BUSINESS SECTION

Australia and DR-CAFTA
By Ryan T. Singer, Economic Research Bureau, San Diego Regional Chamber of Commerce

San Diegans are savvier than most when it comes to free trade agreements. The impacts of the North American Free Trade Agreement (NAFTA) are well known. However, most don’t know that the U.S. signed bilateral free trade agreements with Australia and the Dominican Republic–Central America in the last 12 months or what those free trade agreements entail.

Congressional ratification of the Dominican Republic-Central America Free Trade Agreement (DR-CAFTA) would place the final seal of approval on an agreement to mutually reduce tariffs, or taxes, on goods traded between the nations of: the U.S., Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua (collectively “Central America”) and the Dominican Republic. Implementation of the agreement would bind all countries to abide by the rights and obligations of the World Trade Organization. The member countries might not discriminate against each other’s goods and must abide by the agreement to reduce or eliminate all tariffs.

According to the Office of the United States Trade Representative (USTR), more than $15 billion dollars in U.S. exports went to the countries of the DR-CAFTA in 2003. Eighty percent of U.S. exports of consumer and industrial goods will become duty-free in the DR-CAFTA countries immediately. Tariffs on most agricultural goods will be immediately eliminated, with the exception of sugar, which will be traded on a quota system. Almost all tariffs on textiles will be eliminated, subject to rules of origin. Rules of origin state that a majority of refining and production activities need to take place within the constituent countries to be eligible for tariff free trade. Free trade in professional and financial services and transparency for investors is also ensured.

Many other issues were addressed such as controlling monopoly power, intellectual property rights, telecommunications and the environment. Importantly, CAFTA was the most expansive agreement in terms of labor regulations.

Negotiations for the United States–Australian Free Trade Agreement concluded during the summer of 2004. The bilateral trade agreement will eliminate 99 percent of duties, or taxes on industrial and consumer goods immediately. Other tariffs will be gradually reduced over a ten-year period after the agreement is adopted. The Office of the United States Trade Representative reports that 93 percent of current exports to Australia are manufactured goods and predicted that the agreement will produce $300 million in savings for U.S. exporters during the first year of implementation. Tariffs on several U.S. exports of agricultural products, like processed fruits and vegetables and dairy, will remain or be gradually reduced. The agreement with Australia extends into the same areas as CAFTA.

These free trade agreements should translate into more opportunities for San Diego because of its established trade relations with all of these countries. In 2004 Australia was the 17th largest recipients of San Diego exports by value and the 13th largest source of San Diego imports by value. Most of the CAFTA countries are not large trading partners for San Diego, but represent a valuable opportunity given San Diego’s unique trade relations with Central and Latin American countries.

Small Countries, BIG Markets

The U.S. exports more than $15 billion annually to Central America and the Dominican Republic, making the region the United States’ 14th-largest export market, or the 10th-largest if the European Union is considered a single destination.

Central America and the Dominican Republic are the 2nd-largest U.S. export market in Latin America, behind only Mexico. The region is a larger U.S. export market than Russia, India and Indonesia combined.

CAFTA is the largest potential FTA partner for U.S. exports since NAFTA, and is slightly larger than Australia as an export destination. The American Farm Bureau Federation estimates CAFTA would expand U.S. farm exports by $1.5 billion a year.

The countries covered by CAFTA-DR are America’s 2nd largest export market after Mexico for textile fabric and yarn, and a far-larger customer of US-made textiles than emerging competitors like China:

Note: The Central American countries of Belize and Panama are not part of CAFTA.

Article courtesy of San Diego Regional Chamber of Commerce monthly bulletin.

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