United States has been for long time been blamed for lack of concrete policies fostering social development towards South Americans. This can be traced form sour relationship from cold war times. Latin America entertained Soviet Union to an extent of adopting its communism ideology which was competing with capitalism ideology hence bitter relationship. This was followed by United States policies which campaigned for changed of economic ideologies .
This resulted to most of Latin American authorities to adopt competing policies against most of United States policies which could have translated to harsh reception of Vice President in 1958 visit to Southern hemisphere. Relationship of United States gained a major boost after 1990 resulting to changes in various in major administrative ideologies. This paved way for investment and trade liberalization (market reforms), democratization of administrative authorities and privatization of state government owned enterprises .
This resulted to economic improvement making end of hyperinflation, reduction of trade tariffs in countries like Mexico hence influencing reforms in the region to and embracing change. Various reforms adopted did not automatically translated to economic prosperity since by the end of 90s most of the countries had already started experiencing economic crisis coupled with political instabilities. This call for United States foreign policies toward Latin American to focus on economic stability and more so improvement of agricultural sector as it is very relevant Southern American economy.
Dominican Republican-Central American Free Trade Agreement (DR-CAFTA) is an evidence of United Stated policies towards stabilizing Latin American economic sector. DR-CAFTA was instigated by Bush administration in 2002 under Central American Free Trade Agreement CAFTA and changed name after Dominica Republic joined CAFTA to DR-CAFTA and adopted by the Senate in 2005. Its objectives are similar to those of North American Free Trade Agreement (NAFTA) bringing together US, Canada and Mexico under common trade regime creating free trade area.
Apart from United States other member countries are under trade umbrella are Guatemala Nicaragua, El Salvador, Honduras and Costa Rica. Bush administration initiated DR-CAFTA in effort to pave way for Free Trade Area in the region which would result to boosting agriculture and other economic industries. DR-CAFTA would result to increased trade and investment in this region. Rationale behind DR-CAFTA as United States economic policy towards Latin American Countries was economic benefit to all parties giving ‘win win’ situation.
Deliberations by white House on this matter claimed that life of people in Central America and Dominica would improve after successful implementation of this DR-CAFTA. On the other hand, United States agriculture which is heavily dependent to trade for example about a third of all produce rely on export market which is has been stagnant. Therefore emergence of a foreign market was important hence congress ratification of DR-CRAFTA which would result to increased agricultural exports.
Comparing DR-CRAFTA to NAFTA, NAFTA can be termed as free trade agreement which was designed to liberalize trade regulating quotas, non tariff barrier and tariff barriers to be favorable to the trade among the member countries subject to time period. Like any other bilateral free trade area, NAFTA cover all production in the member countries including agricultural provisions. It coverage did not include remedies to trade distortion and effects to member country’s domestic farm subsidies.
Signing of the bill which established implementation of DR-CAFT in 2005, attention in agriculture industry focused to sugar provisions which would give additional sugar from South American DR-CAFTA member countries entry to US market. Before passage of this bill member had raise concern over implication of this treaty to the US domestic sugar production. This called for caution in implementation program to ensure import do not surpass triggers causing a state of confusion to department of agriculture mandated to manage United States domestic sugar affairs .
Relationship established by DR-CAFTA i. e. United States and other six member countries is that all tariffs and quota defining border protection would be faced out. This was to be done in phases such that in long run all agricultural commodities would get free entry in member countries without restriction but four agricultural commodities i. e. fresh onions and potatoes from Costa Rica, sugar from United States and white maize from other.
In the long run United States after rolling of the current implementation phase would enjoy free entry of it agricultural production to the six countries giving an expanded market segment on agricultural produce. On the other hand, this was to be matched with free entry to the United States market competing with domestic production. Unlike NAFTA which was not quite clear on certain goods, DR-CAFTA gave provisions protecting certain agricultural good. That is protecting producers in the member countries from hasty import surges.
Other provisions discourage use of subsidies between member countries as well as giving mechanism to deal with sanitary and phytosanitary restrictions to trade. According to Jurenas 2006, argument behind DR-CAFTA is that in the long run coupled with full implementation, the results will be trade gain but estimated to be small for United States agricultural sector. Estimations from US International Trade Commission (ITC) indicated that $328 million would be realized as an increase in export from product like processed foods grain and meat products.
This would be balanced by an increase of $52 million imports from commodities like beef and sugar imports mainly from DR-CAFTA countries . In the implementation, bill establishing this treaty got support from various group in the agricultural sector that is agribusiness groups and commodity group from expected gain in trade increase as a result of getting entry to six markets. A good example to this support is cotton industry where after one of the major players in this industry came out to support this trade agreement other small player put their weight behind bill establishing DR-CAFTA (Conway) .
On the other hand, some groups held an opposing stand for example, United States sugar industry came out strongly to provisions allowing entry of additional sugar from member countries. Their argument was base on short run as well as long run implication to sugar import which was projected to affect processors and producers negatively as a result of competition from the six countries. Other groups which opposed are cattlemen trade against beef provisions. To facilitate for implementation member countries committed themselves to this under Uruguay Round Agreement on Agriculture (URAA).
This agreement gave way for different bind raging from 35 percent for Honduras to 73 percent for Nicaragua compared to United States commitment at approximate rate of 12 percent. Over implementation of various agreements a lot of flexibility has been witnessed giving way to import especially in the six countries to at a lower rates that than rates agreed on. On the side of United States DR-CAFTA member countries have been favored. Import from these countries would access United States market at a lower rates i.
e. zero or very low percentages than those of MFN (most favored Nation). This translates to giving the six member countries gaining competitive advantage. Implementing DR-CAFTA has attracted scholar from different to study benefit and negative effect pegged to implementation of DR-CAFTA questioning relationship between economic growth and trade. Among benefits anticipated as a result of implementing a free trade area for example DR-CAFT is capital flow among the member countries which has not been proven.
For example in case of NAFTA world bank asserted that a positive effect was registered in Mexico but was not certain on the long run effect hence questioning rationality of DR-CAFTA in the basis of capital flow (World Bank). Advantages associated with expanded market are not always obvious as they are dependent on the methodologies employed in implementation of DR-CAFTA agreements. Although all countries are expected to grow from the so call ‘win win’ or mutual benefit United States was stage to benefit more as compare to it counter parts.
This is due to factors such as superior technology which can make processing of agricultural commodities to be less costly as compared to their partners giving them a competitive advantage. Implementation of DR-CAFTA was said to result to economic growth which would be distributed in the member countries from South America. But for any positive economic gain, each country’s economy ability to change and adopt; technologies like that of their partners, employment patterns and production techniques matters, otherwise anticipated positive economic gain may not be realized.
DR-CAFTA is established on basis of mutual benefit but the fact is that different results will be experienced in different countries. This is because different countries have different capabilities on implementation program hence different gain or economic growth may be experienced. Bibliography: Conway Peter (2005): Putting Fairness into Free Trade: Journal article; New Zealand International Review, Vol. 30, 2005 Del Toro Guillermo E. (1997): Foreign Direct Investment in Mexico and the 1994 Crisis; Houston Journal of International Law, Vol. 20. Yglesias Matthew (July 2005): CAFTA Contortions
The American Prospect, Magazine article Vol. 16. Jaramillo Carlos, Lederman Daniel, Daniel Lederman, Maurizio Bussolo (2006): Challenges of CAFTA: Maximizing the Benefits for Central America. ISBN 0821364448, 9780821364444, World Bank Publications Jurenas Remy (2006): Agriculture in the U. S. -Dominican Republic-Central American Free Trade Agreement (DR-CAFTA). Retrieved on 25th November 2008 from; http://www. nationalaglawcenter. org/assets/crs/RL32110. pdf Stopcafta (2006): Monitoring report: DR-CAFTA in Year One. Retrieved on 25th November 2008 from; http://www. cispes. org/cafta/CAFTA_Monitoring_sept12.
pdf. The Washington Times, (July 11, 2005): Bitterness over CAFTA; Sugar Industry Fights Free-Trade Agreement. The Washington Times, (June 15, 2005): Senate Committee Votes for CAFTA; Deal Bitter to U. S. Sugar Industry. Vasquez Ian (2002): U. S. Policy toward Latin America. Retrieved on 24th November 2008 from; http://www. cato. org/pubs/handbook/hb108/hb108-65. pdf World Bank (nd. ): DR-CAFTA: Challenges and Opportunities for Central America. Retrieved on 25th November 2008 from; http://siteresources. worldbank. org/LACEXT/Resources/258553-1119648763980/DR_CAFTA_Challenges_Opport_Final_en. pdf