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Summary

This report provides background on the political and economic conditions in five countries in Central America (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) and one country in the Caribbean (Dominican Republic) that will be partners with the United States in the U.S.-Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) if it is approved by Congress. The Administration reached agreement with four of the Central American countries in December 2003, with Costa Rica in January 2004, and with the Dominican Republic in March 2004. The Central American countries and the United States signed the CAFTA agreement on May 28, 2004, and all of the partners signed the DR-CAFTA agreement on August 5, 2004. The Administration will decide when to submit the package to Congress for approval. The other regional partners are required to submit the agreement to their respective legislatures for approval as well. The prospective DR-CAFTA partners are basically small countries with limited populations and economic resources, ranging in population from Costa Rica with a population of 4.0 million to Guatemala with a population of 12.3 million, and ranging in Gross National Income (GNI) from $4.0 billion for Nicaragua to $23.5 billion for Guatemala. While El Salvador, Guatemala, and Nicaragua experienced extended civil conflicts in the 1970s and 1980s, all of the countries have had democratically elected presidents for some time, and several of the countries have experienced recent electoral transitions. For each of the countries the United States is the dominant market as well as the major source of investment and foreign assistance, including assistance and trade preferences under the Caribbean Basin Initiative (CBI) and assistance following devastating hurricanes. The Bush Administration and other proponents of the DR-CAFTA pact argue that the agreement will create new opportunities for U.S. workers and businesses by eliminating barriers to U.S. trade and services in the region. Regional officials favor the pact because it provides new access to the U.S. market and makes permanent many of the existing temporary one-way duty free trade preferences. Critics argue that the environmental and labor provisions are inadequate and will lead to the loss of jobs for workers in the United States and for subsistence farmers in Central America, and that concessions in the textile/apparel and sugar sectors will be damaging to U.S. industries. After winning re-election in November 2004, President Bush is expected to press for passage of DR-CAFTA in 2005 and to deal with a Congress that is presumed to be more friendly toward the regional pact. USTR has threatened to exclude the Dominican Republic from the implementing legislation to be presented to Congress because of a dispute with the country over its recent tax on soft drinks made with imported high fructose corn syrup (HFCS). Related information may be found in CRS Report RL31870, The U.S.-Central America Free Trade Agreement (CAFTA): Challenge for Sub-Regional Integration, by J.F. Hornbeck; and CRS Report RL32110, Agricultural Trade in a U.S.-Central American Free Trade Agreement (CAFTA), by Remy Jurenas.

Related Reports:
• RL32322
• RL32322

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