The U.S.-Central America-Dominican Republic Free Trade Agreement (CAFTA): Issues, Implications and Lessons for the Smaller Economies of Latin America and the Caribbean Esteban Perez Caldentey

[Working Paper No. 01/2007]

This paper examines selected issues, implications and lessons of the United States-Central American Free Trade Agreement between the Central American Countries, the Dominican Republic and the United States. The paper argues that CAFTA will solidify the existing export specialization of the Central American countries and the Dominican Republic, which is mainly based on assembly plant products. The current export specialization has weak linkages with both internal and external demand, and therefore, is most likely not bound to improve growth prospects. In addition, CAFTA is part of a “new breed” of free trade agreements whose main goal is to subordinate trade policy to the dictates of the free market, which therefore significantly narrow the scope for public policy intervention.

01_2007 (Download the full text in PDF format)