On August 5, 2004, the United States signed the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) with Costa Rica, Dominican Republic, El Salvador, Guatemala, Honduras, and Nicaragua. The agreement will provide America’s farmers, ranchers, food processors, and the businesses they support with improved, and in many cases, new access to this growing regional market of 44 million consumers. The CAFTA-DR calls for eventual duty-free, quota-free access on essentially all products, and addresses other trade measures among the parties as well. Under the existing terms of the Caribbean Basin Initiative, which the CAFTA-DR replaces, nearly all agricultural exports from the CAFTA-DR countries to the United States already receive duty free treatment. The CAFTA-DR levels the playing field, providing U.S. exporters market access that is better than, or at a minimum equal to, that given to other competitor countries.

Before CAFTA-DR. . . Depending on the country and product, U.S. dairy product exports faced a range of different tariff-rate quotas (TRQs) and import tariffs as high as 65 percent, while World Trade Organization (WTO) permits tariffs as high as 100 percent. For example, Costa Rica applied a 65-percent tariff on dairy product imports, while Guatemala imposed a TRQ with high protective tariffs on over-quota quantities. Without preferential access, U.S. dairy products face stiffer competition from the European Union, New Zealand, and Canada. From 2002 through 2004, U.S. suppliers annually shipped on average 20,700 metric tons of dairy products valued at $52.4 million to all six countries combined, and the U.S. share of their import market was 10-15 percent. During this period, Guatemala was the largest market accounting for an annual average of 5,703 metric tons valued at $15 million.

After CAFTA-DR. . . . The agreement on dairy products establishes a two-track approach with the objective of achieving free trade within 20 years. The first step is the establishment of reciprocal duty-free TRQs (with the exception of the Dominican Republic, which will provide additional TRQ access for the United States). The 5 Central American countries and the Dominican Republic combined permit immediate access for over 10,000 tons of U.S. dairy products. In the Central American countries these duty-free TRQs then expand at an annual compound rate of 5 percent. In the Dominican Republic the TRQs grow at a simple rate of 10 percent annually. Individual country dairy product TRQs are divided into product categories with their respective quantitative limits.

Before CAFTA-DR. . . Under the Uruguay Round Agreement, the United States bound all tariffs applied to U.S. dairy product imports, and established TRQs on many of these products. While all CAFTA-DR nations had access to these TRQs, only Costa Rica had a specific TRQ allocation of 1,550 mt for the "other cheese" category. Under the CBI program, CAFTA-DR countries receive zero duties on in-quota TRQs. U.S. dairy imports above TRQ levels face high over-quota tariffs. Dairy products not covered by TRQs receive zero duties as part of the CBI program. From 2002 through 2004, U.S. companies annually imported on average 18,290 mt of dairy products valued at $7.4 million from the 6 CAFTA-DR nations combined, and their share of the U.S. dairy import market was less than 3 percent.