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September 2005— Vol. 83, No. 7

SMALL BUSINESS

Small U.S. exporters will benefit from Central American trade agreement

 

American small exporters will be among the biggest beneficiaries of the nation’s free-trade agreement with five Central American nations and the Dominican Republic (CAFTA-DR), according to the Small Business Exporters Association (SBEA) of the United States. The agreement won congressional approval this summer.

A report issued by the SBEA in July notes that, even without the agreement, more than two-thirds of the dollar value of the CAFTA-DR nations’ imports already come from the United States. Those nations are Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua and the Dominican Republic.

“This is the greatest ‘market share’ that U.S. exports enjoy in any region of the world. Moreover, the CAFTA-DR countries buy from U.S. small businesses. Smaller U.S. companies account for 37% of all U.S. exports to the CAFTA-DR region. ... Simply put, the CAFTA-DR markets have enormous built-in demand for U.S. products and services, as well as a high degree of acceptance of smaller U.S. company exporters,” notes the report.

Lower transaction costs

According to SBEA, the biggest benefit of CAFTA-DR to small U.S. exporters will be the resulting lower costs of business transactions in the region. CAFTA-DR will lower transaction costs through:

  • Lower tariffs.

  • Elimination of nontariff barriers, such as licenses and permits and the costs of the long waits often required to obtain them.

  • Reduced customs costs.

  • Lower transportation costs that will result from CAFTA-DR’s required improvements to ports, transportation, communication and customs inspections facilities in the region.

  • Enhanced ability to use e-commerce, since CAFTA-DR provides a legal framework for the use of e-commerce and the protection of intellectual property.

  • Lower export financing costs, because the “country risk premiums” that are assigned to individual countries by export financing companies are expected to be lowered in the region as a result of CAFTA-DR.

The United States has already implemented most of these steps, says SBEA. The organization notes, for example, that “over 80% of goods imports and 99% of agricultural imports from the CAFTA-DR region have entered the U.S. duty-free for about 20 years.” So, implementing CAFTA-DR is unlikely to “open the floodgates” to imports from the region, a fear expressed by some critics of the agreement, SBEA says.

Other small-business benefits

Other ways in which CAFTA-DR will help small exporters are:

  • It will make more customers available, by gradually making more of the government procurement by the CAFTA-DR countries transparent and accessible to U.S. businesses, and by empowering more small companies in the six CAFTA-DR nations to import.

  • It will increase U.S. small exporters’ sales opportunities in the region. The types of products many small U.S. exporters sell are the very products the CAFTA-DR nations want — things like pollution control equipment, hotel and restaurant supplies, beauty and hair care products, office and paper products, construction equipment, franchises, advertising, and professional services.

SBEA says the results of other free-trade agreements provide evidence of these likely benefits. For example, in the nine years after the North American Free Trade Agreement (NAFTA) took effect, “the number of U.S. small businesses exporting to Canada grew 110%; those exporting to Mexico grew 284%. The value of goods sold by these small companies more than doubled.”

The complete report, “CAFTA-DR: Will U.S. Small Business Benefit?” is available at www.sbea.org.

 

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