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International Trade – Central American Free Trade Agreement

The Central American Free Trade Agreement (CAFTA) is a free trade agreement. Free trade involves the import and export of goods and services between countries without the imposition of any duties or tariffs, which are taxes placed by a country on goods coming into it from a foreign country. The negotiation of a free trade agreement by two or more countries usually contemplates the eventual elimination of all such taxes.


The United States, Guatemala, El Salvador, Honduras, and Nicaragua agreed to pursue CAFTA in 2003. Costa Rica was one of the original negotiating parties to the agreement, but did not agree to join until early 2004. In 2004, the Dominican Republic also agreed to join the free trade agreement.


The parties that negotiated CAFTA have not yet signed the agreement or ratified it. Thus, the agreement is not yet in force. The parties are conducting a legal review of the CAFTA document to ensure that it properly reflects the agreements reached during the negotiations.


CAFTA was created with the intent to form a free trade zone within the Central Americans and the United States. It is a necessary step prior to formation of the Free Trade of the Americas (FTAA), a proposed free trade agreement that would include North America, the Caribbean, Central American, and South America.

If CAFTA enters into force, it will progressively remove duties and tariffs on the trade of products among CAFTA members over a period of time. It will provide that public services are open to private investment. It contemplates that all government contracts for purchases be open to transnational bids. CAFTA members will commit to eliminate subsidies and all other protectionist measures on agricultural imports.

Copyright 2015 LexisNexis, a division of Reed Elsevier Inc.