Agriculture in the U.S.-Dominican Republic Central American Free Trade Agreement (DR-CAFTA)

Publication Date: July 2006

Publisher: Library of Congress. Congressional Research Service

Author(s):

Research Area: Trade

Type:

Coverage: United States

Abstract:

On August 2, 2005, President Bush signed into law the bill to implement the Dominican Republic-Central American Free Trade Agreement, or DR-CAFTA (P.L. 109-53, H.R. 3045). Drawing much attention during congressional debate were the agreement's sugar provisions to allow additional sugar from the region to enter the U.S. market. To assuage concerns expressed by some Members, the Administration pledged prior to Senate passage to take steps to ensure that all sugar imports, including those under DR-CAFTA, do not exceed a "trigger" that could undermine the U.S. Department of Agriculture's ability to manage the domestic sugar program. Sugar producers and processors responded that USDA's pledge did not address their long-term concerns, and continued last-minute efforts to defeat the agreement.

In DR-CAFTA, the United States and six countries will completely phase out tariffs and quotas -- the primary means of border protection -- on all but four agricultural commodities traded between them in stages up to 20 years. The four exempted products are as follows: for the United States, sugar; for Costa Rica, fresh onions and fresh potatoes; and for the four other Central American countries, white corn. The Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua have approved the agreement; Costa Rica's legislature is currently considering it. As it takes effect on a rolling basis, the U.S. agricultural sector will over time gain free access to the six highly protected markets on a reciprocal basis, matching these countries' current duty-free entry for nearly all their agricultural exports to the United States. Other provisions establish safeguards for specified agricultural products to protect U.S. and the region's producers from sudden import surges; prohibit the use of export subsidies between partners; and establish a mechanism to address sanitary and phytosanitary barriers to agricultural trade.

DR-CAFTA's provisions, once fully implemented, are expected to result in trade gains, though small, for the U.S. agricultural sector. The U.S. International Trade Commission (ITC) estimates that $328 million in additional exports (primarily grains, meat products, and processed food products) would be offset by a $52 million increase in imports (largely reflecting additional access granted for sugar and beef from the six countries). Of the $2.7 billion increase in total U.S. exports that the ITC projects under DR-CAFTA, 12% would be attributable to the U.S. agricultural sector.

Most U.S. commodity groups, agribusiness and food manufacturing firms, and the American Farm Bureau Federation (a general farm organization) supported DRCAFTA, expecting to benefit from the guaranteed increased access to these six markets. Cotton producers announced their support only after one major textile trade association came out in favor of it. The U.S. sugar industry strongly opposed the additional access for sugar imports from these countries, fearing its economic impact on domestic producers and processors. Two cattlemen trade organizations held differing positions on the agreement's beef provisions. The National Farmers Union (a general farm organization) opposed DR-CAFTA. Congress is expected to monitor developments on DR-CAFTA implementation during the second session of the 109th Congress. This report will be updated.