In 2004, the United States signed a free trade agreement with five Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua) and the Dominican Republic. CAFTA-DR is the first free trade agreement between the United States and a group of smaller developing economies. To support the growth of exports from these countries to the United States, the U.S. government has provided trade capacity building (TCB) assistance.
Improving safety and quality standards: The product sanitary and phytosanitary requirements of foreign markets often pose a challenge to exports.
The CAFTA-DR free trade agreement opened new opportunities for Central American exports to the United States. However, to take advantage of these opportunities, farmers and exporters must be able to meet the sanitary and phytosanitary requirements of the United States. The U.S. Department of Agriculture (USDA) and U.S. Agency for International Development (USAID) organized trainings and technical assistance for national plant inspection officers in five CAFTA-DR countries. After this technical assistance that trained inspectors to certify quality standards, they were able to meet U.S. import regulations. As a result of these trainings, Guatemala was able to start exporting peppers in December 2006 and tomatoes in May 2007. Since that time, Guatemala has exported $1.7 million in peppers and $2.6 million in tomatoes. The Guatemalan Association of Greenhouse Producers estimates that the vegetable sector will have created 45,000 new jobs by 2014. In 2005, total Central American pepper exports to the United States were worth $126,000; following TCB efforts, pepper exports from 2006 to 2008 totaled $18 million.
The work with pepper and tomato producers is only one example of the assistance USDA provides in helping countries meet sanitary and phytosanitary regulations. Seventeen laws have been passed in CAFTA-DR countries with assistance from the TCB programs. Over 3,000 individuals from 600 firms have received agricultural enabling environment training. Central America has gone from five plants exporting cheese to the United States in 2005 to 28 plants in 2008. The increase in sales over that period was worth $6.7 million.
In 2006, El Salvador had 68% of processed food exports detained at the border due to incorrect labeling; by 2008, this detention of exports dropped to zero. A U.S. government team including USDA, the Environmental Protection Agency (EPA) and Food and Drug Administration (FDA) conducted an evaluation of the national laboratories of all six CAFTA-DR countries plus Panama. The team analyzed the areas of animal health, pesticide residue and microbiology, and then determined upcoming laboratory trainings for each country.
Coffee is one of El Savador’s most important export industries, annually generating $250 million in export earnings. Its coffee crops can be decimated by pests and the chemical pesticides used to control these pests can harm the environment and workers. USAID, working with the Salvadoran Foundation for Coffee Research and Extension (PROCAFE) identified a fungus, Beauveria bassiana, which can be used as a natural pesticide. USAID established a laboratory to manufacture the natural remedy and PROCAFE is distributing it nationwide and training farmers on how to use it. Over the 2008-09 season, the new treatment protected approximately 18,000 hectares. Preliminary USAID-funded field tests showed a 60 to 70 percent reduction in damage.
In the Dominican Republic, USAID is helping rural coffee farmers become organically certified. They are teaching farmers better management practices and coordinating the inspection and certification process. Organic coffee commands a premium in Western markets of about $1 per kilogram, which will increase average annual profits per farmer by approximately $1500.
Xate is an ornamental palm leaf sought after for floral arrangements. Rural communities in Guatemala harvest the plant and sell it to American companies, but, in the past, the absence of quality standards left poor profit margins. In 2006, USAID entered into a partnership with Rainforest Alliance and began working with these communities to improve their management and harvesting practices. Profits have doubled as the communities sell their higher quality leaves directly to U.S. companies, one of which purchases 360,000 leaves per week. The Guatemala Forestry Enterprises Project has now become the first certified xate producer in the world, which allows them to market the leaves as naturally and sustainably produced using a community-based business model.
Reaching the market: Technical assistance and management training allows organizations to achieve greater efficiency and capacity.
USAID’s Rural Economic Diversification Program has worked with more than 100 agribusinesses since 2006. Agroindustrias Bonilla, a Honduran processing company, is one such firm. USAID provided training in marketing and production. As a result, their processing capacity has increased from 1,320 pounds to 5,610 pounds per week, and sales have more than doubled. The company has registered products with the FDA and entered the export market. USAID continues to provide technical assistance to Agroindustrias Bonilla and other similar companies in Honduras, enabling them to increase production and maintain quality standards.
The Cooperativa Unión Agropecuaria de Zafarraya, a group of 650 vegetable producers in the Dominican Republic, relied on an external packing facility to prepare their produce for export. Zafarraya saw potential for growth if they could manage their own packing facility. USAID trained the cooperative members in business plan development, modern packing technologies and market quality standards, and Zafarraya leased a facility. The export value of their products rose from $12 to $14 per box. The cooperative members now have a greater understanding of the market and are able to participate in export negotiations for the first time.
The Millennium Challenge Corporation (MCC) $215 million compact with Honduras aimed to reduce poverty by alleviating two key impediments to economic growth: low agricultural productivity and high transportation costs. MCC is making significant progress in the implementation of a new registry system for movable property. The system seeks to improve opportunities for access to credit by small entrepreneurs by enabling a more effective process for pledging and collecting on collateral. The Honduran legislature ratified the enabling legislation for the system in January 2010.
USAID works in Honduras with the Foundation for Rural Business Development (FUNDER) to improve the technical assistance the institution provides to producers. The program trains FUNDER technicians in good agricultural practices, and in turn the technicians are training smallholders throughout rural areas of Honduras. The alliance reaches more than 250 producers, and the program’s technical training helped producers increase sales by $980,000 in 2009.
Improving physical infrastructure: The lack of adequate roads or electrical power can prove a difficult barrier to trade, so addressing infrastructure needs is a critical component of TCB.
The U.S. Trade and Development Agency (USTDA) provided a $525,000 technical assistance grant for the National Port Authority of Honduras to modernize port operations and security systems at the Port of Cortés. USTDA is also working with the Honduran private sector in the development of a dry bulk unloading terminal to modernize the unloading infrastructure and lessen congestion. These efforts will result in more secure and efficient port operations at the Port of Cortés, which is a vital component of national and regional international trade links, especially given the increased trading opportunities under CAFTA-DR.
In 2006, the Millennium Challenge Corporation (MCC) signed a five-year, $460 million compact with the government of El Salvador that seeks to stimulate economic growth and reduce poverty in the country’s northern region, where more than 53 percent of the population lives below the poverty line. The project includes investment in physical infrastructure, human development, agricultural technical assistance, financial services and access to credit. To date, 185 kilometers of new electrical grid lines have been completed and 750 solar power systems installed, as well as 142 kilometers of new roads. Technical assistance and credit support has led to the creation of more than 4,000 jobs. USTDA provided technical assistance to complement MCC investments.
Increasing government capacity: Well-functioning markets require the ability of the government to enforce contracts, facilitate transactions and regulate market failures.
USTDA financed the development of a national Geographical Information System platform for the Guatemalan Ministry of Energy and Mines, which will significantly improve its capacity to fulfill its regulatory responsibilities in the energy and mining sector. Implementation of this project should improve the business climate for domestic and foreign investments in the energy and mining sectors, and will enable Guatemala to take advantage of the trade benefits of CAFTA-DR.
USTDA is providing technical assistance to El Salvador’s customs agency to integrate and digitize all of the official documents required to conduct import or export transactions. Implementation of this project will improve the efficiency of transactions and the overall investment climate, and illustrates USTDA support for trade capacity building efforts such as trade facilitation, commercial customs operations and administration, e-commerce, and export promotion. USTDA also assisted Guatemala in developing a new customs transit control system with which the government can monitor commercial activity and reduce losses.
Lake Nicaragua is the largest freshwater lake in Central America and important to the economy of Nicaragua. Water pollution threatens the livelihoods of surrounding communities that rely on the lake for tourism and fishing revenue. Fishermen who export fresh tilapia to the United States must comply with American food safety regulations, and if the lake is contaminated they will lose that export market. The U.S. Environmental Protection Agency and USAID are working with the Nicaraguan government to strengthen their wastewater regulations and enforcement.
Providing financing and investment: When credit is in short supply, the U.S. government can provide financing to promote trade and job creation.
In FY 2009, the Overseas Private Investment Corporation (OPIC) supported 10 projects in CAFTA-DR countries that contributed to TCB and supported the expansion of low-middle income mortgage lending. One of these projects is a microfinance growth fund with an initial capitalization of $150 million. OPIC also currently supports eight private equity funds that exclusively invest in the Latin American region, which represent a $440 million commitment to the region, catalyzing an estimated $1.4 billion of investment across a variety of sectors including affordable housing, power, renewable energy, clean technology, telecommunications and financial services. Since 1974, OPIC has provided over 400 projects in the CAFTA–DR region with nearly $2.8 billion in financing.