America-United States Free Trade Agreement (CAFTA-DR)
What’s at Stake for Food Grains?
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.
U.S. Gains Improved Access to the Dominican and Central American Dynamic
Before CAFTA-DR. . .
U.S. wheat faced import tariffs of 1 percent in Costa Rica,
and zero tariffs in the Dominican Republic, El Salvador, Guatemala, Honduras and
Nicaragua. Wheat flour tariffs in the six countries range from 6 to 14 percent.
However, WTO rules permit tariffs as high as 106 percent on durum wheat, 112
percent on common wheat and 135 percent on wheat flour. U.S. rice faced applied
import tariffs ranging from 15 to 60 percent, depending on the country, and
the WTO permits tariffs as high as 90 percent. From 2002 through 2004, U.S.
wheat suppliers annually shipped on average more than 1.2 million metric tons (mt)
valued at $204 million to all six countries combined, and the U.S. share of the
CAFTA-DR import market averaged over 85 percent. During the same period, U.S.
rice suppliers shipped on average nearly 620,000 mt valued at $117 million to
all six countries combined, and the U.S. share of their import market averaged
After CAFTA-DR. . . U.S.
wheat gains preferential access to all six countries as tariffs are immediately
locked in at zero. Wheat flour tariffs will be phased out over 12 years in the
five Central American countries, and over 15 years in the Dominican Republic.
Each country will establish zero duty tariff-rate quotas (TRQs)
for milled rice, and rough rice in all countries except the Dominican Republic
(which will have a TRQ for brown rice). In the first year of implementation, the
zero-duty TRQ access will total over 400,000 metric tons and will grow through
the tariff phase-out period. Out-of-quota tariffs will be eliminated during an
18-year transition period for El Salvador, Guatemala, Honduras, and Nicaragua,
while the Costa Rican and Dominican Republic out-of-quota tariffs are phased out
over 20-years. Out-of-quota tariffs remain unchanged during the first 10 years
of the agreement for the five Central American countries, then are subject to a
one-third reduction over the next 4 years (5 years for Costa Rica), and are then
eliminated over the last 4 years (5 years for Costa Rica). The out-of-quota
tariff in the Dominican Republic remains unchanged during the first 10 years of
the agreement, then is reduced by 40 percent over the next 5 years, and
eliminated over the last 5 years. During this transition period, volume-based
safeguards are available to the Central American countries when imports exceed
110 percent (130 percent for the Dominican Republic) of the quota. Quotas and
their growth rates vary depending on the country and type of rice.
A 51,000 mt duty-free quota is available for U.S. rough
rice, growing at 2 percent annually. The quota for milled rice starts at 5,250
mt and grows 5 percent annually.
U.S. brown rice will receive a TRQ of 2,140 mt with 7
percent annual growth, while U.S. milled rice gains access to a TRQ of 8,560 mt
growing at 7 percent annually.
U.S. rough rice exporters are provided with a 62,220 mt
duty-free TRQ which expands 2 percent annually for 5 years. In year 6, the quota
is increased by an additional 3,000 mt, and then continues expanding at 2
percent thereafter. Milled rice starts with a 5,625 mt duty-free TRQ, and grows
375 mt per year for the first 5 years, before increasing by 1,000 mt in the
sixth year, and grows by 320 mt per year thereafter.
U.S. rough rice exporters are provided with a 54,600 mt
duty-free TRQ which expands 5 percent annually, and a 10,500 mt duty-free TRQ
for milled rice, growing 5 percent annually.
U.S. rough rice is provided with a 91,800 mt duty-free TRQ
which expands 2 percent annually, and U.S. milled rice is given an 8,925 mt
duty-free TRQ with 5 percent annual growth.
U.S. rough rice is provided with a 92,700 mt duty-free TRQ
which expands 3 percent annually, and U.S. milled rice receives a 13,650 mt TRQ
with 5 percent annual growth.
U.S. Consumers Benefit
Before CAFTA-DR. . .
U.S. import tariffs on wheat and rice from the Dominican
Republic and Central American countries are currently zero. These countries
export virtually no wheat or rice.
After CAFTA-DR. . .
Wheat and rice from all six countries gain preferential access as tariffs are
immediately locked-in at zero.
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