Agriculture in the U.S.-Dominican Republic-Central American Free Trade Agreement (DR-CAFTA)

CRS Report for Congress
Agriculture in the U.S.-Dominican Republic-
Central American Free Trade Agreement
Updated July 21, 2006
Remy Jurenas
Specialist in Agricultural Policy
Resources, Science, and Industry Division

Congressional Research Service ˜ The Library of Congress

Agriculture in the U.S.-Dominican Republic-
Central American Free Trade Agreement (DR-CAFTA)
On August 2, 2005, President Bush signed into law the bill to implement the
Dominican Republic-Central American Free Trade Agreement, or DR-CAFTA (P.L.
109-53, H.R. 3045). Drawing much attention during congressional debate were the
agreement’s sugar provisions to allow additional sugar from the region to enter the
U.S. market. To assuage concerns expressed by some Members, the Administration
pledged prior to Senate passage to take steps to ensure that all sugar imports,
including those under DR-CAFTA, do not exceed a “trigger” that could undermine
the U.S. Department of Agriculture’s ability to manage the domestic sugar program.
Sugar producers and processors responded that USDA’s pledge did not address their
long-term concerns, and continued last-minute efforts to defeat the agreement.
In DR-CAFTA, the United States and six countries will completely phase out
tariffs and quotas — the primary means of border protection — on all but four
agricultural commodities traded between them in stages up to 20 years. The four
exempted products are as follows: for the United States, sugar; for Costa Rica, fresh
onions and fresh potatoes; and for the four other Central American countries, white
corn. The Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua
have approved the agreement; Costa Rica’s legislature is currently considering it. As
it takes effect on a rolling basis, the U.S. agricultural sector will over time gain free
access to the six highly protected markets on a reciprocal basis, matching these
countries’ current duty-free entry for nearly all their agricultural exports to the United
States. Other provisions establish safeguards for specified agricultural products to
protect U.S. and the region’s producers from sudden import surges; prohibit the use
of export subsidies between partners; and establish a mechanism to address sanitary
and phytosanitary barriers to agricultural trade.
DR-CAFTA’s provisions, once fully implemented, are expected to result in
trade gains, though small, for the U.S. agricultural sector. The U.S. International
Trade Commission (ITC) estimates that $328 million in additional exports (primarily
grains, meat products, and processed food products) would be offset by a $52 million
increase in imports (largely reflecting additional access granted for sugar and beef
from the six countries). Of the $2.7 billion increase in total U.S. exports that the ITC
projects under DR-CAFTA, 12% would be attributable to the U.S. agricultural sector.
Most U.S. commodity groups, agribusiness and food manufacturing firms, and
the American Farm Bureau Federation (a general farm organization) supported DR-
CAFTA, expecting to benefit from the guaranteed increased access to these six
markets. Cotton producers announced their support only after one major textile trade
association came out in favor of it. The U.S. sugar industry strongly opposed the
additional access for sugar imports from these countries, fearing its economic impact
on domestic producers and processors. Two cattlemen trade organizations held
differing positions on the agreement’s beef provisions. The National Farmers Union
(a general farm organization) opposed DR-CAFTA. Congress is expected to monitor
developments on DR-CAFTA implementation during the second session of the 109th
Congress. This report will be updated.

Most Recent Developments..........................................1
U.S. Agricultural Trade with DR-CAFTA Countries......................1
Exports ..................................................1
Imports ..................................................2
Trade Balance............................................2
Barriers to Agricultural Trade Used by Central America,
the Dominican Republic, and the United States......................3
Negotiating Objectives for Agriculture.................................5
DR-CAFTA’s Main Agricultural Provisions.............................6
Market Access for U.S. Agricultural Products Sold to Central America
and the Dominican Republic.....................................7
Market Access for Central American and Dominican Republic’s
Agricultural Products Sold to the United States......................8
Potential Impacts of DR-CAFTA on Agricultural Trade and Sectors..........8
U.S. Agriculture and Food Sectors’ Views on DR-CAFTA’s
Agricultural Provisions........................................12
Commodity and Food Trade Associations..........................12
Processed Foods..........................................12
Rice ...................................................13
Pork ...................................................13
Corn and Corn Products....................................14
Poultry .................................................14
Dairy Products...........................................15
Sugar ..................................................16
Background on Sugar Deal.............................18
Congressional Budget Office Estimate....................19
Cotton ..................................................20
Beef ...................................................21
General Farm Organizations....................................22
Trade Advisory Committees....................................23
Observations ....................................................23
U.S. Debate.................................................24
Debate in Central America......................................25

Table 1. U.S. Agricultural Trade with Countries Covered by the DR-CAFTA,
2004 ........................................................2
Table 2. Average Tariffs and Tariff-Rate Quotas on Agricultural Imports:
United States and the DR-CAFTA Countries........................4
Table 3. Impact of DR-CAFTA on U.S. Trade, by Economic Sector........10
Table 4. Impact of DR-CAFTA on U.S. Agricultural Trade...............11
CRS Report RL31870, The Dominican Republic-Central America-United States Free
Trade Agreement (DR-CAFTA), by J.F. Hornbeck.
CRS Report RL32322, Central America and the Dominican Republic in the Context
of the Free Trade Agreement (DR-CAFTA) with the United States, coordinated by K.
Larry Storrs.
CRS Report RS21868, U.S.-Dominican Republic Free-Trade Agreement, by Lenore

Agriculture in the U.S.-Dominican Republic-
Central American Free Trade Agreement
Most Recent Developments
On December 30, 2005, the Office of the U.S. Trade Representative (USTR)
announced that the United States will implement the Dominican Republic-Central
American Free Trade Agreement (DR-CAFTA) “on a rolling basis as countries make
sufficient progress” in completing their commitments under the agreement. Steps
include each country’s adoption of relevant new laws and regulations necessary to
put DR-CAFTA into effect, and the completion of a final review of implementation
details with the United States. To date, USTR has confirmed the completion of these
steps for four countries. Accordingly, President Bush issued proclamations to
implement U.S. commitments under DR-CAFTA with respect to El Salvador,
effective March 1, 2006; Honduras and Nicaragua, effective April 1, 2006; and
Guatemala, effective July 1, 2006. Observers expect the Dominican Republic to be
added to this list later this year, and Costa Rica likely early in 2007 if its legislature
approves the agreement.
On July 10, 2006, the U.S. Department of Agriculture (USDA) issued a report
examining the economic feasibility of converting sugarcane, sugar beets, raw cane
sugar and refined sugar into ethanol. The study concluded that while such conversion
would be profitable with current high demand for ethanol and record ethanol prices,
it would be unprofitable when compared to ethanol prices projected for mid-2007.
This report reflects a USDA commitment made during last summer’s DR-CAFTA
debate to study alternatives for sugar imported under this and other free trade
agreements that could add to U.S. sugar supplies and depress domestic sugar prices.
U.S. Agricultural Trade with DR-CAFTA Countries
Exports. U.S. agricultural exports in 2004 to the six countries covered by the
DR-CAFTA (Costa Rica, the Dominican Republic, El Salvador, Guatemala,
Honduras, and Nicaragua) totaled $1.7 billion, and represented almost 3% of U.S.
worldwide sales (see Table 1). These countries combined represented the seventh-
largest export market for U.S. agricultural products after Canada, Japan, Mexico,
China, South Korea, and Taiwan. Leading exports were corn, wheat, rice, soybean
meal, and tobacco. The Dominican Republic was the largest market — with $462
million in sales that accounted for 27% of all agricultural exports to the region,
followed by Guatemala ($383 million with a 23% share). U.S. farm exports
accounted for 11% of total U.S. merchandise exports to the six countries, and have
increased 56% in value terms since 1995.

Imports. Agricultural imports from these six countries equaled almost $2.5
billion, or nearly 5% of all U.S. farm and food imports (see Table 1). These
countries combined ranked as the fourth-largest source of U.S. agricultural imports
in 2004. U.S. purchases of bananas, raw coffee, other fresh fruit, raw cane sugar, and
fresh and frozen vegetables led the list. Costa Rica was the largest supplier of food
products — shipping $899 million, or 37% of all agricultural imports from the
region, followed by Guatemala ($784 million, or 32%). U.S. farm imports accounted
for 14% of total U.S. merchandise imports from the six countries, and have grown
by 23% in dollar terms over the last decade.
Table 1. U.S. Agricultural Trade with
Countries Covered by the DR-CAFTA, 2004
Country/U.S.AgriculturalShare of U.S.Ag Exports U.S.AgriculturalShare of U.S.Ag Imports
RegionExportsTo RegionImportsFrom Region
million $percentmillion $percent
Costa Rica282 16.6 899 36.5
Dominican462 27.1 260 10.6
El Salvador245 14.4 101 4.1
Guatemala383 22.5 784 31.8
Honduras220 12.9 263 10.7
Nicaragua113 6.6 158 6.4
Total $1,705100.0$2,466100.0
SHARE TO /2.8%4.6%
Source: U.S. Department of Agriculture (USDA), Foreign Agricultural Service.
Notes: Exports refer to domestic exports. Imports refer to imports for U.S. consumption only.
a. Of U.S. agricultural exports of almost $61.4 billion to the world.
b. Of U.S. agricultural imports of $54.0 billion from the world.
Trade Balance. The United States in 2004 recorded an agricultural trade
deficit of $761 million with the six countries covered by the DR-CAFTA. However,
if shipments of bananas and coffee — two tropical products produced in very small
amounts domestically — are excluded from U.S. imports from this region, bilateral
trade with these countries would have resulted in an agricultural trade surplus of
$394 million in 2004.
Entries under two unilateral U.S. trade preference programs (the Caribbean
Basin Initiative and the Generalized System of Preferences) accounted for almost

47% of U.S. agricultural imports from the six countries in 2004 — meaning they

entered duty free. Practically all other agricultural imports (primarily tropical
products such as bananas and raw coffee) entered at MFN zero duty rates.1 Though
imports of certain commodities (sugar, beef, dairy products, peanuts, tobacco, among
others) that the United States protects using tariff-rate quotas (TRQs) generally
entered duty-free, amounts allowed to enter were limited by quotas.2
Barriers to Agricultural Trade Used by
Central America, the Dominican Republic,
and the United States
The United States and the six countries primarily use tariffs and TRQs to protect
their agricultural sectors. The five Central American countries and the Dominican
Republic committed under the multilateral Uruguay Round Agreement on
Agriculture (URAA) to bind their average tariffs on agricultural imports at relatively
high levels (ranging from Honduras’s 35% to Nicaragua’s 73%), compared to the
U.S. commitment to bind its average rate at 12%.3 However, in practice, the six
countries generally have imposed much lower average tariffs on agricultural imports
(with applied tariffs ranging from 6.7% in Nicaragua to 23.3% in the Dominican
Republic), and at times have allowed larger amounts of commodities than spelled out
in their TRQ minimum commitments to enter duty free or at a lower duty.4 The
average U.S. applied tariff on imports from these six countries is very low (0.2%)
when U.S. trade preference benefits are taken into account (see Table 2). These

1 The United States grants eligible developing countries unilateral preferential tariff
treatment under these two and other programs, meaning imports are eligible for lower than
MFN (most favored nation) rates (in practice, zero or very low duty). Such treatment gives
their products a competitive advantage in the U.S. market. The trade preference programs’
and MFN shares are derived from the U.S. International Trade Commission’s “Interactive
Tariff and Trade Dataweb.”
2 A TRQ combines two policy instruments that nations use to restrict imports: quotas and
tariffs. In a TRQ, the quota component works together with a specified tariff level to
provide the desired degree of import protection. Imports entering under the quota portion
of a TRQ are usually subject to a lower, or sometimes a zero, tariff rate. This “in-quota”
amount represents the minimum that a country has committed to allow to enter under
multilateral or other trade agreements. Imports above the quota’s quantitative threshold
(referred to as above-quota) face a much higher (usually prohibitive) tariff.
3 The global average bound tariff on agricultural imports is 62% (U.S. Department of
Agriculture (USDA), Economic Research Service, Profiles of Tariffs in Global Agricultural
Markets, January 2001, p. 11). A “bound” tariff rate represents the maximum that a country
agrees to impose on the value of imports of a particular product, and is based on the
outcome of negotiations under the last multilateral negotiations (the Uruguay Round).
These bound rates are incorporated as an integral component of a country’s schedule of
concessions or commitments to other World Trade Organization members. However, for
various reasons, a country may decide to impose a lower, or “applied,” tariff rate.
4 For example, for 2005, Guatemala increased the TRQ on yellow corn imports to 600,000
metric tons (MT). Imports within the TRQ are subject to a 5% tariff; imports above the
quota amount face a 35% tariff (F.O. Licht’s World Grain Markets Report, January 12,
2005, p. 11). Under its WTO commitments, Guatemala agreed to a minimum corn TRQ of

88,670 MT, but has raised this several times.

applied tariff averages, though, understate the higher level of border protection the
United States and the six countries provide their most sensitive agricultural products
through the use of quotas and other restrictive measures.
Table 2. Average Tariffs and
Tariff-Rate Quotas on Agricultural Imports:
United States and the DR-CAFTA Countries
B o unda Tar i f f
RateRateTariff-Rate Quotas
United States12.012.0 bdairy products, sugar, sugar-containingproducts, peanuts, tobacco, cotton, beef
Costa Rica48.014.6pork, poultry, dairy products, beef, rice,corn, beans, sugar, tobacco
Dominican40.023.3chicken meat, onions, garlic, powdered
Republicmilk, dry beans, corn, rice, sugar
El Salvador43.210.3beef, dairy products, yellow corn,vegetable oils, sugar, tobacco
Guatemala58.39.9apples, yellow corn, rice, wheat or meslinflour
Honduras35.011.1None — uses a price band for grains and acommodity absorption arrangement
corn, rough & milled rice, sorghum,
Nicaragua73.4 6.7vegetable oil, beans, beef, poultry, dairy
products, sugar
Source: U.S. Trade Representative (USTR) and U.S. International Trade Commission (ITC) for
bound and applied rates; World Trade Organization (WTO) for commodities subject to TRQs.
Note: Reflects level of protection before DR-CAFTA was negotiated.
a. 2001 for United States, 2000 for the Central American countries and the Dominican Republic.
b. The U.S. applied tariff on agricultural imports from the five Central American countries and the
Dominican Republic is much lower — 0.02%, reflecting duty-free treatment of imports that
entered under two trade preference programs and the commodity/product composition of
imp o r ts.
Once DR-CAFTA takes effect, almost all tariffs and quotas on agricultural
products imported by the six countries from the United States, and by the United
States from these countries, will be phased out completely (see below for details).
Each country’s agricultural imports from the rest of the world, though, will continue
to be subject to the tariff levels and quotas negotiated under the URAA or under
separate bilateral FTAs each has entered into with other trading partners.

Negotiating Objectives for Agriculture
U.S. objectives in negotiating DR-CAFTA’s agricultural provisions were to (1)
eliminate Central American and Dominican Republic tariffs, quotas, and non-tariff
barriers to trade, (2) provide adequate transition periods and relief mechanisms for
the U.S. agricultural sector to adjust to increased imports of sensitive products from
the region, (3) eliminate any unjustified sanitary and phytosanitary (SPS) restrictions
imposed by the six countries and seek their affirmation of their World Trade
Organization (WTO) commitments on SPS measures, and (4) develop a mechanism
with its FTA partners to support the U.S. objective to eliminate all agricultural export
subsidies in the WTO and Free Trade Area of the Americas (FTAA) negotiations.5
The U.S. position called for no product or sectoral exclusions from the final
agreement. U.S. officials also repeatedly made clear that the issue of U.S. farm
support or subsidies, which the Central American countries sought to place on the
negotiating table, should only be addressed in WTO multilateral negotiations.
Almost all of the agricultural exports to the United States from the FTA partner
countries already enter duty free under trade preference programs or at MFN zero
rates. Consequently, the six countries were most interested in securing unrestricted
market access for those commodities now subject to U.S. TRQs: sugar and certain
sugar-containing products, beef, dairy products, peanuts, tobacco, and cotton.
However, Central American and Dominican Republic negotiators expressed fears
that opening up their markets to U.S. corn and rice would undermine the region’s
small subsistence farmers unable to compete against subsidies that U.S. producers
receive under current farm programs. Though these countries had pressed to include
the subsidy issue on the negotiating agenda, they eventually did accept the U.S.
position that this issue should be addressed multilaterally in the WTO context.

5 The WTO Doha Development Agenda (DDA) Round’s objectives for agriculture are to
substantially improve market access for agricultural products, reduce and phase out export
subsidies, and substantially reduce trade-distorting domestic support. For more information,
see CRS Report RL33144, WTO Doha Round: Agricultural Negotiating Proposals, by
Charles Hanrahan and Randy Schnepf. For an explanation of agricultural trade
liberalization in the last multilateral agreement, see CRS Report RL32916, Agriculture in
the WTO: Policy Commitments Made Under the Agreement on Agriculture, by Randy
Schnepf. The FTAA’s stated objectives are to reduce and eliminate barriers to trade in
goods (including agricultural commodities and food products) and services, facilitate cross-
border investment, among others, to allow 34 countries of the Western Hemisphere
(excluding Cuba) to trade and invest with each other under the same rules. Participating
countries initiated formal talks in 1998 with a target of creating a hemispheric free trade area
by January 2005, which was not met. Many observers do not expect the FTAA process to
proceed further, until substantial progress occurs in the DDA Round negotiations. For
additional background, see CRS Report RL30935, Agricultural Trade in the Free Trade
Area of the Americas, by Remy Jurenas, and CRS Report RS20864, A Free Trade Area of
the Americas: Major Policy Issues and Status of Negotiations, by J.F. Hornbeck.

DR-CAFTA’s Main Agricultural Provisions
In the agreement, the United States and the six countries agreed to completely
phase out tariffs and quotas — the primary means of border protection — on all but
four agricultural commodities and food products in seven stages either immediately
or over 5, 10, 12, 15, 18, or 20 years. The four most sensitive commodities — fresh
potatoes and fresh onions imported by Costa Rica, white corn imported by the other
four Central American countries, and sugar entering the U.S. market — will be
treated uniquely. After a specified period, the size of the quotas established for these
four commodities will increase about 2% each year in perpetuity. In other words,
a cap limiting imports will always be in place. The tariff on entries above the quota
level (frequently referred to as the over-quota tariff) will not decline at all, but stay
at current high levels to keep out above-quota imports, in order to protect producers
of the four commodities.
For all other sensitive products that fall into any of the over-10-year transition
periods, negotiators on all sides agreed to provide some measure of protection.
While details vary by commodity and food product, these will take the form of tariff-
rate quotas effective only during the transition to free trade, long tariff and quota
phase-out periods, nonlinear tariff reductions, and the use of an import safeguard
mechanism. Nonlinear refers to a practice known as “backloading,” where most of
the decline in a tariff occurs in the last few years of the transition period. Safeguards
will serve to protect agricultural producers from sudden surges in imports, triggered
when quantities increase above specified levels. When triggered, an additional duty
— temporary in duration — is applied to provide protection, according to detailed
terms found in annexed schedules. Each country negotiated its own list of
agricultural products eligible for safeguard protection. A country’s right to use
safeguards will expire at the end of the transition period.
All countries commit under DR-CAFTA not to introduce or maintain
agricultural export subsidies to sell commodities or food products to each other.
Such subsidies, though, are allowed to counter the trade-distorting effects of exports
subsidized by third countries if an exporting country and an importing country fail
to agree on counter measures.
Rules of origin specify what is required for a product to be considered to have
been produced or processed in a country that is a party to a trade agreement. They
are used to determine whether a product benefits from an FTA’s preferential terms
(e.g., duty-free and/or additional quota access).
The agreement commits all countries to apply the science-based disciplines of
the WTO Agreement on Sanitary and Phytosanitary (SPS) Measures to facilitate
trade.6 Should disagreements arise, a working group will serve as a forum for

6 This multilateral agreement includes understandings or disciplines on how countries will
establish and use measures to protect “human, animal or plant life or health,” taking into
account their direct or indirect impact on trade in agricultural products. It requires countries
to base their SPS standards on science, and encourages countries to use standards set by
international organizations to guide their actions. The agreement seeks to ensure that

consultations and resolving technical issues. The text precludes the use of DR-
CAFTA’s dispute settlement provisions to resolve differences when SPS problems
cannot be resolved.
Market Access for U.S. Agricultural Products Sold
to Central America and the Dominican Republic
The DR-CAFTA will grant immediate duty-free status to more than half of the
U.S. farm products now exported to the six countries, according to the Office of the
U.S. Trade Representative (USTR).7 Such treatment will apply to high-quality beef
cuts, cotton, wheat, soybeans, certain fruits and vegetables, processed food products,
and wine destined for the five Central American countries. U.S. exports of corn,
cotton, soybeans, and wheat to the Dominican Republic will benefit also from
immediate duty-free treatment. Central American tariffs and quotas on most other
agricultural products (pork, beef, poultry, rice, other fruits and vegetables, yellow
corn, and other processed products) will be phased out over a 15-year period. Longer
transition periods will apply to imports from the United States of rough/milled rice
and chicken leg quarters (18 years) and dairy products (20 years). Dominican
Republic tariffs and quotas on most other U.S. agricultural products (beef, pork, and
selected dairy and poultry products) will be eliminated over 15 years. However,

20-year transitions will cushion the impact of the entry of U.S. chicken leg quarters,

rice, and certain dairy products (cheese and milk products).8 An overview of these
countries’ DR-CAFTA commitments with respect to imports from the United States
of selected commodities appears in the section “U.S. Agriculture and Food Sectors’
Views on DR-CAFTA’s Agricultural Provisions,” below.
With El Salvador, Guatemala, Honduras, and Nicaragua designating white corn
as their most sensitive agricultural commodity (produced by subsistence farmers and
used as a staple to make tortillas), negotiators agreed to establish a quota (i.e., equal
to the current import level) that increases about 2% annually in perpetuity.
Compared to all other commodities imported from the United States, there will be
no reduction in the over-quota tariff for white corn. U.S. exports of fresh potatoes
and onions to Costa Rica would be subject similarly to quotas that increase slowly
in perpetuity but face permanent high over-quota tariffs.

6 (...continued)
countries will not use SPS measures to arbitrarily or unjustifiably discriminate against the
trade of other WTO members or to adopt them to disguise trade restrictions.
7 USTR, “Free Trade with Central America: Summary of the U.S.-Central America Free
Trade Agreement,” December 17, 2003; “Putting CAFTA into Perspective: Fact Sheet on
Agriculture,” February 9, 2004; “Fact Sheet on Specific Agricultural Products in CAFTA,”
March 9, 2004; “Adding Dominican Republic to CAFTA: Combining to Create America’s
Second-Largest Export Market in Latin America,” March 15, 2004 (available at [http:// rade_Agr eements/Bilateral/CAFT A/Section_Index.html ]).
8 The U.S. Department of Agriculture has issued fact sheets that detail the DR-CAFTA’s
provisions for beef, cookies, cotton, dairy products, pet food, feed grains (corn, sorghum,
barley) and food grains (wheat and rice), fruits and nuts, peanuts and peanut butter, pork,
poultry, pulses (beans, lentils, peas), soups, soybean oil, soybeans and soymeal, sugar, and
vegetables (at []).

USTR further states that U.S. agricultural products will have “generally better”
access to the Central American countries than is given to similar imports from
Canada, Europe, and South America. The six FTA partners also agreed to “move
toward recognizing export eligibility for all U.S. plants inspected under the U.S. food
safety and inspection system.”
Market Access for Central American and
Dominican Republic’s Agricultural Products
Sold to the United States
Almost all agricultural imports (in value terms) from the six countries already
enter the U.S. market duty free. DR-CAFTA, according to USTR, “will consolidate
those benefits [immediately] and make them permanent.” For the U.S. sensitive
agricultural products (sugar, sugar-containing products, beef, peanuts, dairy products,
tobacco, and cotton), U.S. negotiators granted duty-free access in the form of
country-specific preferential quotas. These quotas would be in addition to (i.e., not
carved out of) the existing agricultural TRQs established by the United States under
its existing WTO commitments, which the six countries have taken advantage of
historically to export to the U.S. market.
Because of its sensitivity, the United States will similarly treat sugar imports as
the four Central American countries protect white corn imports. The new sugar
quotas would expand gradually each year, but the high and prohibitive over-quota
tariff will remain unchanged, in perpetuity. Details on the U.S. provisions for sugar
and other selected commodities are provided in the section “U.S. Agriculture and
Food Sectors’ Views on DR-CAFTA’s Agricultural Provisions,” below.
Potential Impacts of DR-CAFTA on
Agricultural Trade and Sectors
In an economy-wide, quantitative analysis of the DR-CAFTA, the U.S.
International Trade Commission (ITC) projects that 12% of the agreement’s overall
export gains would flow to U.S. agriculture. Two-thirds of the export gains would
be realized by the U.S. manufacturing (36%) and textile (30%) sectors (see Table 3).9

9 U.S. International Trade Commission (ITC), U.S.-Central America-Dominican Republic
Free Trade Agreement: Potential Economywide and Selected Sectoral Effects, Publication
3717, August 2004 (available at []). This
summary is based on Tables 4-4 and 4-5 (pp. 75-76) and the accompanying text. This
assessment used a general equilibrium simulation to look at the impact of the agreement’s
market access provisions on all U.S. economic sectors, taking also into account each sector’s
relative economic importance. Because the ITC used two different data and analytical
frameworks, this quantitative assessment is not directly comparable to the sectoral analyses
for the grains and sugar sectors. The latter involved ITC’s qualitative analysis of the
agreement’s detailed provisions, which are summarized in the following paragraphs.

Textile imports from the six countries would account for almost all of the
growth in total U.S. imports under full implementation of the agreement, according
to the ITC. Additional U.S. agricultural imports would represent almost 2% of the
import change under DR-CAFTA. The ITC analysis shows small negative changes
in imports of manufactured products, energy and other raw materials, and services
(see Table 3).
Increases in U.S. sugar, meat, and dairy imports (due to the expansion and/or
elimination of U.S. agricultural TRQs under DR-CAFTA) would be offset to some
degree by a drop in imports of vegetables, fruits, nuts, processed food and tobacco
products, and other crops imported from the six countries. According to the ITC,
these small declines would largely reflect the movement of labor and resources in the
DR and Central American countries away from producing the latter products (which
already benefit from preferential duty-free access to the U.S. market) to the more
profitable textile, apparel, leather products, and sugar sectors, which expand output
to take advantage of the agreement’s openings in the U.S. market. Under DR-
CAFTA, U.S. agricultural imports from the six countries would increase 1.3%
(Table 4). This $52 million in net imports would equal one-tenth of 1% of total U.S.
agricultural imports ($73 billion, according to the ITC).
ITC’s qualitative analysis examined how two agricultural commodity sectors
would be affected over time — grains and sugar. U.S. corn and rice exports to the
region would see little change in the short term, but would rise as the six countries’
quotas expand. Once quotas are fully phased out, U.S. grain exports are expected to
increase substantially. The ITC estimates that by the end of the 15-20 year transition
period, annual U.S. grain exports to the region likely would increase by at least 20%
($120 million), based on 2003 prices — broken out among corn ($75 million), rough
rice ($35 million), and milled rice ($10 million). Though the impact of these
additional sales in the long run is small (equal to 1.2% of 2003 U.S. grain exports
worldwide), the ITC views the potential increase as offering significant market
opportunities for U.S. corn and rice producers. The ITC further found that the U.S.
grains sector would, of all economic sectors, experience the most noticeable positive
changes, though very small. Grain output, revenues, and employment would rise
between one-quarter to one-third of 1%.10
The ITC expects that the DR-CAFTA’s sugar provisions likely would result in
a “small increase” in U.S. sugar and sugar-containing product (SCP) imports from
the region equal to the quantities spelled out in the new preferential quotas. Prices
(calculated to drop by about 1%) due to increased imports “likely would have an
adverse impact on production and employment for U.S. sugar producers.” At the
same time, lower prices “likely would benefit production and employment for U.S.
producers of certain SCPs,” particularly of those containing high sugar content. The
ITC’s analysis further shows that the U.S. sugar manufacturing and sugar crops
sectors would both experience the largest percentage decrease of all sectors in
domestic output and employment — more than 2%.11

10 Ibid., pp. 51-52, 78-79.
11 Ibid., pp. 46-47, 78-79.

Table 3. Impact of DR-CAFTA on U.S. Trade, by Economic Sector
U.S. Exports to DR-CAU.S. Imports From DR-CA
Base ValueChange to Base afterFTA FullShare ofExportBase ValueChange to Base afterFTA FullShare ofImport
before FTAImplementationChangebefore FTAImplementationChange
million $percent million $percent
riculture1,921.9+ 328.4+ 12.34,065.7+ 52.1+ 1.9
iki/CRS-RL32110pparel, and
g/w5,350.0 + 802.8+ 30.111,763.9+ 3,067.5+ 110.5
leak5,561.5+ 967.8+ 36.33,434.7 — 170.3 — 6.1
://wikiy, Minerals and
httpher Raw Materials and3,770.6+ 533.5+ 20.01,306.1 — 73.2 — 2.6
ices710.4+ 32.8+ 1.21,738.3 — 100.0 — 3.6
TOTAL 17,314.0+ 2,666.6100.022,308.6+ 2,776.2100.0
Adapted by CRS from Table 4.4 in ITCs U.S.-Central America-Dominican Republic Free Trade Agreement: Potential Economywide and Selected Sectoral Effects, p. 75.
“Total may not add due to rounding.

Table 4. Impact of DR-CAFTA on U.S. Agricultural Trade
U.S. Exports to DR-CAU.S. Imports From DR-CA
Base Value beforeChange after FTA Base Value beforeChange after FTA
FTAFull ImplementationFTAFull Implementation
million $percent million $percent
riculture1,921.9+ 328.417.14,065.7+ 52.11.3
iki/CRS-RL32110722.8+ 157.321.
g/w204.0+ 13.216.7
leak639.7+ 53.58.41,126.2 — 25.5 — 2.3
://wiki237.6+ 17.37.3746.0 — 19.3 — 2.6
getables, Fruits & Nuts 53.8+ 7.714.21,717.5 — 31.5 — 1.8
Products22.9+ 5.925.84.7+ 2.962.2
al Products n.e.c. 37.3+ 1.74.561.8 — 0.9 — 1.4
ar Manufacturing0.4+ 0.6166.4329.3+ 113.234.4
ttle & Horses 3.4+ 0.310.
ar Crops0.00.0NA0.00.0NA
Adapted by CRS from Table 4.4 in ITCs U.S.-Central America-Dominican Republic Free Trade Agreement: Potential Economywide and Selected Sectoral Effects, p. 75.
- Not applicable

U.S. Agriculture and Food Sectors’ Views on
DR-CAFTA’s Agricultural Provisions
Most U.S. commodity organizations, agribusiness and food firms, and the
American Farm Bureau Federation (a general farm organization) supported this trade
agreement, expecting their producer-members and exporters to benefit from the
increased access guaranteed to the Central American and Dominican Republic
markets. Supporters in the spring of 2005 formed the Agricultural Coalition for DR-
CAFTA to present and argue their position to Members of Congress. The U.S.
cotton sector initially opposed the agreement, primarily reflecting the concerns of
textile firms, but in early May 2005 came out in favor following the decision by a
major textile trade association to support it.
Other commodity groups concerned about the competitive pressures they expect
to face under DR-CAFTA opposed the agreement. These include the sugar industry,
and one livestock/beef trade association. The U.S. sugar industry strongly opposed
the additional access given to sugar, fearing its economic impact on domestic
producers and processors. Sugar producers’ and processors’ greatest concern was
that DR-CAFTA sets a precedent for including sugar in the other FTAs that the Bush
Administration is negotiating, a position that the industry strongly opposes. One
trade organization representing cattlemen with concerns about free trade agreements
in general opposed DR-CAFTA’s beef provisions. The National Farmers Union (a
general farm organization) opposed the agreement.
Commodity and Food Trade Associations
Many U.S. agricultural commodity and food organizations supported
DR-CAFTA, expecting their producer-members and exporters to benefit from the
market openings negotiated to increase sales to the six countries. On March 22,
2004, a coalition of 39 groups sent a letter to President Bush “to underscore their
support” for this trade agreement. Their letter contended the agreement “will expand
U.S. agriculture exports and put U.S. agriculture on an equal footing with its
competitors in these markets” that already have FTAs with other countries. They
argued that if CAFTA is not implemented, agricultural trade with these countries
would continue on a non-reciprocal basis, with U.S. farm exports facing significant
barriers, while over 99% of U.S. agricultural imports from these countries would still
receive duty-free treatment. Similar coalitions sent nearly identical letters on12
September 3, 2004, and February 1, 2005, to each Member of Congress.
Processed Foods. Food manufacturers view the six countries as strong
markets for U.S. processed food products, pointing out that such exports already
account for some 25% of their total food imports and are increasing faster than any
other U.S. agricultural export. With processed foods facing average tariffs of 15%
in the Central American countries and 20% in the Dominican Republic, an analysis

12 Available at [], [
policy/view.asp?POLICY_ID=81], and [

prepared for the Grocery Manufacturers Association (GMA) estimated that the
elimination of tariffs and quotas on key food products could result in an 84% increase
(from $359 million to $662 million) in U.S. exports to the region one year after DR-
CAFTA is fully implemented. Growth is foreseen in particular in exports of snack
foods, confectionary products, and soups. GMA expects other long-term benefits for
its member companies with the adoption of new rules that “will lead to a stronger,
more predictable business climate in the region.” Examples cited are dealer
protections that give manufacturers more flexibility and efficient product distribution,
enhanced intellectual property and investor protections that are viewed as better
protecting trademarks and providing a more secure business environment for
increased sales of branded products, and impetus for further integrating the region’s
market that results in economies of scale for production and distribution and
increased demand for U.S. food products.13
Rice. The USA Rice Federation supported DR-CAFTA, noting it achieves
market access gains for U.S. rice producers, millers, and exporters. It pointed out
that the agreement improves existing access to an already leading market for U.S.
rice exports, reduces high import duties, remedies tariff discrimination against certain
forms of rice, and extends preferential duty treatment that is not available to any
other rice-exporting country. In particular, DR-CAFTA preserves existing access for
U.S. rough (unmilled) rice, and provides for immediate guaranteed access for milled
and brown rice. The Central American countries agree to establish separate TRQs
for rough and milled rice (the Dominican Republic created TRQs for brown and
milled rice) totaling almost 407,000 metric tons in year 1, increasing slowly over 18
to 20 years to almost 609,000 MT. This compares to U.S. rice exports to the six
countries of 714,000 MT in 2004 (valued at $184 million). In-quota rice imports
from the United States would no longer be subject to applied tariffs ranging from
29% to 99%. The separate TRQs, the Rice Federation notes, will allow end users in
these countries to chose between rough and milled rice, and over time, enable U.S.
exporters to sell higher-value rice to these markets.14
Pork. Pork producers represented by the National Pork Producers Council
(NPPC) supported DR-CAFTA, because of the immediate benefits created through
negotiated market openings. Each country agrees to create duty-free TRQs for pork
cuts totaling 13,613 MT in year 1, which then annually rise slowly to equal 29,040
MT in year 15, after which quotas and tariffs disappear altogether. In 2004, U.S.
pork sales to all six countries totaled 8,442 MT (valued at $16 million). In-quota
pork imports from the United States during this transition will no longer face applied

13 GMA’s Statement to the House Ways and Means Committee, April 21, 2005. GMA is
the trade association for food, beverage, and consumer product companies, with reported
U.S. sales of more than $500 billion and 2.5 million employees throughout the country, and
advocates reducing trade barriers and increasing market access for processed food products
globally. The analysis referred to can be accessed at [
policy/ docs/cafta.pdf].
14 USA Rice Federation Testimony to the Senate Finance Committee, April 13, 2005 (at
[]). Quota amounts
and current in-quota tariffs are from the DR-CAFTA text’s general notes and tariff schedule
annex for each country.

tariffs that now range from 15% to 47%. The NPPC anticipates that the income
growth from free trade with the region will boost demand for pork, even though at
present most consumers in the region do not eat meat on a regular basis. The NPPC
also notes that SPS discussions have led all countries to recognize the U.S. meat
inspection system and to accept pork from any USDA-inspected facility.15
Corn and Corn Products. The National Corn Growers Association (NCGA)
viewed the DR-CAFTA as creating new export opportunities for U.S. corn farmers
and locking in the current U.S. market share in the region. It expects the agreement
to stimulate U.S. exports of corn co-products like corn gluten feed and meal,
distillers dried grains (DDGs), corn starches, corn oil, and sweeteners (e.g., high
fructose corn syrup (HFCS)). The six countries will reduce tariffs on some corn
products (such as HFCS) within 15 years, with tariffs eliminated immediately on corn
gluten products, starch, oils, and DDGs. The Corn Refiners Association (CRA) also
supported the agreement, seeing excellent export prospects for these value-added
products that have averaged $19 million in recent years. CRA notes that the
sweetener provisions in DR-CAFTA are “unambiguous,” unlike those in NAFTA,
which have led to the “total loss” of a market for U.S.-produced HFCS.16
Tariff and quota provisions on access for U.S. corn in these markets distinguish
between yellow and white corn. Four countries agree to establish duty-free TRQs for
yellow corn (used primarily as a feed for their livestock sectors) totaling 1.15 million
metric tons (MMT) in year 1, rising to 1.74 MMT at the end of transition periods (10
years for Guatemala, and 15 years for El Salvador, Honduras, and Nicaragua). In
2004, all U.S. corn exports to these four countries totaled 1.22 MMT (valued at $150
million); corn exports to Costa Rica and the Dominican Republic were 1.24 MMT
($147 million). Current tariffs imposed by the four countries on yellow corn ranging
from 15%-45% will disappear by the end of the transition period. Access to Costa
Rica and the Dominican Republic will be duty-free in the first year.
Because of its sensitivity and symbolic status as a staple food, negotiators
agreed to treat white corn differently. The same four Central American countries will
also create duty-free TRQs for white corn totaling 84,660 MT in year 1, growing
slowly to reach 116,200 MT in year 20. Thereafter, each country’s quota (except
Nicaragua’s) would increase by about 1.5% each year in perpetuity, but the 10%-45%
tariff on over-quota imports (depending upon the country) would remain in place
indefinitely. Costa Rica would eliminate its tariff on U.S. white corn over 15 years;
the Dominican Republic will continue current duty-free treatment.
Poultry. The National Chicken Council, National Turkey Federation, and the
U.S. Poultry and Egg Council supported the agreement. The agreed-upon provisions
largely reflect a framework that the U.S. poultry sector developed with the poultry
sectors in Central America, which trade negotiators on both sides adopted with minor
changes. This framework was based on the consensus reached between the private

15 NPPC, “U.S. Pork Producers Support the CAFTA-DR,” January 3, 2005 (at [http://www. hot_topics/CAFT ABackgr ounder010305.pdf]).
16 NCGA, “Central America FTA,” early 2004; CRA, “CAFTA and the U.S. Corn Refining
Industry,” January 26, 2005.

sectors in the U.S. and the region that there be “restricted access to the most sensitive
[poultry] products and more generous access for those products that are less
Applied tariffs on fresh and frozen poultry imports imposed by some of these
countries can range up to 164%. According to USDA, U.S. poultry exports to the six
countries in the 2000-2004 period averaged each year just above 73,000 MT and
were valued at $51 million. Chicken leg quarters accounted for some 55% of the
value of all U.S. poultry sold to these countries.
Under DR-CAFTA, the six countries will provide immediate duty-free access
on chicken leg quarters. Each country will create a TRQ on leg quarters that slowly
increases as tariffs are eliminated in 17 to 20 years, depending on country. Costa
Rica’s TRQ of 330 MT in year one would grow by 10% each year. The other Central
American countries (each with its own minimum quota level) will establish a
regional TRQ of 21,810 MT in the first year, which would rise slowly through year
12. Beginning in year 13, the TRQ would be not less than 5% of regional chicken
output. The Dominican Republic agreed on an initial TRQ for leg quarters of 550
MT, growing by 10% annually. All countries’ tariffs on other poultry products (e.g.,
wings, breast meat, and mechanically de-boned chicken) will be reduced at a faster
pace, with many eliminated within 10 years. The Dominican Republic will also
establish separate TRQs for mechanically de-boned chicken (phased out over 10
years) and for turkey products (with a 15-year phase-out).
Dairy Products. The National Milk Producers Federation, the U.S. Dairy
Export Council, and the International Dairy Foods Association supported DR-
CAFTA. They viewed this agreement as providing an opportunity to export more
U.S. dairy products to the region on a duty-free basis while minimizing imports from
these countries. The dairy industry noted that U.S. export access to the six countries
offsets the market access that U.S. negotiators granted to Australia (a major dairy18
exporter) under that FTA. The agreement’s provisions largely reflect the outcome
of discussions held between representatives of the U.S. and Central American dairy
sectors. The longest transition period to free trade in DR-CAFTA applies to dairy
products traded in both directions, with provisions structured to provide nearly
reciprocal access in the amounts traded between the U.S. and the five Central
American countries during the 20-year transition period. U.S. dairy exporters,
though, will receive more access to the Dominican Republic market than the other
way around. The U.S. dairy sector pointed out that the agreement’s declining tariffs
and preferential quotas will improve U.S. competitiveness vis-a-vis the European
Union, New Zealand, and Canada, which also sell to these countries.

17 Food Chemical News, “U.S. food industry hails CAFTA agreement,” December 22, 2003.
18 The NMPF is the trade association that represents dairy farmers and their marketing
cooperatives. The USDEC’s objective is to help promote dairy exports by helping member
firms increase sales or reduce their costs of doing business. Its membership includes milk
producers, dairy cooperatives, proprietary processors, export traders and industry suppliers.
IFDA advocates on behalf of the dairy foods industry on domestic and international dairy
policies, and represents dairy food manufacturers, marketers, distributors and industry
suppliers in the United States, Canada, and other countries.

For each country, DR-CAFTA creates duty-free TRQs for six dairy products:
cheese, milk powder, butter, ice cream, fluid milk and sour cream (U.S. only), and
other products. High over-quota tariffs and safeguards (imposed when imports
exceed specified volumes) are phased out over the 20-year transition period. Quota
amounts agreed upon by negotiators differ by country and by type of product.
The United States will receive quota access in the six markets combined in year
1 for almost 10,100 MT of dairy products. Quotas in the Central American countries
will expand by 5% each year; those in the Dominican Republic will increase by 10%
annually. For non-quota products, the United States gains immediate duty-free
access in these markets for whey and lactose. From 2000 to 2004, U.S. dairy exports
(some products subject to quotas, others not) to the six countries averaged 20,700
MT ($52 million) annually, according to USDA.
In return, the six countries together would receive in year 1 duty-free quota
access to the U.S. market for over 6,800 MT of specified dairy products. U.S. quotas
would each year grow by 5% for the Central American countries, and by 10% for the
Dominican Republic. In 2000-2004, U.S. dairy imports from these six countries
totaled an annual average of 18,290 MT (valued at $7.4 million).
Sugar. The new preferential quotas offered by the United States for sugar from
the six countries are in addition to the minimum level of duty-free access they already
have to the U.S. market. Together, they are allowed to sell each year a minimum of
311,700 MT of raw cane sugar under their respective shares of the U.S. sugar import
quota. This represents 28% of the 1.117 million MT market access commitment that
the United States has entered into with some 40 countries around the world. Under
DR-CAFTA, Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the
Dominican Republic each will receive varying levels of duty-free access for a
combined additional 109,000 MT of sugar in year 1 — a 35% increase over their
current level. Increasing on average about 3% per year, by year 15, these countries
will have access for an additional 153,140 MT of sugar in the U.S. market above the
2004/05 current level. Thereafter, their preferential quotas combined will increase
by almost 2% (2,640 MT) annually in perpetuity. The U.S. over-quota tariff
(calculated by the ITC to be 78% in 2003) will stay at the current high level
indefinitely, and not decline. Negotiators agreed upon a “compensation” mechanism
that the United States can exercise at its sole discretion in order to manage U.S. sugar
supplies. If activated, the United States commits to compensate the six countries for
sugar they would not be able to ship to the U.S. market under the above market
access provisions.
The U.S. sugar industry (producers of sugar beets and sugarcane and processors
of their crops) opposed DR-CAFTA, claiming that the additional sugar imports
allowed under its provisions combined with those envisioned in additional FTAs
being negotiated “will destroy the domestic sugar industry ... and overwhelm an
already abundantly supplied market.” It also viewed DR-CAFTA as setting a
precedent for including sugar in the other free trade agreements that the Bush
Administration is negotiating. The industry has continually advocated that sugar
trade issues be instead addressed multilaterally in the WTO trade negotiations. Its
membership wrote to President Bush (January 14, 2004), and the lead U.S.
agricultural trade negotiator (March 23, 2004), to restate its opposition and to request

that the Bush Administration reconsider the sugar access commitments offered the
Central American countries, and withdraw the access commitment granted to the
Dominican Republic.19
In response, the USTR pointed out that the additional access granted all six
countries will equal about 1.2% of current U.S. sugar consumption in year 1, and
1.7% in year 15.20 The Trade Representative argued that the sugar sector will be
protected by the sugar compensation mechanism, a prohibitive tariff on above-quota
imports, and the prohibition on third-country transshipments of sugar through any of
the six countries to the U.S. market.
The Sweetener Users Association (SUA), composed of industrial users of sugar
and other caloric sweeteners and the trade associations that represent them, supported
the DR-CAFTA. It argued this agreement will enhance competition in the U.S. sugar
market, increase export opportunities for other U.S. food and commodity sectors in
the six countries, and have a positive employment effect on the U.S. confectionery
and other sugar-using industries by reducing incentives for them to relocate offshore
to take advantage of lower-priced world sugar.21 The International Dairy Foods
Association and the National Confectioners Association similarly favored the
agreement, because of the access provided for additional imports of sugar. Imperial
Sugar Company, an investor-owned sugar processor, supported DR-CAFTA. Since
it relies almost completely upon foreign sugar for the raw sugar refined at its cane
refinery in Savannah, Georgia, its president argued that the “ability to secure ...
imported sugar ... is critical to maintaining our competitiveness” and ability to
provide buyers with a sufficient supply of refined sugar.22
Responding to the ITC’s analysis of DR-CAFTA’s impact on the U.S. sugar
sector (see page 10), the American Sugar Alliance (ASA), speaking for producers and
processors, stated it “seriously underestimates the danger of the [agreement] for our
industry.” The ITC report, according to the ASA, did not take into account the U.S.
commitment under NAFTA to allow free access to sugar imports from Mexico
starting in 2008 and potential obligations to open the U.S. sugar market to imports
from other sugar-exporting countries with which the United States is negotiating free
trade agreements. Sugar import obligations in addition to those in CAFTA, ASA
argued, would cause lower prices, more bankruptcies, and lost jobs. The Sweetener

19 American Sugar Alliance, “U.S. Sugar Industry Rejects Proposed CAFTA; Favors WTO,”
December 17, 2003; “U.S. Sugar Industries Letter to President Bush Regarding Opposition
to CAFTA,” January 14, 2004, at [
20 USTR, “Sugar: A Spoonful A Week,” February 2005 (available at [
a s s e t s / T r a d e _ A gr e e me n t s / B i l a t e r a l / CAFT A/Briefing_Book/asset_upload_file92 3_7210.
21 ITC, Hearing on the U.S. Free Trade Agreement with Central America and the Dominican
Republic: Potential Economywide and Selected Sectoral Effects, April 27, 2004, “Statement
of Thomas Earley for the Sweetener Users Association before the U.S. International Trade
Commission,” p. 4.
22 Letter to Senator Grassley from Robert A. Peiser, President of Imperial Sugar, April 26,

2005, accessed at World Trade Online ([]).

Users Association responded that the ITC’s projections “appear to be overstated” —
by not considering the additional demand for sugar created by U.S. population
growth over time and USDA’s authority to limit the amount of domestic sugar that
can be marketed to ensure that no change in domestic prices occurs.
Background on Sugar Deal. The prospect that there might not be enough
votes to approve the Administration’s draft bill to implement DR-CAFTA during its
“mock markup” by the Senate Finance Committee on June 14, 2005, prompted a
commitment by Secretary of Agriculture Johanns to sit down with Members to
discuss their concerns about the agreement’s sugar provisions. Members of Congress
from districts and states where sugar crops are grown subsequently met with USDA
and White House officials to discuss options. Proposals presented by some Members
on behalf of the sugar producers and processors reportedly included (1) earmarking
the additional sugar imported under DR-CAFTA and any future trade agreements for
the production of ethanol by U.S. sugar processors, to be subsidized by the federal
government, (2) an immediate resolution of the ongoing trade dispute about Mexican
sugar access to the U.S. market, and (3) a commitment to continue the current
features of the sugar program.23
On June 22, USDA Secretary Johanns responded with a proposal to Members
that would have USDA administer the domestic sugar program through FY2008
(when current authority expires) so that total U.S. sugar imports would never exceed
1.532 million short tons. This is the statutory level that triggers the suspension of
“marketing allotments” — a mechanism agreed to by sugar processors to limit sales
of domestically-produced sugar to ensure that the total supply of sugar available to
meet domestic demand does not result in market prices falling below effective
support levels. Should allotments be triggered, the sugar industry argued that the
stocks of sugar they would be free to release into the market, when added to the
additional imports, would depress prices low enough to result in USDA acquiring
sugar as price support loans came due. This would result in program outlays and24
USDA not able to meet the “no-cost” objective called for by the 2002 farm bill.
To keep imports below the trigger level, USDA proposed to donate surplus
commodities in its inventories or make cash payments to compensate sugar exporters
in Central America or Mexico for sugar they would not ship to the U.S. market under
DR-CAFTA’s and NAFTA’s terms. The commitment would reportedly extend only25
through the end of current sugar program authority (the 2007 crop, or FY2008).
Additional discussions continued, with sugar industry representatives
participating in the last session held June 27. The Administration at that point shifted

23 The Times-Picayune, “Sugar industry offers deal to end standoff over CAFTA,” June 16,

2005;, “Ethanol subsidy can’t woo sugar to accept CAFTA,” June 17,


24 For more information, see CRS Issue Brief IB95117, Sugar Policy Issues, by Remy
25 Inside US Trade, “Administration isolates sugar industry on CAFTA, sets stage for vote,”
June 24, 2005, pp. 1, 18-19; Washington Trade Daily, “Bush submits CAFTA Final Bill,”
June 24, 2005.

focus to address the concerns of a smaller group of Members, and in discussions with
Senators Chambliss and Coleman, agreed to commit in writing those steps that
USDA would take if imports under current trade agreements (including DR-CAFTA)
exceeded the trigger level. Senate Finance Committee consideration of S. 1307 (the
DR-CAFTA implementation bill) was delayed one day, until the letter was finalized
and accepted by the two Senators as an adequate resolution to their concerns.
The Secretary’s June 29th letter to the chairmen of the House and Senate
Agriculture Committees pledged to “preclude” the entry of additional sugar imports
if they will exceed the trigger, and place the sugar program at risk, by: (1) making
payments using agricultural commodities to sugar exporters in other countries in
return for their not shipping sugar to the U.S. market, and (2) purchasing or diverting
excess imported sugar for restricted non-food use, such as ethanol. He also
committed to completing a study to be submitted to Congress by July 1, 2006, on the
feasibility of converting sugar into ethanol.26 The sugar industry early in the talks
had proposed a sugar-for-ethanol program based upon the availability of a federal
subsidy. Administration negotiators rejected that request, opting instead for to use
surplus sugar imports for ethanol if needed, and to conduct a study.
Reactions by Members to the letter were mixed, with some skeptical about the
assurance and others remaining opposed, in part because of the possible costs that
USDA might incur in meeting its pledges. The U.S. sugar industry rejected the
Administration’s “repackaged, short-term offer,” stating that it did not address their
long term concerns about (1) sugar that could enter in future trade agreements, (2) its
objectives for a resolution of the dispute on Mexico sugar access to the U.S. market,
and (3) the continuation of the features of the current sugar program after FY2008.
A spokesman for the ASA vowed to work to defeat DR-CAFTA.27
Congressional Budget Office Estimate. In its analysis of the DR-CAFTA
implementation bill (H.R. 3045, S. 1307), CBO estimated that the domestic sugar
program “will likely cost an additional $500 million over the 2006-2015 period” as
a result of the agreement’s guaranteed access for sugar from the six countries. CBO
based its estimate on its March 2005 assumptions about sugar market conditions over
this period, taking into account other trade agreement commitments (particularly
those with Mexico under NAFTA’s sugar provisions). However, the CBO analysis
acknowledges that current sugar market conditions indicate costs “would likely be
lower in 2006 and possibly lower in 2007, with no significant change in later years.”
A USDA official responded that this analysis was unrealistic, adding that there would
be “virtually no cost” in 2006 and 2007 under the agreement’s sugar provisions. A
spokesman for the U.S. sugar industry stated that the CBO analysis “confirms

26 USDA issued this report on July 10, 2006. It can be viewed at [
EthanolSugarFeasibilityReport3.pdf]. See “Most Recent Developments” for a summary.
27 Congress DailyAM, “Sugar-state lawmakers not so sweet on latest CAFTA offer,” June

24, 2005; American Sugar Alliance, “Last-ditch efforts for sugar deal fail,” June 29, 2005.

CAFTA would make it impossible for the United States to maintain a sugar program
that operates at no cost to federal taxpayers.”28
Cotton. The National Cotton Council of America (NCC) on May 10, 2005,
announced it will now support DR-CAFTA. Because NCC’s diverse membership
includes cotton producers, ginners, cottonseed handlers, warehousers, merchants,
cooperatives, and textile manufacturers, the organization’s position reflected a shift
from an earlier consensus reached among all of these interests expressing concern
about this trade agreement. The resolution adopted states that the agreement “should
provide the United States the best opportunity to supply apparel manufacturers and
other end-use manufacturing industries in the western hemisphere” with U.S. cotton
fiber and U.S. produced cotton textile products. The NCC also urged the
Administration to address the U.S. cotton industry’s trade priorities, seeking in
particular action on increased textile competition (e.g., from China). The council
initially opposed DR-CAFTA and had called upon Congress to defer considering the
agreement until its textile provisions were “thoroughly reviewed and significantly
improved.” The NCC’s reversal followed the decision of the National Council of
Textile Organizations (NCTO) on May 5, 2005, to support DR-CAFTA.29 Two other
trade associations representing textile firms — the National Textile Association and
the American Manufacturing Trade Action Coalition — opposed this agreement.
Though the NCC favors reciprocal liberalization in cotton fiber trade, it has
pointed out that textile and apparel provisions in trade agreements can have “as much
or more of an impact” on the domestic cotton sector than simply their agricultural
provisions. In other FTA negotiations to date, the NCC has sought NAFTA-type
rules-of-origin that directly benefit U.S. textile workers and firms as well as those in
FTA partner countries, but not those in third countries. For the most part, NAFTA
rules require that the cotton used in yarn (the fiber-forward rule) and the yarn used
in cotton textiles (the yarn-forward rule) must originate in the United States or in the
partner country for the product to qualify for preferential trade treatment. Any
relaxation of such rules of origin, the NCC argues, opens the U.S. cotton and textile
sectors “to unfair, unbridled competition” from third countries that transship textile
goods through a FTA partner country to take advantage of its duty-free access to the
U.S. market. Because of its less restrictive rules of origin, the NCC initially opposed
the DR-CAFTA — referring to its tariff preference levels (TPLs) and “cumulation”
provisions for NAFTA-origin textiles that would allow third-country textile products30

to qualify for preferential treatment.
28 Associated Press, “U.S. budget analysts raise new warning on Central American trade
agreement,” July 21, 2005; Reuters, “CAFTA to boost US sugar costs $500 million - CBO,”
July 20, 2005.
29 The NCTO is a fairly new lobbying association, established in March 2004 to represent
the fiber, fabric, supplier and yarn industries that comprise the textile sector.
30 NCC, “Trade Policy Issues,” presentation made at 2004 Mid-Year Board Meeting, August

26, 2004 (available at []);

Woody Anderson, NCC Chairman, testimony to House Committee on Agriculture, May 19,
2004, in Agricultural Trade Negotiations (Serial No. 108-29), pp. 160-161. TPLs grant
tariff preferences to quantities of specified types of third-country (“non-originating”) fabric

Beef. Cattlemen were divided on DR-CAFTA. The Ranchers-Cattlemen
Action Legal Fund (R-CALF) opposed DR-CAFTA, arguing the trade agreement
“does not provide balanced rights for US cattle producers.” The National
Cattlemen’s Beef Association (NCBA) supported the agreement.
Under DR-CAFTA, the five Central American countries will immediately
eliminate their tariffs on imports of U.S. prime and choice cuts of beef, an objective
sought by the U.S. beef industry. All countries will phase out tariffs on imports of
all other beef products in 5, 10, or 15 years. Certain countries’ tariff reduction
schedules are backloaded for the more sensitive beef products, meaning most of the
tariff reduction is delayed until the last few years of the transition period. The
Dominican Republic, El Salvador, and Guatemala will create duty-free TRQs for
other beef cuts totaling 2,265 MT in year 1, which will expand slowly to equal 4,110
MT in the year just before quotas are completely eliminated. In 2004, U.S. sales of
beef to all six countries totaled 1,134 MT (valued at $4.2 million). USDA has noted
that all six countries are working to recognize the U.S. meat inspection and
certification systems so as to facilitate U.S. exports.
The United States will create separate duty-free TRQs for beef imported from
all countries except Guatemala. Currently, the U.S. tariff on such imports is 26%.
In year 1, the quotas would total almost 23,000 MT, rising slowly each year to 37,962
MT before eliminated in year 15. U.S. beef imports from Nicaragua (the leading
supplier in the region), Costa Rica, and Honduras totaled 31,258 MT (almost $82
million) last year.
In elaborating on its position, R-CALF pointed out there are no safeguards for
U.S. beef imported from the region, while two countries are allowed to impose
special safeguards against U.S. beef exports. It is concerned also that the rule of
origin for beef imports could allow cattle born and raised in Argentina and Brazil but
slaughtered for meat in Central America to qualify for preferential tariff treatment
when sold to the U.S. market. Though R-CALF acknowledged that the United States
obtains immediate duty-free access for prime and choice beef cuts, its spokesman
stated that demand in the six countries for these products is limited because the
region is a small market and many consumers cannot afford such cuts.31

30 (...continued)
used to produce finished textile products for export duty free to the United States.
Cumulation allows certain apparel to contain woven fabrics from Canada and Mexico up to
a specified cap and still qualify for duty-free access. For additional background, see CRS
Report RS22150, DR-CAFTA, Textiles, and Apparel, by Bernard A. Gelb.
31 “R-CALF USA Joins National Grassroots Coalition Opposing CAFTA,” January 27, 2005
(available at []). R-CALF
(with a claimed membership of over 12,000) represents cattle producers on domestic and
international trade and marketing issues. R-CALF is a fairly new trade association (founded
in 1998 to pursue three trade cases) but has taken a more skeptical approach to the Bush
Administration’s trade policies. It generally has offered “populist” policy views that tend
to diverge from those advocated by the National Cattlemen’s Beef Association (see footnote


The NCBA argued that DR-CAFTA levels the playing field by eliminating the
15%-30% applied tariffs that U.S. beef exports now face in the region while
providing for adequate protections. It pointed to the long transition periods,
safeguards, and the stipulation that country-specific beef TRQs can be filled only
after the U.S. beef TRQ under its WTO commitment is filled.32
General Farm Organizations
The American Farm Bureau Federation (AFBF) backed DR-CAFTA, stating
that U.S. agriculture has much to gain. In an economic analysis of its agricultural
provisions, the AFBF projects that the agreement will result in an estimated net gain
of $1.44 billion for U.S. agricultural trade once fully implemented in 20 years. In
2024, it projects U.S. agricultural exports to the six countries will be $1.52 billion
higher than under a continuation of current trade policy. Its analysis acknowledged
the U.S. sugar industry will experience costs as a result of the increased access to the
domestic sugar market granted to these countries — by $81 million in year 20.33
Four state-level farm bureaus (Colorado, Louisiana, North Dakota, and Wyoming)
opposed DR-CAFTA, largely because members in these sugar-producing states have
strong concerns on the agreement’s sugar provisions. The Minnesota affiliate took
a neutral stance.
The National Farmers Union (NFU) opposed the agreement, stating that CAFTA
“offers few benefits” to U.S. farmers and “will adversely impact domestic producers
of sugar, fruit, vegetable, dairy and other commodities.” The NFU claimed that
CAFTA does not address exchange rate issues, and labor and environmental
standards, and argued that the agreement’s “proponents overestimate [its] potential
benefits,” ignoring the fact that the six countries “represent small populations with
low purchasing power.”34

32 NCBA, “U.S.-Central America-Dominican Republic Free Trade Agreement Beef
Backgrounder,” January 25, 2005 (available at [
Sheet.pdf]). The NCBA with a claimed membership of 230,000 cattle producers, breeders,
and feeders advocates policy positions and economic interests on behalf of farmers and
ranchers and 40 national breed and industry organizations. NCBA has been the traditional
“main line” trade association representing the interests of U.S. cattle producers for over 100
years, and historically has been supportive of efforts to expand two-way trade and “free
trade” generally.
33 AFBF, Implications of a Central American Free Trade Agreement on U.S. Agriculture,
March 2004 (available at []).
The AFBF is a “main line” farm organization representing farmers and ranchers across the
country with a claimed membership of five million (agricultural producers and also rural
34 “National Farmers Union Opposes CAFTA,” December 19, 2003 (available at
[]); “CAFTA Will Hurt American
Farmers and Ranchers,” April 11, 2005 ([
cfm?id=1292]). The NFU is a “populist” farm organization with a claimed membership of
nearly 250,000 farm and ranch families throughout the country. Its membership is
concentrated in the upper Midwest.

Trade Advisory Committees
On March 22, 2004, USTR made public the reports of the trade advisory
committees laying out their positions and views on CAFTA. Authorized by the
Trade Act of 1974, these committees provide the views of the private sector to USTR
on trade and trade policy matters, and serve as a formal mechanism through which
the U.S. Government seeks advice during trade negotiations. The Agricultural Policy
Advisory Committee’s opinion was that CAFTA “will improve opportunities for
U.S. agricultural exports” by providing for “eventual duty-free, quota-free access on
essentially all products.” Most of the commodity-oriented agricultural technical
advisory committees (ATACs) for trade favored the agreement, pointing out the
benefits associated with increased market access in the region.
The sweeteners ATAC reported mixed views. Sugar industry representatives
expressing the majority opinion opposed the increased access to the U.S. market the
five countries receive for their sugar, pointing out its effects on U.S. sugar producers
and the threat posed to the domestic sugar program. The sugar users in the minority
supported the agreement, acknowledging the “modest but meaningful improvement”
in Central American sugar access. These committees issued separate reports on the
agricultural provisions in the FTA with the Dominican Republic on April 23, 2004.35
Because full implementation of the DR-CAFTA will result in a reciprocal
trading relationship, a large portion of the U.S. agricultural and food sectors will
benefit slightly from expanding exports over time as the six countries eliminate their
tariffs and quotas on practically all U.S. commodities and food products. The
projected increase would represent a very small share (one-half of 1%, according to
the ITC) of total U.S. agricultural exports to the world. This outcome largely reflects
the small population of the six countries (a combined 44 million in 2003) and low per
capita incomes when contrasted to the much larger markets in Asia where average
incomes are higher and agricultural import demand is growing rapidly. At the same
time, the market openings granted these countries could place additional pressure on
the U.S. sugar and cotton/textile sectors. Fearing what increased competition from
additional imports might mean for their business outlook, sugar and cotton/textile
interests lobbied Congress to defeat or to modify this agreement.
Of more interest to the U.S. agribusiness sector likely will be the agreement’s
investment provisions — structured to give U.S. investors in the region a predictable
legal framework and equal treatment with local investors, protections for all types of
investment, and transparent procedures for handling disputes. Accordingly, some
U.S. food manufacturers may take advantage of lower input and labor costs to

35 The CAFTA-related reports can be viewed at [
Bilateral/CAFTA/ CAFTA_Reports/ Section_Index.html]. The DR FTA-related reports are
available at [

establish food processing plants to supply the regional market as well as to export
(e.g., Hispanic food products) to the U.S. market.
The six countries’ agricultural sectors would, in the aggregate, gain little from
this agreement, according to the ITC’s analysis, since almost all exports to the U.S.
market would continue to benefit from duty-free access that they already receive
under U.S. trade preference programs. What would change is that the agreement
makes this duty-free access permanent and sets into motion a process that in 15-20
years gives these countries unrestricted access to the U.S. market for all sensitive
commodities (except sugar) now subject to U.S. agricultural tariff-rate quotas. The
expanding U.S. quotas reserved for these countries would benefit sugar processors
in the region, and, to a lesser extent, exporters of beef and dairy products, that seek
to sell to the U.S. market.
U.S. Debate
The congressional debate created divisions within the U.S. agricultural sector
between commodity groups that expect to gain from DR-CAFTA and those which
foresee losses. Whether this tension is short-lived or continues beyond the debate on
this trade agreement will depend on whether and to what extent the Bush
Administration includes comparable openings affecting these same sensitive
agricultural products in other FTAs recently negotiated (e.g., Colombia and Peru) or
yet to be concluded (e.g., Panama and Thailand). Recognizing this, U.S. trade
negotiators are likely to craft these other bilateral free trade agreements
acknowledging the political realities involved in securing congressional approval.
This means translating potential agricultural export gains in a trade agreement into
a bloc of supportive congressional votes. It also suggests that USTR’s negotiating
strategy must incorporate limiting U.S. trade concessions on U.S. sensitive
agricultural commodities in order to minimize the number of congressional “no”
votes on a concluded free trade agreement.
Following Senate approval of DR-CAFTA, most observers acknowledged that
securing a majority in the House for DR-CAFTA would be problematic, in large part
due to opposition by the sugar sector and some segments of the textile sector.
Consequently, Administration officials faced a dilemma. Should they press ahead,
and work to cut deals to line up the necessary votes to make a majority? Or, should
they consider making further changes to the sugar and textile provisions or related
deals sufficient to yield enough “yes” votes to win approval? As precedent for the
latter course of action, the Clinton Administration negotiated last-minute changes in
November 1993 to NAFTA’s sugar and orange juice provisions in order to secure
enough votes for House passage. U.S. trade officials signaled their reluctance to
consider this option, for fear of unraveling the overall DR-CAFTA package and
facing opposition from Central American negotiators to such a scenario. Though the
Administration made commitments to some Members to address certain textile
issues, the President decided to forward the final implementing bill to Congress
without seeking any changes in the agreement itself. The DR-CAFTA implementing
bill (H.R. 3045) did not contain any provisions, for example, detailing the sugar
compensation provision or the textile commitments, though these issues remained
under discussion between the Administration and some House Members until the
very close House vote occurred.

Debate in Central America
A similar debate also occurred in each of the legislative chambers of five
countries, as their commodity and related groups sought to influence whether DR-
CAFTA should be approved or not. To date, the legislatures of the Dominican
Republic, El Salvador, Guatemala, Honduras and Nicaragua have approved the trade
agreement. The debate in Guatemala was marked by street clashes, before and after
the vote, in which small farmers with others joined in calls for a public referendum
on the agreement. Because of the upcoming presidential election, the Costa Rican
legislature may not complete debating DR-CAFTA until early 2007.
Commercial farmers that produce — and agribusiness firms that process —
sugar, beef, dairy products and non-traditional products with export potential (e.g.,
fruits and vegetables) generally supported DR-CAFTA. Subsistence farmers of
staple crops and citizen groups concerned with the trade agreement’s impact on rural,
primarily agricultural, areas, though, feared that the gradual removal of quotas (even
with the safeguard provisions available during the long transition to free trade) will
not sufficiently protect their livelihood and encourage families to move to urban
areas in search of employment. Representatives reflecting the views of these
constituents in their national legislatures worked unsuccessfully to defeat the
DR-CAFTA when it was submitted for consideration.36 Some Central American
leaders, though, viewed the textile provisions of DR-CAFTA as necessary to keep
their textile and apparel sectors viable against Chinese competition in the U.S. retail
market and to absorb the movement of labor out of the agricultural sector.37
Also not yet clear is the extent to which the governments of the six countries
have, or might be willing to dedicate, financial and technical resources to assist
subsistence and small farmers, and rural areas dependent on agriculture, adjust to
possible adverse consequences of increased imports of staple commodities from the

36 To illustrate, an initiative was launched in September 2004 by sugar cane producers and
processors to protect the Dominican Republic’s sugar sector. Their proposal called for the
imposition of a 25% tax on soft drinks sweetened with imports of U.S. high-fructose corn
syrup (HFCS). The President accepted this reluctantly in order to secure legislative passage
of a fiscal package to address International Monetary Fund stipulations for the release of
financial assistance (see CRS Report RS21718, Dominican Republic: Political and
Economic Conditions and Relations with the United States, by Clare M. Ribando). In
response, U.S. trade officials warned that if the Government did not eliminate this tax, the
Dominican Republic portion of the free trade agreement would be dropped when submitted
to Congress and began to take administrative steps in that direction. Some members of
Congress, the American Farm Bureau Federation, corn producers, and HFCS manufacturers
also signaled they would not support the country’s inclusion in CAFTA unless this tax was
removed. In a policy reversal, the Dominican Republic’s lower chamber voted to repeal this
tax on December 27, 2004, and the President signed this measure into law the next day.
37 CRS Report RL32322, Central America and the Dominican Republic in the Context of the
Free Trade Agreement (DR-CAFTA) with the United States, by K. Larry Storrs, coordinator;
Washington Office on Latin America, Fair Trade or Free Trade: Understanding CAFTA,
July 2004, pp. 1, 4-5 (available at [ complete_packet_
july04.pdf]); HondurasThisWeek Online, “CAFTA: Free Trade or Trading Off,” December

27, 2004 (available at []).

United States. The Bush Administration, though, has signaled that it will direct some
resources from the U.S. foreign aid program in the region to help producers adversely
affected by the agreement’s agricultural provisions to adjust. In an effort to secure
votes in the Senate Finance Committee for S. 1307 (the Administration’s bill
submitted to implement the agreement), the Administration committed in a letter to
Senator Bingaman to support additional spending of up to $150 million over five
years for transitional rural assistance to assist farmers in Guatemala, El Salvador, and
the Dominican Republic, beginning in FY2007. This commitment would be
superseded by U.S. resources for rural development made available under a
Millennium Challenge Corporation compact, if signed earlier by any of these
countries with the United States.38 Another approach would be to expand upon
government efforts (with support from the World Bank and the Inter-American
Development Bank) to assist interested producers and entrepreneurs explore
opportunities to increase food exports to neighboring country and U.S. markets.

38 For more information, see CRS Report RL32427, Millennium Challenge Account:
Implementation of a New U.S. Foreign Aid Initiative, by Larry Nowels.