Formation of Central American Free Trade Agreement (CAFTA): The Business Logic
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Code : ITF0022
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Region : :USA Central America |
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Introduction: An agreement to liberalise trade between the US and five Central American countries – Costa Rica, El Salvador, Guatemala,Honduras andNicaraguawas signed onMay 28th 2004.On June 30th 2005, despite concerns over confrontation betweenRepublicans andDemocrats, CAFTAwas passed by a 54 to 45 vote in the US senate.On July 28th 2005, CAFTA, backed by President GeorgeW. Bush and Vice President Dick Cheney, was passed by theUS House ofRepresentatives by a two-votemargin of 217 votes to 215. TheUS entered into a free trade agreementwithDominican Republic on August 5th 2004. Since its proposal in 2004, CAFTAhad beenmired in controversies [Exhibit 1] over unequal distribution of benefits to different business sectors and interest groups. CAFTAsupporters believed that the agreementwould remove practically all tariff and quota barriers and enhancemultilateral tradewithin the seven countries. CAFTAwas expected to consolidate or expand the preferential USmarket access that the Central American countries had been enjoying through theCaribbean Basin Initiative (CBI).3 It was also opined that CAFTAwould enhance the level of foreign and domestic investments in the Central American countries andwould enable these countries to access the computer services, tourism, financial services, telecommunications and entertainment markets in the US. However, the issues of labour and environment standards, agriculture, impact on apparel industry and resultant job losses in the US prompted various labour unions, development organisations, religious groups and private sector lobbies to voice opinions against CAFTA. Implementation of CAFTAis believed to bring about path-breaking changes not only in the economies of sevenmember countries involved but is also believed to change the dynamics of the international trade. |
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