CAFTA

Definition

CAFTA, or the Central America-Dominican Republic Free Trade Agreement, is a trade agreement that establishes a free trade area between the United States and several Central American countries, including Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic. The agreement aims to promote economic integration and facilitate the flow of goods, services, and investment among the participating nations.

5 Must Know Facts For Your Next Test

1. CAFTA was signed in 2004 and entered into force in 2006, with the Dominican Republic joining in 2007.
2. The agreement aims to promote economic growth, reduce poverty, and improve living standards in the participating countries.
3. CAFTA eliminates tariffs on most goods traded between the United States and the Central American countries, with some exceptions for sensitive products.
4. The agreement also includes provisions for the protection of intellectual property rights, investment, and dispute settlement mechanisms.
5. CAFTA is seen as a way for the United States to strengthen its economic ties with the Central American region and counter the influence of other economic powers, such as China, in the region.

Review Questions

• Explain the primary goals and objectives of CAFTA.
  • The primary goals and objectives of CAFTA are to promote economic growth, reduce poverty, and improve living standards in the participating countries by eliminating or reducing barriers to the free flow of goods, services, and investment between the United States and the Central American countries. CAFTA aims to achieve this by establishing a free trade area, which involves the elimination of tariffs and other trade barriers, as well as the implementation of provisions for the protection of intellectual property rights and investment.
• Describe the role of CAFTA in the context of international economic communities.
  • CAFTA is an example of a regional trade agreement, which is a type of international economic community. Regional trade agreements, such as CAFTA, are formed between countries in a specific geographic region to facilitate the free movement of goods, services, and investment within that region. CAFTA is significant in the context of international economic communities because it represents an effort by the United States to deepen its economic ties with the Central American region and counter the influence of other economic powers, such as China, in the region. Additionally, CAFTA is part of a broader trend towards regional economic integration, which has been a key feature of the global economy in recent decades.
• Analyze the potential impact of CAFTA on the participating countries' economies and their relationships with the United States.
  • CAFTA has the potential to significantly impact the participating countries' economies and their relationships with the United States. By eliminating or reducing trade barriers, CAFTA is expected to increase the flow of goods, services, and investment between the United States and the Central American countries, potentially leading to increased economic growth, job creation, and improved living standards in the region. However, the agreement may also have unintended consequences, such as the displacement of domestic industries that are unable to compete with cheaper imports from the United States. Additionally, CAFTA represents a strategic move by the United States to strengthen its economic influence in the Central American region, which could have implications for the participating countries' relationships with other global powers, such as China.

Related terms

Free Trade Agreement:

A free trade agreement is a pact between two or more countries to eliminate or reduce tariffs, quotas, and other barriers to the free flow of goods, services, and investment between them.

Economic Integration:

Economic integration refers to the process of eliminating or reducing barriers to the free movement of goods, services, capital, and labor between countries, leading to the creation of a single, larger market.

Tariff:

A tariff is a tax or duty imposed on goods imported from another country, typically to protect domestic industries from foreign competition.