CAFTA Featured

1:14pm EDT August 31, 2005
In Washington, the proposed free trade agreement between the United States, five Central American nations — Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua — and the Dominican Republic has been one of the most hotly debated issues of the summer. CAFTA, as the agreement is called, has divided Republicans and Democrats, business and labor, free-market economists and environmentalists.

Nevertheless, it is important for U.S. manufacturers to understand the potential benefits of CAFTA. The U.S. Commerce Department estimates that CAFTA will immediately eliminate duties on more than 80 percent of U.S. exports of industrial and consumer products to Central America and the Dominican Republic. Remaining duties would be phased out over a ten-year period. The U.S. would benefit from this duty-free regime because about 80 percent of imports from the CAFTA countries already enjoy duty-free treatment in the United States.

Ohio companies can profit from expanded exports to the CAFTA countries. According to the Commerce Department, Ohio’s exports to CAFTA nations totaled $197 million in 2004, making Ohio eighteenth among the states in exports to the region. Manufactured goods accounted for almost 90 percent of those exports. From 2000 to 2004, Ohio sales to CAFTA countries increased by a remarkable 90 percent, including a jump of 16 percent from 2003 to 2004. The Commerce Department predicts that Ohio’s exports of chemicals, textiles and motor vehicles will benefit the most from CAFTA. Ohio exports of resin, synthetic rubber, and artificial fibers and filaments have experienced strong growth since 2000. The CAFTA countries’ duties on these and other high-value chemical products will be eliminated immediately or phased out over five years under CAFTA. Ohio textiles have demonstrated a similar pattern of increased trade with the CAFTA countries.

Both the U.S. Trade Representative and the Commerce Department note that CAFTA will give Midwestern garment-makers — as well as U.S.-based suppliers of fabric and yarn — a critical advantage over other international apparel producers. CAFTA countries are the second largest market in the world for U.S. fabric and yarn. The U.S. government expects this market to expand following the implementation of CAFTA. Ohio exported $19 million worth of fabric-mill products in 2004, up from only $1.4 million in 2000. The Commerce Department predicts that CAFTA will also benefit other Ohio manufacturing sectors, including producers of plastic; railroad rolling stock; sugar and confectionary products; engines, turbines and power transmission equipment; aerospace products and parts; and apparel accessories.

U.S. government statistics reveal that Ohio manufacturers are the beneficiaries of a global marketplace and earlier free-trade accords. In 2004, Ohio exports totaled $31.2 billion. In the first year of the free trade agreement with Chile, Ohio’s exports to that country alone grew by 20 percent. Since the North American Free Trade Agreement (NAFTA) was signed ten years ago, Ohio’s combined exports to Canada and Mexico have more than doubled.

Ohio’s agricultural sector is also predicted to benefit from the enhanced marketing opportunities under CAFTA. The U.S. Department of Agriculture estimates that in 2003 the state’s agricultural exports reached $1.2 billion and helped support 18,960 jobs in Ohio. The elimination or phase-down of import duties in the CAFTA countries will likely open additional markets for American soybeans, corn, wheat, dairy products, beef, and pork. Soybeans are Ohio’s top agricultural export, and corn ranks third. Ohio is the ninth largest exporter of wheat in the U.S. CAFTA would immediately eliminate most duties on these and other agricultural products.

Following the sound and fury about the perceived advantages and disadvantages of CAFTA, both the House and the Senate have approved this trade pact. Ohio companies must now be ready to seize the opportunity to expand their markets in Central America and the Dominican Republic.

Frederick P. Waite, of counsel in the Washington office, practices international trade and customs law on behalf of domestic and foreign producers, domestic consumers, trade associations and multinational trading companies. Reach him at (202) 467-8852 or fpwaite@vssp.com. Kimberly R. Young, an associate in the Washington, D.C. office, also practices in the area of international trade and customs law. Reach her at (202) 467-8881 or kryoung@vssp.com.