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CAFTA-DR at 10: Is Central America On Your Company’s Horizon?

March 10, 2016

Aileen Crowe Nandi is ITA’s Regional Senior Commercial Officer

U.S. exporters can’t afford to ignore markets touted as best-kept secrets – Central America is no exception. Today marks 10 years that the Dominican Republic-Central America Free Trade Agreement (otherwise known as CAFTA-DR) has been in force, yielding tremendous growth for U.S. exports to the region. Guatemala and Nicaragua have the distinction of being the fastest-growing CAFTA-DR markets for U.S. goods exports since implementation, at 106.8 percent and 100.9 percent respectively, but all CAFTA-DR markets have demonstrated impressive growth of their U.S. imports.

That’s a lot of potential to develop your company’s export strategy. Is your company part of this growth? Consider this:

  • Under CAFTA-DR, 100 percent of U.S. consumer and industrial goods exports are no longer subject to tariffs.
  • Exports are already duty free to North American Free Trade Agreement (NAFTA) partners, Canada and Mexico. In a NAFTA-to-CAFTA-DR approach, if your company has already targeted sales opportunities in Mexico, it may be time to “Look South” to Central America.
  • Central America is overwhelmingly predisposed to U.S. products, services, and companies.
  • The United States is the largest trading partner (and foreign investor) in all these countries, albeit with increasing foreign competition.

U.S. goods exports to CAFTA-DR markets (Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic) totaled $28.9 billion in 2015. To put this in perspective, U.S. goods exports to India, considered one of the most attractive growth prospect markets for U.S. companies, last year were $21.5 billion. Though each country represents a smaller market (2015 U.S. goods exports: Dominican Republic: $7.1 billion; Costa Rica, $6.1 billion; Guatemala: $5.9 billion; Honduras: $5.2 billion; El Salvador: $3.3 billion and Nicaragua: $1.3 billion), taken together these countries offer substantial opportunities for U.S. exporters.

Many companies consider Central America as a region when developing their sales strategy. Despite distinct market nuances in each country, which cannot be understated, the common affinities and long-standing business ties across these countries signify that this region constitutes a whole more than the sum of its parts.

Key U.S. exports to CAFTA-DR markets include:

  • petroleum products;
  • machinery;
  • electrical/electronic products;
  • cotton yarns;
  • plastics;
  • motor vehicles;
  • paper products; and,
  • medical instruments.

This list only skims the surface in terms of the depth and breadth of the range of U.S. goods sent to Central America. If your product is price-competitive and not already saturated in the market, there likely exists strong potential for your company in the region.

The U.S. Commercial Service welcomes the opportunity to work with you to help you craft your Central America strategy. While there are challenges in the region that can’t be ignored, in most cases with the right local partner, which we can help you identify and/or screen, the opportunities will significantly outweigh the potential difficulties. If you are interested in exploring (or expanding in) the region, we invite you to visit the region and let us help you find and/or vet potential partners, navigate the regulatory or registration issues, connect you with decision-makers and more.

Central America remains a face-to-face culture where personal business connections are essential before cementing a deal. To follow market trends in the region and learn more about how to do business in Central America, we invite you to follow our CS Central America LinkedIn Showcase page.

There’s no better time to explore opportunities in Central America and leverage CAFTA-DR to join the U.S. export boom to the region!

 

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