What is the Dominican Republic-Central America Free Trade Area (CAFTA-DR)

The Dominican Republic-Central America Free Trade Area (CAFTA-DR or DR-CAFTA) is a free-trade agreement linking the United States with a number of smaller developing countries in Central America – including Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua – and also the Dominican Republic.

The agreement was signed in August of 2004; Congress passed bills implementing it in the summer of 2005, and it went into effect in the remaining countries between 2006 and 2009. Prior to January 2004, when the Dominican Republic joined negotiations, it was known as CAFTA; that name is still in use.

BREAKING DOWN Dominican Republic-Central America Free Trade Area (CAFTA-DR)

CAFTA-DR, along with NAFTA and a number of bilateral deals, was intended to form the basis for the eventual integration of every Western Hemisphere economy – with the exception of Cuba – into the Free Trade Area of the Americas (FTAA). Negotiations for the proposed mega-deal fell apart after missing a 2005 deadline.

CAFTA-DR provides for the progressive elimination of almost all customs duties between the signatory countries over a period of 20 years. Most were removed immediately, but special rules were adopted for sensitive items such as apparel and agricultural products.

CAFTA-DR is intended to create jobs and promote greater trade among the individual countries and in their dealings with the United States,with the idea being that the impact of goods being manufactured and crossing borders creates a need for a greater number of workers. The agreement is also intended to be used as a means of protecting workers and enforcing agreed upon labor conditions in the underlying countries.

According to a 2012 Congressional Research Service report, U.S. trade fell relative to the other signatory countries' after the deal was signed. However, integration among Central American countries rose, making it, in the IMF's words, the hemisphere's "region that trades the most with itself." 

Regardless, the impact of the agreement has been felt over the years and has had an impact on the U.S. economy. According to the Office of the United States Trade Representative, the combined countries in the CAFTA-DR agreement would collectively represent the United States' 16th largest goods trading partner. In total, the agreement yielded $53 billion in total, two-way goods trade in 2015, the last year data were available. The U.S. goods trade surplus with CAFTA-DR countries was $5 billion in that same year. Also, according to the Department of Commerce, U.S. goods exports to CAFTA-DR helped fuel and support roughly 134,000 jobs in 2014.