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• U.S. Department of State

Summary

Negotiating open market access for agricultural products in a free trade agreement between the United States and 5 Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) has been contentious and difficult. With December 2003 set as the target date for concluding an agreement, both sides now face wrestling with how to transition their most sensitive agricultural commodities and food products (protected by high tariffs, restrictive quotas, or other barriers) towards free trade. In their October negotiating session, both sides exchanged market access offers on all (including sensitive) agricultural products, and agreed on immediate access for most horticultural products. The most difficult issues dealing with sensitive products were deferred to the December negotiations. In 2002, U.S. agricultural exports to these 5 countries totaled $1.0 billion, and represented 2% of U.S. worldwide sales. Leading exports were coarse grains, wheat, rice, soybean meal, and animal fats. U.S. farm exports accounted for 11% of U.S. merchandise exports to the region, and have grown significantly in value terms over the last decade. Agricultural imports from these countries equaled $1.9 billion (or 4.5% of U.S. farm and food imports from the world), and represented 16% of U.S. merchandise imports. Purchases of bananas, raw coffee, and fresh fruit led the list. The United States and the 5 Central American countries primarily use tariffs and quotas to protect their agricultural sectors. The average tariff applied by all 6 countries involved in these negotiations masks the high level of border protection each provides its most sensitive agricultural products, primarily through the use of restrictive quotas. U.S. agricultural objectives in the CAFTA negotiations are to eliminate tariffs, quotas, and other barriers to trade, and provide adequate transition periods and relief mechanisms for the U.S. farm sector to adjust to increased imports of sensitive products. The Central American countries seek increased access to the U.S. market for beef, sugar, fruits and vegetables. However, fears exist that opening up their markets to U.S. corn and rice will undermine their small subsistence farmers, unable to compete against subsidies U.S. producers receive under farm programs. U.S. agricultural and food sector interests have mixed views about what CAFTA might mean. Several organizations support the negotiating objectives, anticipating benefits for their producers from more open markets. Some groups condition support on the ability of U.S. negotiators to actually eliminate tariffs and address specific issues. Others have strong reservations about CAFTA, or have requested that their commodity be excluded from the agreement's scope. Congressional committee leaders have expressed concern about the "unrealistic demands" that Central American negotiators have made to protect their sensitive agricultural commodities. They have signaled that if CAFTA does not result in real market access for commodities with U.S. export potential, some Members of Congress may not support the agreement. Some Members oppose including sugar in CAFTA, fearing increased imports would undermine U.S. sugar policy and the viability of the domestic production sector. This report will be updated.

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