CAFTA OVERVIEW

James McCarthy

Central America at a Glance

The CAFTA-DR Region at a Glance

• 13th Largest Market for U.S. Exports

• U.S. Exports = $19.6 Billion (2006)

• Larger Market Than India, Russia, and Indonesia combined

• Overall Population: 49 million

Why Export to Central America?

Why Export to theCAFTA Region?

• 40% of Region’s Imports Are From the U.S.

• On-going Market Liberalization • Growing U.S. Hispanic Population• Proximity and Receptivity to U.S.• Stable Democratic Governments

Central America Trade Data

U.S. Exports toCAFTA-DR Countries

2.8

0.6

3.6

1.9

3.3

4.7

0.7

4.1

2.2

3.53.7

5.3

0123456

Cost

a R

ica

El

Sal

vador

Guat

emal

a

Hon

dura

s

Nic

arag

ua

DR

$ Millions

2005

2006

CAFTA Region at a Glance

Gross Domestic Product 28

2018

9

5

29

0

5

10

15

20

25

30

2006$ Millions

DRGuatemalaCosta RicaEl SalvadorHondurasNicaragua

Source: Summa Magazine. Sep. 2006

4.6

5.5

4.2

3.7

6.8

10.7

0 5 10

2006

% GDP

DRCosta RicaNicaraguaEl SalvadorHondurasGuatemala

CAFTA Region at a Glance

Growth Rates 2006

Source: Country Central Banks

U.S. Exports to CAFTA-DR Countries

Apparel, Computers Apparel, Computers and Electronics, and and Electronics, and Fabric Mill Products Fabric Mill Products Account for Nearly Half Account for Nearly Half of the Total U.S. of the Total U.S. Manufactured Exports Manufactured Exports to DR-CAFTA Markets. to DR-CAFTA Markets.

All Other Products

31%

Apparel Products

12%

Computers &

Electronic Products

16%

Petroleum & Coal

Products7%

Fabric Mill Products

19%

Chemical Products

9%

Machinery Products

6%

Challenges

• Financial Reform• Respect for

Contracts• Investment

Protection• Judicial Reform• Export Promotion

• Corruption• Education• IPR Protection• Security• Start-ups; SMEs• Leadership

CAFTA Countries Highlights

El Salvador Highlights

Slightly smaller than Massachusetts

Democratically-elected Government

President Elias Saca (2004)

Smallest country in Central

America

3rd largest economy

Remittances make up 15% of GDP

Largest airport in the region

• Smallest Country in CA; Densely Populated

• Over 2 Million Salvadorans in U.S.• Dollarized Economy• U.S. is El Salvador's Leading

Trading Partner (41% import market share)

• First country to implement CAFTA-DR (March 1, 2006)

• % increase in U.S. exports since CAFTA entry into force: 16.3%

El Salvador Highlights

Guatemala Highlights

• Largest Economy in CA• Economy Nearly Completely

Privatized• Relatively Low Tariffs (1-

17%) for Almost All Products• % Increase in U.S. exports

since CAFTA entry into force: 17.5%

Guatemala Highlights

In 2006, remittances (US$ 3.6 Billion) accounted for 10% of the GDP

Implemented DR-CAFTA on July 1, 2006

Over 1.3 Million Guatemalans live in the U.S.

• Safest Country in Central America

• Price Controls Phased-Out• Strong Privatization Program• Rich in Natural Resources• Lack of Diversity in Sector

Development• Post CAFTA increase in

imports from the U.S.: 13.2%

Nicaragua Highlights

Nicaragua Highlights

Democratically-elected Government

President Daniel Ortega – January 07 – Policies?

Constitutional Government

Formal Independent Court System

• Lowest Wage Rates in CA• Benefiting most from

CAFTA... early days (13.2% rise in imports from U.S.; 17.3 percent increase in exports to U.S.)

• Economic Diversification Just Beginning

• Needs Infrastructure • New Government: Words

and Deeds

Nicaragua Highlights

Honduras Highlights

Competitive Labor CostsU.S. Accounts for 50% of All Foreign TradeMaquiladora Industry Accounts for 15% of GDP and 11% of ExportsLargest Port in CAU.S. Has 40% of FDI in Honduras

• % increase in U.S. exports since CAFTA entry into force: 15.5%

Costa Rica Highlights

19,652 square miles 19,652 square miles (size of West Virginia)(size of West Virginia)

95% literacy rate95% literacy rate Spanish Language Spanish Language

(English Widely Spoken)(English Widely Spoken) Democratic RepublicDemocratic Republic Life Expectancy: 76 yearsLife Expectancy: 76 years

Costa Rica Highlights

President: Oscar Arias, May 2006President: Oscar Arias, May 2006 Tourism is key for its economyTourism is key for its economy Poor infrastructurePoor infrastructure 70% of FDI comes from the United States. 70% of FDI comes from the United States.

(CINDE)(CINDE) High-tech companies and call centers/large High-tech companies and call centers/large

employersemployers

Legislatures: Approval Implementation

El Salvador: 12/17/2004 3/1/2006

Honduras: 03/04/2005 4/1/2006

Guatemala: 03/11/2005 7/1/2006

U.S.A. 07/28/2005 8/2/2005

Nicaragua 10/11/2005 4/1/2006

DR 09/06/2005 31/1/2007*Costa Rica – Referendum

CAFTA-DR DatesApproval/Implementation

Opportunities: Best Prospect Industries

Automotive Parts and Service Equipment

Food Processing & Packaging Equipment

Electric Power Generation & Distribution Equipment

Hotel and Restaurant Equipment

Franchising

Security and Safety Equipment and Services

Telecommunications Equipment and Services

Construction Equipment