The Central America-Dominican Republic Free Trade Agreement Report

Introduction

CAFTA-DR (Dominican Republic-Central America FTA) is a trade agreement signed by the United States, the Dominican Republic, and five Central American states (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) (CAFTA-DR n.p). The agreement was signed in 2004. This agreement was meant to create economic opportunities for member states. The agreement eliminated trade tariffs, opening markets, and reducing barriers to services. This paper will analyze the trade agreement and one trade barrier.

Analysis

CAFTA-DR (Dominican Republic-Central America FTA) is a free trade area. This means that the main objective of the agreement is to reduce tariff barriers. However, it does not establish free movement of goods and services across borders. There is no common external trade policy. This agreement has created a large market for goods originating from the United States (Elena 33). Other member states get market for their textiles and related products. Barriers still exist that limit the movement of goods and services between the member states. Some barriers relate to the country of origin.

The agreement’s textile provisions affect fashion both directly and indirectly. The provisions were put in place in order to encourage trade between member states. The rules agreed upon and ratified by the member states on various dates after the signing of the agreement. The United States of America played a pivotal role in the implementation of the provisions. The United States had to help other countries with the implementation process. The provisions have been classified as ‘rule of origin’ and ‘reciprocal textile input sourcing rule’.

The rule of origin centers on the source of textile material. This applies to both the raw material, semi-finished, and finished products. The rule requires that certain components of apparel be sourced from the United States or another member country. The rule of origin is the more comprehensive of the two rules. The rule of origin covers a wide range of fabric used in various types of apparel. The rule is applicable to yarns, fabrics (knit and woven fabric), and made-up articles.

The rule for yarns and knit fabrics are ‘fiber-forward’. This means that the raw fiber must be from one of the member states, the yarn must be made in one of the member states and finished material must be produced in one or more of the member states. The rule for made-up articles is ‘yarn forward’ this means that all the activities that go into the finished product must be done in one or more of the member states. However, the fiber may originate from anywhere. Garments that may be made from a fabric of any origin include;

• Brassieres;
• Boxer Shorts;
• Woven Pajamas;
• Woven Girls’ Dresses;
• Babywear Dresses;
• Women’s Coats;
• Women’s MMF Suits;
• Men’s Suit-type Jackets;
• Men’s Woven Yarn-Dyed Dress Shirts.

However, the finishing processes must occur in one of the member states. The listed garments fall under the ‘cut and sew rule’.

The reciprocal textile input sourcing rule is an agreement between the members of CAFTA-DR (Dominican Republic-Central America FTA) and Mexico. Under this arrangement, Mexico grants duty waivers on goods made in one of the member states with a United States input. Similarly, the United States of America grants duty waiver on certain garments from other member states with a Mexican input. This means that products that make to this list do not have to be finished in Mexico or the United States.

This trade barrier has far-reaching effects on fashion. The barrier ensures that apparel from member states is cheaper than those from outside the block. This is because of duty waivers granted on goods originating from member states. Duty is imposed on fiber, fabric, and garments originating from outside the trading block. This has helped create a market for United States goods in Central America. On the other side, the United States also provides a market for Central American goods. This agreement has contributed to the development of the fashion industry in the trading block. This agreement has spurred economic growth in the member states (Maria and Michael 122).

The benefits have trickled down to the farmers, traders, and designers. Abolishing this barrier would lead to new challenges. For example, established businesses that rely on this industry may collapse due to competition. Goods originating outside the region may become cheaper than those produced within the trading block. On the other hand, non-members see it as an impediment to trade. To non-members, the agreement and barriers associated with it confer an unfair advantage to the members. It is against liberalization.

Conclusion

This paper analyzed a trade agreement and a barrier associated with it. The CAFTA-DR (Dominican Republic-Central America FTA) agreement is a free trade area agreement. It is an agreement signed by the United States, the Dominican Republic, and five Central American states (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua). One of the barriers associated with the agreement is the ‘rule of origin’. Fiber, fabric, and made articles must originate from one of the member states. For some finished garments, only certain processes must be done in or more member states.

Works Cited

CAFTA–DR (Dominican Republic-Central America FTA) 2012. Web.

Elena, Nguyen. “The International Investment Position of the United States at Yearend 2001.” Survey of Current Business 2002. Print.

Maria, Borga, and Michael, Mann. “U.S. International Services: Cross-Border Trade in 2001and Sales through Affiliates in 2000.” Survey of Current Business 2002. Print.