The United States, the Dominican Republic, and five Central American countries (Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua), signed the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) in August 2004. The Agreement went into effect in Guatemala on July 1, 2006, after the country completed all the commitments necessary for implementation.
CAFTA-DR liberalizes bilateral trade between the United States and the region and promotes regional integration. It also requires the Central American countries to undertake needed reforms to alleviate systemic problems in areas such as customs administration, protection of intellectual property rights, services, investment, financial services, market access, and government procurement, as well as sanitary and phytosanitary and other non-tariff barriers.
Under CAFTA-DR, 100% of U.S. consumer and industrial goods enter the CAFTA-DR countries duty free (for goods that meet the country-of-origin requirements). Approximately 80% of these products entered duty-free following when CAFTA-DR first went into effect in 2006 (for the countries that implemented at that time). The remaining 20% of consumer and industrial goods were on a 5- or 10-year phased tariff reduction schedule.
Under CAFTA-DR, 95% of U.S. agricultural exports enter Guatemala duty free. Guatemala will eliminate its remaining tariffs on virtually all U.S. agricultural products by 2020 (a few product categories will be eliminated over subsequent years - e.g., rice and dairy products). In 2017, Guatemala eliminated its out-of-quota tariff for chicken leg quarters, five years early. For certain agricultural products, tariff-rate quotas (TRQs) will permit some duty-free access for specified quantities during the tariff phase-out period, with the duty-free amount expanding during that period.
In addition to CAFTA-DR, Guatemala has signed bilateral or regional free trade agreements with Chile, Mexico, Colombia, Taiwan, Panama, the European Union, Peru, and the European Free Trade Association (EFTA) countries and is currently negotiating free trade agreements with South Korea, the United Kingdom, and Canada. Guatemala has also signed partial scope agreements, which cover a reduced number of products and do not include chapters beyond trade, with Belize, Ecuador, Cuba, Trinidad and Tobago, and Venezuela, while also currently negotiating partial-scope agreements with Israel and Bolivia.
Central American economic integration has progressed incrementally since the signing of a revised integration and macroeconomic coordination protocol in 1993. A common external tariff was implemented in 1998, allowing countries to advance trade liberalization at different paces.
Guatemala, El Salvador, and Honduras, commonly referred to as “Northern Central America”, have led efforts to eliminate mutual trade barriers. In 2009, Guatemala and El Salvador signed an amendment to facilitate a customs union, later joined by Honduras. However, only Guatemala ratified the agreement. In 2015, Guatemala and Honduras advanced bilateral integration under the Alliance for Prosperity, establishing a customs union framework. Guatemala ratified the protocol in 2016, and implementation began in 2017 with the free movement of goods and people.
El Salvador initiated accession negotiations in 2017, formalized its intention to join in 2018, and signed agreements to align legal and administrative processes later that year.