR crisis - Argentina collapse further slowed integration; Uruguay and Paraguay seek US FTA’s; New member Venezuela mainly political – minimal trade.

South American Community? – non-substantive. MERCOSUR–Andean Community FTA – hollow so far. 2004 - China to the Rescue! China factor in LA

highlighted by Presidential visits. Huge China S.A. Huge China S.A. commodity sales boost Brazil, Argentina, Chile, and Peru.commodity sales boost Brazil, Argentina, Chile, and Peru. (agricultural, mining, petroleum) Investments?

Andes and Central America. Rest of region benefiting less - low priced China manufactured imports in home markets + strong competition for US import market.


DR-CAFTA Trade with US DR-CAFTA Trade with US (2004)(2004)

+/- $35 bn (1.5% of US trade)+/- $35 bn (1.5% of US trade) Guatemala - Ex: $ 3.1 (48%) Im: $ 2.5(32%)Guatemala - Ex: $ 3.1 (48%) Im: $ 2.5(32%) Honduras - Ex: $ 1.7 (54%) Im: $ 4.1 (37%)*Honduras - Ex: $ 1.7 (54%) Im: $ 4.1 (37%)* El Salvador - Ex: $ 2.0 (60%) Im: $ 1.9 (32%)El Salvador - Ex: $ 2.0 (60%) Im: $ 1.9 (32%) Costa Rica - Ex: $ 3.3 (53%) Im: $ 3.3 (42%)Costa Rica - Ex: $ 3.3 (53%) Im: $ 3.3 (42%) Dom. Rep. - Ex: $ 4.5 (78%) Im: $ 4.3 (54%)Dom. Rep. - Ex: $ 4.5 (78%) Im: $ 4.3 (54%) Nicaragua - Ex: $ 0.9 (82%) Im: $ 0.59 (52%)Nicaragua - Ex: $ 0.9 (82%) Im: $ 0.59 (52%)

Together the DR-CAFTA countries are the Second Largest U.S. Latin American trading partner after Mexico.


More Factors on Relative More Factors on Relative Importance of Central Importance of Central

American Market for U.S.American Market for U.S. ~ DR - CAFTA Market Significance~ DR - CAFTA Market Significance:• Total U.S. exports - $15 bn. (2003) Equals combined US

exports to Russia, India, and Indonesia. 12th largest U.S. export market

• Agricultural exports - $1.3 bn. US exports account for largest share of Central American agricultural imports.

• 13,000 US small and medium businesses export to Central America+DR – 37% of total U.S. merchandise exports to region.

~ Current Regional Barriers to U.S. Trade:~ Current Regional Barriers to U.S. Trade:• Average WTO bound rate 45% - Some key U.S. exports face

WTO bound rates of 250%• Non-tariff trade barriers - Price bands, discretionary import

licenses, and absorption agreements ~ DR - CAFTA Tariff Reduction and Elimination:~ DR - CAFTA Tariff Reduction and Elimination: • All products go to zero – 15 year maximum • Linear cuts - from applied rates, not bound rates• Phases - Immediate, 5, 10, 12/15 years• Backloaded cuts - certain sensitive products


DR-CAFTA Main 2005 Trade DR-CAFTA Main 2005 Trade PartnersPartners

Costa Rica

Honduras

Guatemala

Nicaragua

El Salvador

Dominican Republic

Exports - US 29.8%,US 29.8%, Netherlands 14.2%, UK 8.4%, China 7.6% Imports - US 43.4%,US 43.4%, Japan 5.8%, Mexico 5.3%, Venezuela 4.9%, Brazil 4.4% Exports - US 74.4%,US 74.4%, Guatemala 3%, El Salvador 2.9% Imports - US 53.7%,US 53.7%, Guatemala 6.5%, El Salvador 4.2%

Exports - US 50.1%,US 50.1%, El Salvador 12.1%, Honduras 7.3%, Mexico 4% Imports - US 38.1%,US 38.1%, Mexico 7.6%, El Salvador 4.8%, S. Korea 4.8%, Panama 4.4% Exports - US 64.1%,US 64.1%, El Salvador 6.6%, Mexico 3.4% Imports - US 20.6%,US 20.6%, Venezuela 10%, Costa Rica 8.5%, Guatemala 7.1%, Mexico 5.7%,

El Salvador 4.8%, South Korea 4.3%

Exports - US 61%,US 61%, Guatemala 12.1%, Honduras 7.4%, Nicaragua 4.2% Imports - US 43.4%,US 43.4%, Guatemala 8.2%, Mexico 7.8% Exports - US 79.9%,US 79.9%, Netherlands 2.4%, Canada 1.8% Imports - US 51%,US 51%, Colombia 5.4%, Mexico 5.3%

[Source – CIA Factbook 2005]


The US Ratification StruggleThe US Ratification Struggle US did not submit agreement to Congress

after signing for one year until 2005 (2004 election year, etc.)

Opposition on labor issues and perceived textile industry state business and job losses, and “big sugar” concern over increased access to US sugar market (110,000 mt)

China textile competitionChina textile competition had exploded after January 2005, with immediate negative impacts on US+Central American industries. Relief sought + received.

Up to $4 bn. in US manufactured exports to CA+DR jeopardized if CAFTA nations lose textile industries

Very close vote in lower house (217-215)


Current DR - CAFTA StatusCurrent DR - CAFTA Status Costa Rica has not ratified yet. (was CA’s lead CAFTA

negotiator). Dominican Republic - unresolved issues – USTR not yet

satisfied with DR legislative and administrative compliance.

Fully effective for Nicaragua (3/06), El Salvador (3/06), Honduras (3/06), and Guatemala (6/06). (US removes signatory country from GSP, CBI, and CBTPA benefits on date DR-CAFTA enters into force for that country).

Former Unilateral US Preferences now converted into now converted into permanent and reciprocal benefits and obligationspermanent and reciprocal benefits and obligations.

Textiles in limbo - CAFTA pushed as response to expected Chinese textile deluge. Incentives to regional industries using US cloth, yarn, and thread and “cumulation.” US ratification delay and slow CA + DR compliance with US requirements have blunted effects and delayed investments.


Gains for Asian Trade?Gains for Asian Trade? Improved investment opportunities

for direct access to US market via CA + DR

Investment opportunities for indirect US duty free access (Mexico – Japan FTA - Mexico mfrs = qualified inputs for DR-CAFTA Origin cumulation)

Some uncertainty over CBTPA investments in Costa Rica if CR ratification is delayed into 2007


DR- CAFTA - Summing Up Consolidation of US trade relations in CA + DR Building block for potential revival of FTAA Potential effective regional integration of US

and NAFTA-DR-CAFTA textile industries Implementation lab for TRIPS–plus IPR, other “Singapore issues.” Piracy criminalized New and strengthened regional dispute settlement mechanism (SIECA) New and stronger mutual obligations among all

7 signatory countries Clear benefits for Central American

integration


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SUMMIT OF THE AMERICAS CENTER, FIU. The US FTA with Central America and the Dominican Republic...

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