The Early Central American Free Trade Agreement: A Game-Changer in the Region

The Central American Free Trade Agreement (CAFTA) is one of the most significant trade agreements signed by the United States in the past decade. Signed in 2004, the agreement aimed to level the playing field for businesses in the US and six Central American countries: Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic.

The agreement was designed to increase trade and investment flows, promote economic growth, and create jobs in both regions. The agreement also aimed to make it easier for US investors to do business in Central America, by opening up markets and reducing tariffs.

The Early Days of CAFTA

Although the agreement was signed in 2004, CAFTA negotiations began in 2003, with five rounds of negotiation before the final agreement was reached. The first round of negotiations took place in San Jose, Costa Rica, followed by rounds in Antigua, Guatemala, Miami, Florida, and Washington, DC.

The negotiations were not without controversy, with opposition from labor unions and environmental groups in the US expressing concern over the potential for the agreement to harm workers and the environment. Nevertheless, the agreement was signed into law by President George W. Bush in 2005.

Impact of CAFTA in Central America

Since CAFTA`s implementation, Central American countries` exports to the US have increased by over 300%. In 2019, exports totaled $27.6 billion, up from $8.7 billion in 2005. The agreement has also helped create jobs in the region, with estimates suggesting that the agreement has created over 100,000 jobs in Central America.

CAFTA has also helped increase foreign direct investment (FDI) in the region. The agreement allows US investors to enjoy the same rights and protections as domestic investors, providing a more stable investment climate. FDI inflows to Central America have increased from $1.1 billion in 2004 to $4.5 billion in 2019, with the US being the largest investor in the region.

Challenges and Opportunities

Despite its successes, CAFTA has faced challenges over the years. One of the main criticisms is that the agreement has primarily benefited large corporations and US businesses, rather than smaller companies and workers in Central America.

Moreover, the agreement has not been able to address some of the region`s deep-rooted problems, such as poverty, inequality, corruption, and violence. Additionally, some of the benefits of the agreement have been offset by the negative impact of the global economic crisis, which has affected trade, investment, and employment in the region.

Nevertheless, CAFTA remains an essential agreement in the region, providing opportunities for trade, investment, and growth. The agreement has created jobs, boosted exports, and facilitated investment flows, contributing to the region`s economic development.


The Central American Free Trade Agreement has been a game-changer in the region, promoting trade, investment, and growth. The agreement`s implementation has increased exports, created jobs, and attracted foreign investment to Central America. While challenges remain, the agreement remains an essential tool for the region`s economic development. As the region faces new challenges, including the COVID-19 pandemic and climate change, the agreement`s relevance will continue to grow.

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