Approved by the US Senate in June 2005, the Dominican Republic-Central American Free Trade Agreement is a treaty under international law, yet not under the US Constitution. While laws require the majority approval in both houses, treaties must get 2/3 approval in US Senate only. However, for the DR-CAFTA to come into effect, it must be approved by the Dominican Republic, El Salvador, Honduras, Nicaragua and Costa Rica.
The goal of the Dominican Republic-Central American Free Trade Agreement is the formation of a free trade zone resembling the North American Free Trade Agreement that encompasses Canada, the United States and Mexico. The Agreement is also regarded as a steeping stone to the Free Trade Area of the Americas - a free trade agreement that encompasses Caribbean and South American nations. Negotiated by Canada is a similar treaty, known as the Canada Central American Free Trade Agreement.
DR-CAFTA doesn't require reductions in the US import duties, since the majority of goods and services produced in the participating countries have already entered US duty-free owing to the Caribbean Basin Initiative of the US Government. With addition of the Dominican Republican, recognized as the largest and most influential economy in the region, covered by the Dominican Republic-Central American Free Trade Agreement is the second largest Latin American export market for major US producers.
The Agreement is also a necessary precursor to the Puebla Panama Plan execution by the Inter-American Development Bank. This plan implies construction of highways that would link Panama City to Mexico City and Texas.
Encompassed by the Dominican Republic-Central American Free Trade Agreement are the following components:
- Investment - intention of governments to provide guarantees to foreign investment;
- Services - all public services will be open to private investment;
- Market access - eliminating tariffs and taking other measures aims at domestic products protection;
- Agriculture - elimination of subsidies on agricultural products and duty-free import;
- Intellectual property rights - monopoly over and privatization of technological know-how; competition policy - the elimination of national monopolies;
- Antidumping rules, countervailing rights and subsidies; environmental protection - the improvement of the environment and enforcement of environmental laws;
- Labor standards - enforcement of core labor standards of the International Labor Organization; transparency - reduction of government corruption; and dispute resolution.
In January 2002, US President George W. Bush announced that DR-CAFTA was a priority in his administration, while the Congress provided the administration with the authority to negotiate it. In December 2004, agreement was reached with Nicaragua, Honduras, Guatemala and El Salvador, with Costa Rica joining in January 2005.
During the same period negotiations began with the Dominican Republic, which joined CAFTA in August 2004.