Emerging Markets / August 29, 2016

Free Trade Agreements and Agriculture Worldwide

The United States has fourteen standing and ratified Free Trade Agreements (FTA), some of which are particularly important for the agriculture industry. This article examines these FTA between the United States and its commercial partners, paying particular attention to the agriculture industry.

Free Trade Agreements and Agriculture Worldwide

The North American Free Trade Agreement (NAFTA) between the US, Canada, and Mexico facilitates one of the largest free trade zones or trade blocs in the world. It is estimated that, in the global economy of the 21st century, NAFTA accounts for 20% of the world’s GDP. This percentage surpasses that of the European Union (EU), which accounts for approximately 19%. Both of these economic structures are examples of multilateral FTA, which involve more than two countries and, therefore, create large economic markets. However, most FTA worldwide are bilateral, meaning that they limit themselves to two countries who decide to eliminate trades barriers with each other.

In this regard, some FTA are meant to boost specific industries, such as manufacture or services. Meanwhile, other FTA have a wider scope or intent, meaning that they hope to fully integrate the supply chains of the member economies. NAFTA and the EU are themselves all-encompassing and comprehensive agreements meant to fully integrate the economies and policies of the participating nations. Nevertheless, economic powerhouses usually have a wide array of FTA and bilateral understandings in regards to international trade. For example, the US has fourteen signed and ratified FTA, two of which are multilateral (i.e. NAFTA) and twelve of which are bilateral (i.e. Colombia, Australia, and Morocco).

Central America & Dominican Republic Free Trade Agreement with the United States

The Free Trade Agreement between Central America, the Dominican Republic, and the United States (CAFTA-DR), signed and ratified, came fully into effect between 2006 and 2009. The member states of the CAFTA-DR are the US, the Dominican Republic, Nicaragua, Costa Rica, Guatemala, El Salvador, and Honduras. The CAFTA-DR was designed with an emphasis of agricultural trade, an industry within which the member states are large exporters. In fact, the CAFTA-DR ranks third in terms of agricultural value within all of the US commercial agreements.

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Currently the CAFTA-DR countries export into the US a total of US$5.3 billion in agricultural goods, whereas the US exports a total of US$4.2 to the other member nations. Thus, the total value of the agricultural market created by the CAFTA-DR is of US$9.5 billion. On the side of US imports, consumer commodities represent the bulk of incoming products. In turn, plantains and bananas dominate this commodities category representing US$1.4 billion of the agricultural goods imported into the US through the CAFTA-DR.

On the other hand, the main importers of US-produced goods within the CAFTA-DR are the Dominican Republic and Guatemala representing US$1.1 billion each. It is important to mention that since 2005, before the treaty was implemented, US agricultural exports into the region have more than doubled. Meaning that farmers and food manufacture in the US have benefited from the CAFTA-DR. Likewise, the other member states have also benefited from the treaty. For example, there were 3.3 million middle class households in the CAFTA-DR region in 2005, whereas today, there are almost 5 million middle class households.

(Read more about The Effects of Weather Variations on Agriculture Worldwide)

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