On December 30, 2005, the Office of the U.S. Trade Representative (USTR) announced thatthe United States will implement the Dominican Republic-Central American Free Trade Agreement(DR-CAFTA) "on a rolling basis as countries make sufficient progress" in completing theircommitments under the agreement. Steps include each country's adoption of relevant new laws andregulations necessary to put DR-CAFTA into effect, and the completion of a final review ofimplementation details with the United States. To date, USTR has confirmed the completion ofthese steps for four countries. Accordingly, President Bush issued proclamations to implement U.S.commitments under DR-CAFTA with respect to El Salvador, effective March 1, 2006; Hondurasand Nicaragua, effective April 1, 2006; and Guatemala, effective July 1, 2006. Observers expect theDominican Republic to be added to this list later this year, and Costa Rica likely early in 2007 if itslegislature approves the agreement. On July 10, 2006, the U.S. Department of Agriculture (USDA) issued a report examining theeconomic feasibility of converting sugarcane, sugar beets, raw cane sugar and refined sugar intoethanol. The study concluded that while such conversion would be profitable with current highdemand for ethanol and record ethanol prices, it would be unprofitable when compared to ethanolprices projected for mid-2007. This report reflects a USDA commitment made during last summer'sDR-CAFTA debate to study alternatives for sugar imported under this and other free tradeagreements that could add to U.S. sugar supplies and depress domestic sugar prices. Exports. U.S. agricultural exports in 2004 to thesix countries covered by the DR-CAFTA (Costa Rica, the Dominican Republic, El Salvador,Guatemala, Honduras, and Nicaragua) totaled $1.7 billion, and represented almost 3% of U.S.worldwide sales (see Table 1 ). These countries combined represented the seventh-largest exportmarket for U.S. agricultural products after Canada, Japan, Mexico, China, South Korea, and Taiwan. Leading exports were corn, wheat, rice, soybean meal, and tobacco. The Dominican Republic wasthe largest market -- with $462 million in sales that accounted for 27% of all agricultural exports tothe region, followed by Guatemala ($383 million with a 23% share). U.S. farm exports accountedfor 11% of total U.S. merchandise exports to the six countries, and have increased 56% in valueterms since 1995. Imports. Agricultural imports from these sixcountries equaled almost $2.5 billion, or nearly 5% of all U.S. farm and food imports (see Table 1 ). These countries combined ranked as the fourth-largest source of U.S. agricultural imports in 2004. U.S. purchases of bananas, raw coffee, other fresh fruit, raw cane sugar, and fresh and frozenvegetables led the list. Costa Rica was the largest supplier of food products -- shipping $899 million,or 37% of all agricultural imports from the region, followed by Guatemala ($784 million, or 32%). U.S. farm imports accounted for 14% of total U.S. merchandise imports from the six countries, andhave grown by 23% in dollar terms over the last decade. Table 1. U.S. Agricultural Trade with Countries Covered by theDR-CAFTA, 2004 Source: U.S. Department of Agriculture (USDA), Foreign Agricultural Service. Notes: Exports refer to domestic exports. Imports refer to imports for U.S. consumption only. a. Of U.S. agricultural exports of almost $61.4 billion to the world. b. Of U.S. agricultural imports of $54.0 billion from the world. Trade Balance. The United States in 2004recorded an agricultural trade deficit of $761 million with the six countries covered by theDR-CAFTA. However, if shipments of bananas and coffee -- two tropical products produced in verysmall amounts domestically -- are excluded from U.S. imports from this region, bilateral trade withthese countries would have resulted in an agricultural trade surplus of $394 million in 2004. Entries under two unilateral U.S. trade preference programs (the Caribbean Basin Initiativeand the Generalized System of Preferences) accounted for almost 47% of U.S. agricultural importsfrom the six countries in 2004 -- meaning they entered duty free. Practically all other agriculturalimports (primarily tropical products such as bananas and raw coffee) entered at MFN zero dutyrates. (1) Though importsof certain commodities (sugar, beef, dairy products, peanuts, tobacco, among others) that the UnitedStates protects using tariff-rate quotas (TRQs) generally entered duty-free, amounts allowed to enterwere limited by quotas. (2) The United States and the six countries primarily use tariffs and TRQs to protect theiragricultural sectors. The five Central American countries and the Dominican Republic committedunder the multilateral Uruguay Round Agreement on Agriculture (URAA) to bind their averagetariffs on agricultural imports at relatively high levels (ranging from Honduras's 35% to Nicaragua's73%), compared to the U.S. commitment to bind its average rate at 12%. (3) However, in practice, the sixcountries generally have imposed much lower average tariffs on agricultural imports (with appliedtariffs ranging from 6.7% in Nicaragua to 23.3% in the Dominican Republic), and at times haveallowed larger amounts of commodities than spelled out in their TRQ minimum commitments toenter duty free or at a lower duty. (4) The average U.S. applied tariff on imports from these six countriesis very low (0.2%) when U.S. trade preference benefits are taken into account (see Table 2 ). Theseapplied tariff averages, though, understate the higher level of border protection the United States andthe six countries provide their most sensitive agricultural products through the use of quotas andother restrictive measures. Table 2. Average Tariffs and Tariff-Rate Quotas on AgriculturalImports: United States and the DR-CAFTA Countries Source: U.S. Trade Representative (USTR) and U.S. International Trade Commission (ITC) forbound and applied rates; World Trade Organization (WTO) for commodities subject to TRQs. Note: Reflects level of protection before DR-CAFTA was negotiated. a. 2001 for United States, 2000 for the Central American countries and the Dominican Republic. b. The U.S. applied tariff on agricultural imports from the five Central American countries and theDominican Republic is much lower -- 0.02%, reflecting duty-free treatment of imports thatentered under two trade preference programs and the commodity/product composition ofimports. Once DR-CAFTA takes effect, almost all tariffs and quotas on agricultural products importedby the six countries from the United States, and by the United States from these countries, will bephased out completely (see below for details). Each country's agricultural imports from the rest ofthe world, though, will continue to be subject to the tariff levels and quotas negotiated under theURAA or under separate bilateral FTAs each has entered into with other trading partners. U.S. objectives in negotiating DR-CAFTA's agricultural provisions were to (1) eliminateCentral American and Dominican Republic tariffs, quotas, and non-tariff barriers to trade, (2)provide adequate transition periods and relief mechanisms for the U.S. agricultural sector to adjustto increased imports of sensitive products from the region, (3) eliminate any unjustified sanitary andphytosanitary (SPS) restrictions imposed by the six countries and seek their affirmation of theirWorld Trade Organization (WTO) commitments on SPS measures, and (4) develop a mechanismwith its FTA partners to support the U.S. objective to eliminate all agricultural export subsidies inthe WTO and Free Trade Area of the Americas (FTAA) negotiations. (5) The U.S. position called forno product or sectoral exclusions from the final agreement. U.S. officials also repeatedly made clearthat the issue of U.S. farm support or subsidies, which the Central American countries sought toplace on the negotiating table, should only be addressed in WTO multilateral negotiations. Almost all of the agricultural exports to the United States from the FTA partner countriesalready enter duty free under trade preference programs or at MFN zero rates. Consequently, the sixcountries were most interested in securing unrestricted market access for those commodities nowsubject to U.S. TRQs: sugar and certain sugar-containing products, beef, dairy products, peanuts,tobacco, and cotton. However, Central American and Dominican Republic negotiators expressedfears that opening up their markets to U.S. corn and rice would undermine the region's smallsubsistence farmers unable to compete against subsidies that U.S. producers receive under currentfarm programs. Though these countries had pressed to include the subsidy issue on the negotiatingagenda, they eventually did accept the U.S. position that this issue should be addressed multilaterallyin the WTO context. In the agreement, the United States and the six countries agreed to completely phase outtariffs and quotas -- the primary means of border protection -- on all but four agriculturalcommodities and food products in seven stages either immediately or over 5, 10, 12, 15, 18, or 20years. The four most sensitive commodities -- fresh potatoes and fresh onions imported by CostaRica, white corn imported by the other four Central American countries, and sugar entering the U.S.market -- will be treated uniquely. After a specified period, the size of the quotas established forthese four commodities will increase about 2% each year in perpetuity. In other words, a caplimiting imports will always be in place. The tariff on entries above the quota level (frequentlyreferred to as the over-quota tariff) will not decline at all, but stay at current high levels to keep outabove-quota imports, in order to protect producers of the four commodities. For all other sensitive products that fall into any of the over-10-year transition periods,negotiators on all sides agreed to provide some measure of protection. While details vary bycommodity and food product, these will take the form of tariff-rate quotas effective only during thetransition to free trade, long tariff and quota phase-out periods, nonlinear tariff reductions, and theuse of an import safeguard mechanism. Nonlinear refers to a practice known as "backloading,"where most of the decline in a tariff occurs in the last few years of the transition period. Safeguardswill serve to protect agricultural producers from sudden surges in imports, triggered when quantitiesincrease above specified levels. When triggered, an additional duty -- temporary in duration -- isapplied to provide protection, according to detailed terms found in annexed schedules. Each countrynegotiated its own list of agricultural products eligible for safeguard protection. A country's rightto use safeguards will expire at the end of the transition period. All countries commit under DR-CAFTA not to introduce or maintain agricultural exportsubsidies to sell commodities or food products to each other. Such subsidies, though, are allowedto counter the trade-distorting effects of exports subsidized by third countries if an exporting countryand an importing country fail to agree on counter measures. Rules of origin specify what is required for a product to be considered to have been producedor processed in a country that is a party to a trade agreement. They are used to determine whethera product benefits from an FTA's preferential terms (e.g., duty-free and/or additional quota access). The agreement commits all countries to apply the science-based disciplines of the WTOAgreement on Sanitary and Phytosanitary (SPS) Measures to facilitate trade. (6) Should disagreements arise,a working group will serve as a forum for consultations and resolving technical issues. The textprecludes the use of DR-CAFTA's dispute settlement provisions to resolve differences when SPSproblems cannot be resolved. The DR-CAFTA will grant immediate duty-free status to more than half of the U.S. farmproducts now exported to the six countries, according to the Office of the U.S. Trade Representative(USTR). (7) Such treatmentwill apply to high-quality beef cuts, cotton, wheat, soybeans, certain fruits and vegetables, processedfood products, and wine destined for the five Central American countries. U.S. exports of corn,cotton, soybeans, and wheat to the Dominican Republic will benefit also from immediate duty-freetreatment. Central American tariffs and quotas on most other agricultural products (pork, beef,poultry, rice, other fruits and vegetables, yellow corn, and other processed products) will be phasedout over a 15-year period. Longer transition periods will apply to imports from the United States ofrough/milled rice and chicken leg quarters (18 years) and dairy products (20 years). DominicanRepublic tariffs and quotas on most other U.S. agricultural products (beef, pork, and selected dairyand poultry products) will be eliminated over 15 years. However, 20-year transitions will cushionthe impact of the entry of U.S. chicken leg quarters, rice, and certain dairy products (cheese and milkproducts). (8) An overviewof these countries' DR-CAFTA commitments with respect to imports from the United States ofselected commodities appears in the section "U.S. Agriculture and Food Sectors' Views onDR-CAFTA's Agricultural Provisions," below. With El Salvador, Guatemala, Honduras, and Nicaragua designating white corn as their mostsensitive agricultural commodity (produced by subsistence farmers and used as a staple to maketortillas), negotiators agreed to establish a quota (i.e., equal to the current import level) that increasesabout 2% annually in perpetuity. Compared to all other commodities imported from the UnitedStates, there will be no reduction in the over-quota tariff for white corn. U.S. exports of freshpotatoes and onions to Costa Rica would be subject similarly to quotas that increase slowly inperpetuity but face permanent high over-quota tariffs. USTR further states that U.S. agricultural products will have "generally better" access to theCentral American countries than is given to similar imports from Canada, Europe, and SouthAmerica. The six FTA partners also agreed to "move toward recognizing export eligibility for allU.S. plants inspected under the U.S. food safety and inspection system." Almost all agricultural imports (in value terms) from the six countries already enter the U.S.market duty free. DR-CAFTA, according to USTR, "will consolidate those benefits [immediately]and make them permanent." For the U.S. sensitive agricultural products (sugar, sugar-containingproducts, beef, peanuts, dairy products, tobacco, and cotton), U.S. negotiators granted duty-freeaccess in the form of country-specific preferential quotas. These quotas would be in addition to (i.e.,not carved out of) the existing agricultural TRQs established by the United States under its existingWTO commitments, which the six countries have taken advantage of historically to export to theU.S. market. Because of its sensitivity, the United States will similarly treat sugar imports as the fourCentral American countries protect white corn imports. The new sugar quotas would expandgradually each year, but the high and prohibitive over-quota tariff will remain unchanged, inperpetuity. Details on the U.S. provisions for sugar and other selected commodities are provided inthe section "U.S. Agriculture and Food Sectors' Views on DR-CAFTA's Agricultural Provisions,"below. In an economy-wide, quantitative analysis of the DR-CAFTA, the U.S. International TradeCommission (ITC) projects that 12% of the agreement's overall export gains would flow to U.S.agriculture. Two-thirds of the export gains would be realized by the U.S. manufacturing (36%) andtextile (30%) sectors (see Table 3 ). (9) Textile imports from the six countries would account for almost all of the growth in totalU.S. imports under full implementation of the agreement, according to the ITC. Additional U.S.agricultural imports would represent almost 2% of the import change under DR-CAFTA. The ITCanalysis shows small negative changes in imports of manufactured products, energy and other rawmaterials, and services (see Table 3 ). Increases in U.S. sugar, meat, and dairy imports (due to the expansion and/or elimination ofU.S. agricultural TRQs under DR-CAFTA) would be offset to some degree by a drop in imports ofvegetables, fruits, nuts, processed food and tobacco products, and other crops imported from the sixcountries. According to the ITC, these small declines would largely reflect the movement of laborand resources in the DR and Central American countries away from producing the latter products(which already benefit from preferential duty-free access to the U.S. market) to the more profitabletextile, apparel, leather products, and sugar sectors, which expand output to take advantage of theagreement's openings in the U.S. market. Under DR-CAFTA, U.S. agricultural imports from the sixcountries would increase 1.3% ( Table 4 ). This $52 million in net imports would equal one-tenthof 1% of total U.S. agricultural imports ($73 billion, according to the ITC). ITC's qualitative analysis examined how two agricultural commodity sectors would beaffected over time -- grains and sugar. U.S. corn and rice exports to the region would see littlechange in the short term, but would rise as the six countries' quotas expand. Once quotas are fullyphased out, U.S. grain exports are expected to increase substantially. The ITC estimates that by theend of the 15-20 year transition period, annual U.S. grain exports to the region likely would increaseby at least 20% ($120 million), based on 2003 prices -- broken out among corn ($75 million), roughrice ($35 million), and milled rice ($10 million). Though the impact of these additional sales in thelong run is small (equal to 1.2% of 2003 U.S. grain exports worldwide), the ITC views the potentialincrease as offering significant market opportunities for U.S. corn and rice producers. The ITCfurther found that the U.S. grains sector would, of all economic sectors, experience the mostnoticeable positive changes, though very small. Grain output, revenues, and employment would risebetween one-quarter to one-third of 1%. (10) The ITC expects that the DR-CAFTA's sugar provisions likely would result in a "smallincrease" in U.S. sugar and sugar-containing product (SCP) imports from the region equal to thequantities spelled out in the new preferential quotas. Prices (calculated to drop by about 1%) dueto increased imports "likely would have an adverse impact on production and employment for U.S.sugar producers." At the same time, lower prices "likely would benefit production and employmentfor U.S. producers of certain SCPs," particularly of those containing high sugar content. The ITC'sanalysis further shows that the U.S. sugar manufacturing and sugar crops sectors would bothexperience the largest percentage decrease of all sectors in domestic output and employment -- morethan 2%. (11) Table 3. Impact of DR-CAFTA on U.S. Trade, by Economic Sector Source: Adapted by CRS from Table 4.4 in ITC's U.S.-Central America-Dominican Republic Free Trade Agreement: Potential Economywide andSelected Sectoral Effects , p. 75. Note: "Total" may not add due to rounding. Table 4. Impact of DR-CAFTA on U.S. Agricultural Trade Source: Adapted by CRS from Table 4.4 in ITC's U.S.-Central America-Dominican Republic Free Trade Agreement: Potential Economywide andSelected Sectoral Effects , p. 75. NA - Not applicable Most U.S. commodity organizations, agribusiness and food firms, and theAmerican Farm Bureau Federation (a general farm organization) supported this tradeagreement, expecting their producer-members and exporters to benefit from theincreased access guaranteed to the Central American and Dominican Republicmarkets. Supporters in the spring of 2005 formed the Agricultural Coalition for DR-CAFTA to present and argue their position to Members of Congress. The U.S.cotton sector initially opposed the agreement, primarily reflecting the concerns oftextile firms, but in early May 2005 came out in favor following the decision by amajor textile trade association to support it. Other commodity groups concerned about the competitive pressures theyexpect to face under DR-CAFTA opposed the agreement. These include the sugarindustry, and one livestock/beef trade association. The U.S. sugar industry stronglyopposed the additional access given to sugar, fearing its economic impact ondomestic producers and processors. Sugar producers' and processors' greatestconcern was that DR-CAFTA sets a precedent for including sugar in the other FTAsthat the Bush Administration is negotiating, a position that the industry stronglyopposes. One trade organization representing cattlemen with concerns about freetrade agreements in general opposed DR-CAFTA's beef provisions. The NationalFarmers Union (a general farm organization) opposed the agreement. Many U.S. agricultural commodity and food organizations supportedDR-CAFTA, expecting their producer-members and exporters to benefit from themarket openings negotiated to increase sales to the six countries. On March 22,2004, a coalition of 39 groups sent a letter to President Bush "to underscore theirsupport" for this trade agreement. Their letter contended the agreement "will expandU.S. agriculture exports and put U.S. agriculture on an equal footing with itscompetitors in these markets" that already have FTAs with other countries. Theyargued that if CAFTA is not implemented, agricultural trade with these countrieswould continue on a non-reciprocal basis, with U.S. farm exports facing significantbarriers, while over 99% of U.S. agricultural imports from these countries would stillreceive duty-free treatment. Similar coalitions sent nearly identical letters onSeptember 3, 2004, and February 1, 2005, to each Member of Congress. (12) Processed Foods. Foodmanufacturers view the six countries as strong markets for U.S. processed foodproducts, pointing out that such exports already account for some 25% of their totalfood imports and are increasing faster than any other U.S. agricultural export. Withprocessed foods facing average tariffs of 15% in the Central American countries and20% in the Dominican Republic, an analysis prepared for the Grocery ManufacturersAssociation (GMA) estimated that the elimination of tariffs and quotas on key foodproducts could result in an 84% increase (from $359 million to $662 million) in U.S.exports to the region one year after DR-CAFTA is fully implemented. Growth isforeseen in particular in exports of snack foods, confectionary products, and soups. GMA expects other long-term benefits for its member companies with the adoptionof new rules that "will lead to a stronger, more predictable business climate in theregion." Examples cited are dealer protections that give manufacturers moreflexibility and efficient product distribution, enhanced intellectual property andinvestor protections that are viewed as better protecting trademarks and providing amore secure business environment for increased sales of branded products, andimpetus for further integrating the region's market that results in economies of scalefor production and distribution and increased demand for U.S. food products. (13) Rice. The USA Rice Federationsupported DR-CAFTA, noting it achieves market access gains for U.S. riceproducers, millers, and exporters. It pointed out that the agreement improves existingaccess to an already leading market for U.S. rice exports, reduces high import duties,remedies tariff discrimination against certain forms of rice, and extends preferentialduty treatment that is not available to any other rice-exporting country. In particular,DR-CAFTA preserves existing access for U.S. rough (unmilled) rice, and providesfor immediate guaranteed access for milled and brown rice. The Central Americancountries agree to establish separate TRQs for rough and milled rice (the DominicanRepublic created TRQs for brown and milled rice) totaling almost 407,000 metrictons in year 1, increasing slowly over 18 to 20 years to almost 609,000 MT. Thiscompares to U.S. rice exports to the six countries of 714,000 MT in 2004 (valued at$184 million). In-quota rice imports from the United States would no longer besubject to applied tariffs ranging from 29% to 99%. The separate TRQs, the RiceFederation notes, will allow end users in these countries to chose between rough andmilled rice, and over time, enable U.S. exporters to sell higher-value rice to thesemarkets. (14) Pork. Pork producers representedby the National Pork Producers Council (NPPC) supported DR-CAFTA, because ofthe immediate benefits created through negotiated market openings. Each countryagrees to create duty-free TRQs for pork cuts totaling 13,613 MT in year 1, whichthen annually rise slowly to equal 29,040 MT in year 15, after which quotas andtariffs disappear altogether. In 2004, U.S. pork sales to all six countries totaled 8,442MT (valued at $16 million). In-quota pork imports from the United States during thistransition will no longer face applied tariffs that now range from 15% to 47%. TheNPPC anticipates that the income growth from free trade with the region will boostdemand for pork, even though at present most consumers in the region do not eatmeat on a regular basis. The NPPC also notes that SPS discussions have led allcountries to recognize the U.S. meat inspection system and to accept pork from anyUSDA-inspected facility. (15) Corn and Corn Products. TheNational Corn Growers Association (NCGA) viewed the DR-CAFTA as creatingnew export opportunities for U.S. corn farmers and locking in the current U.S.market share in the region. It expects the agreement to stimulate U.S. exports of cornco-products like corn gluten feed and meal, distillers dried grains (DDGs), cornstarches, corn oil, and sweeteners (e.g., high fructose corn syrup (HFCS)). The sixcountries will reduce tariffs on some corn products (such as HFCS) within 15 years,with tariffs eliminated immediately on corn gluten products, starch, oils, and DDGs. The Corn Refiners Association (CRA) also supported the agreement, seeing excellentexport prospects for these value-added products that have averaged $19 million inrecent years. CRA notes that the sweetener provisions in DR-CAFTA are"unambiguous," unlike those in NAFTA, which have led to the "total loss" of amarket for U.S.-produced HFCS. (16) Tariff and quota provisions on access for U.S. corn in these marketsdistinguish between yellow and white corn. Four countries agree to establishduty-free TRQs for yellow corn (used primarily as a feed for their livestock sectors)totaling 1.15 million metric tons (MMT) in year 1, rising to 1.74 MMT at the end oftransition periods (10 years for Guatemala, and 15 years for El Salvador, Honduras,and Nicaragua). In 2004, all U.S. corn exports to these four countries totaled 1.22MMT (valued at $150 million); corn exports to Costa Rica and the DominicanRepublic were 1.24 MMT ($147 million). Current tariffs imposed by the fourcountries on yellow corn ranging from 15%-45% will disappear by the end of thetransition period. Access to Costa Rica and the Dominican Republic will beduty-free in the first year. Because of its sensitivity and symbolic status as a staple food, negotiatorsagreed to treat white corn differently. The same four Central American countries willalso create duty-free TRQs for white corn totaling 84,660 MT in year 1, growingslowly to reach 116,200 MT in year 20. Thereafter, each country's quota (exceptNicaragua's) would increase by about 1.5% each year in perpetuity, but the 10%-45%tariff on over-quota imports (depending upon the country) would remain in placeindefinitely. Costa Rica would eliminate its tariff on U.S. white corn over 15 years;the Dominican Republic will continue current duty-free treatment. Poultry. The National ChickenCouncil, National Turkey Federation, and the U.S. Poultry and Egg Councilsupported the agreement. The agreed-upon provisions largely reflect a frameworkthat the U.S. poultry sector developed with the poultry sectors in Central America,which trade negotiators on both sides adopted with minor changes. This frameworkwas based on the consensus reached between the private sectors in the U.S. and theregion that there be "restricted access to the most sensitive [poultry] products andmore generous access for those products that are less sensitive." (17) Applied tariffs on fresh and frozen poultry imports imposed by some of thesecountries can range up to 164%. According to USDA, U.S. poultry exports to the sixcountries in the 2000-2004 period averaged each year just above 73,000 MT andwere valued at $51 million. Chicken leg quarters accounted for some 55% of thevalue of all U.S. poultry sold to these countries. Under DR-CAFTA, the six countries will provide immediate duty-free accesson chicken leg quarters. Each country will create a TRQ on leg quarters that slowlyincreases as tariffs are eliminated in 17 to 20 years, depending on country. CostaRica's TRQ of 330 MT in year one would grow by 10% each year. The other CentralAmerican countries (each with its own minimum quota level) will establish aregional TRQ of 21,810 MT in the first year, which would rise slowly through year12. Beginning in year 13, the TRQ would be not less than 5% of regional chickenoutput. The Dominican Republic agreed on an initial TRQ for leg quarters of 550MT, growing by 10% annually. All countries' tariffs on other poultry products (e.g.,wings, breast meat, and mechanically de-boned chicken) will be reduced at a fasterpace, with many eliminated within 10 years. The Dominican Republic will alsoestablish separate TRQs for mechanically de-boned chicken (phased out over 10years) and for turkey products (with a 15-year phase-out). Dairy Products. The NationalMilk Producers Federation, the U.S. Dairy Export Council, and the InternationalDairy Foods Association supported DR-CAFTA. They viewed this agreement asproviding an opportunity to export more U.S. dairy products to the region on aduty-free basis while minimizing imports from these countries. The dairy industrynoted that U.S. export access to the six countries offsets the market access that U.S.negotiators granted to Australia (a major dairy exporter) under that FTA. (18) Theagreement's provisions largely reflect the outcome of discussions held betweenrepresentatives of the U.S. and Central American dairy sectors. The longesttransition period to free trade in DR-CAFTA applies to dairy products traded in bothdirections, with provisions structured to provide nearly reciprocal access in theamounts traded between the U.S. and the five Central American countries during the20-year transition period. U.S. dairy exporters, though, will receive more access tothe Dominican Republic market than the other way around. The U.S. dairy sectorpointed out that the agreement's declining tariffs and preferential quotas will improveU.S. competitiveness vis-a-vis the European Union, New Zealand, and Canada,which also sell to these countries. For each country, DR-CAFTA creates duty-free TRQs for six dairy products:cheese, milk powder, butter, ice cream, fluid milk and sour cream (U.S. only), andother products. High over-quota tariffs and safeguards (imposed when importsexceed specified volumes) are phased out over the 20-year transition period. Quotaamounts agreed upon by negotiators differ by country and by type of product. The United States will receive quota access in the six markets combined inyear 1 for almost 10,100 MT of dairy products. Quotas in the Central Americancountries will expand by 5% each year; those in the Dominican Republic willincrease by 10% annually. For non-quota products, the United States gainsimmediate duty-free access in these markets for whey and lactose. From 2000 to2004, U.S. dairy exports (some products subject to quotas, others not) to the sixcountries averaged 20,700 MT ($52 million) annually, according to USDA. In return, the six countries together would receive in year 1 duty-free quotaaccess to the U.S. market for over 6,800 MT of specified dairy products. U.S. quotaswould each year grow by 5% for the Central American countries, and by 10% for theDominican Republic. In 2000-2004, U.S. dairy imports from these six countriestotaled an annual average of 18,290 MT (valued at $7.4 million). Sugar. The new preferentialquotas offered by the United States for sugar from the six countries are in additionto the minimum level of duty-free access they already have to the U.S. market. Together, they are allowed to sell each year a minimum of 311,700 MT of raw canesugar under their respective shares of the U.S. sugar import quota. This represents28% of the 1.117 million MT market access commitment that the United States hasentered into with some 40 countries around the world. Under DR-CAFTA, CostaRica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republiceach will receive varying levels of duty-free access for a combined additional109,000 MT of sugar in year 1 -- a 35% increase over their current level. Increasingon average about 3% per year, by year 15, these countries will have access for anadditional 153,140 MT of sugar in the U.S. market above the 2004/05 current level. Thereafter, their preferential quotas combined will increase by almost 2% (2,640MT) annually in perpetuity. The U.S. over-quota tariff (calculated by the ITC to be78% in 2003) will stay at the current high level indefinitely, and not decline. Negotiators agreed upon a "compensation" mechanism that the United States canexercise at its sole discretion in order to manage U.S. sugar supplies. If activated, theUnited States commits to compensate the six countries for sugar they would not beable to ship to the U.S. market under the above market access provisions. The U.S. sugar industry (producers of sugar beets and sugarcane andprocessors of their crops) opposed DR-CAFTA, claiming that the additional sugarimports allowed under its provisions combined with those envisioned in additionalFTAs being negotiated "will destroy the domestic sugar industry ... and overwhelman already abundantly supplied market." It also viewed DR-CAFTA as setting aprecedent for including sugar in the other free trade agreements that the BushAdministration is negotiating. The industry has continually advocated that sugartrade issues be instead addressed multilaterally in the WTO trade negotiations. Itsmembership wrote to President Bush (January 14, 2004), and the lead U.S.agricultural trade negotiator (March 23, 2004), to restate its opposition and to requestthat the Bush Administration reconsider the sugar access commitments offered theCentral American countries, and withdraw the access commitment granted to theDominican Republic. (19) In response, the USTR pointed out that the additional access granted all sixcountries will equal about 1.2% of current U.S. sugar consumption in year 1, and1.7% in year 15. (20) The Trade Representative argued that the sugarsector will be protected by the sugar compensation mechanism, a prohibitive tariffon above-quota imports, and the prohibition on third-country transshipments of sugarthrough any of the six countries to the U.S. market. The Sweetener Users Association (SUA), composed of industrial users ofsugar and other caloric sweeteners and the trade associations that represent them,supported the DR-CAFTA. It argued this agreement will enhance competition in theU.S. sugar market, increase export opportunities for other U.S. food and commoditysectors in the six countries, and have a positive employment effect on the U.S.confectionery and other sugar-using industries by reducing incentives for them torelocate offshore to take advantage of lower-priced world sugar. (21) TheInternational Dairy Foods Association and the National Confectioners Associationsimilarly favored the agreement, because of the access provided for additionalimports of sugar. Imperial Sugar Company, an investor-owned sugar processor,supported DR-CAFTA. Since it relies almost completely upon foreign sugar for theraw sugar refined at its cane refinery in Savannah, Georgia, its president argued thatthe "ability to secure ... imported sugar ... is critical to maintaining ourcompetitiveness" and ability to provide buyers with a sufficient supply of refinedsugar. (22) Responding to the ITC's analysis of DR-CAFTA's impact on the U.S. sugarsector (see page 10), the American Sugar Alliance (ASA), speaking for producers andprocessors, stated it "seriously underestimates the danger of the [agreement] for ourindustry." The ITC report, according to the ASA, did not take into account the U.S.commitment under NAFTA to allow free access to sugar imports from Mexicostarting in 2008 and potential obligations to open the U.S. sugar market to importsfrom other sugar-exporting countries with which the United States is negotiating freetrade agreements. Sugar import obligations in addition to those in CAFTA, ASAargued, would cause lower prices, more bankruptcies, and lost jobs. The SweetenerUsers Association responded that the ITC's projections "appear to be overstated" -- by not considering the additional demand for sugar created by U.S. populationgrowth over time and USDA's authority to limit the amount of domestic sugar thatcan be marketed to ensure that no change in domestic prices occurs. Background on Sugar Deal. Theprospect that there might not be enough votes to approve the Administration's draftbill to implement DR-CAFTA during its "mock markup" by the Senate FinanceCommittee on June 14, 2005, prompted a commitment by Secretary of AgricultureJohanns to sit down with Members to discuss their concerns about the agreement'ssugar provisions. Members of Congress from districts and states where sugar cropsare grown subsequently met with USDA and White House officials to discussoptions. Proposals presented by some Members on behalf of the sugar producers andprocessors reportedly included (1) earmarking the additional sugar imported underDR-CAFTA and any future trade agreements for the production of ethanol by U.S.sugar processors, to be subsidized by the federal government, (2) an immediateresolution of the ongoing trade dispute about Mexican sugar access to the U.S.market, and (3) a commitment to continue the current features of the sugarprogram. (23) On June 22, USDA Secretary Johanns responded with a proposal to Membersthat would have USDA administer the domestic sugar program through FY2008(when current authority expires) so that total U.S. sugar imports would never exceed1.532 million short tons. This is the statutory level that triggers the suspension of"marketing allotments" -- a mechanism agreed to by sugar processors to limit salesof domestically-produced sugar to ensure that the total supply of sugar available tomeet domestic demand does not result in market prices falling below effectivesupport levels. Should allotments be triggered, the sugar industry argued that thestocks of sugar they would be free to release into the market, when added to theadditional imports, would depress prices low enough to result in USDA acquiringsugar as price support loans came due. This would result in program outlays andUSDA not able to meet the "no-cost" objective called for by the 2002 farm bill. (24) To keep imports below the trigger level, USDA proposed to donate surpluscommodities in its inventories or make cash payments to compensate sugar exportersin Central America or Mexico for sugar they would not ship to the U.S. market underDR-CAFTA's and NAFTA's terms. The commitment would reportedly extend onlythrough the end of current sugar program authority (the 2007 crop, or FY2008). (25) Additional discussions continued, with sugar industry representativesparticipating in the last session held June 27. The Administration at that point shiftedfocus to address the concerns of a smaller group of Members, and in discussions withSenators Chambliss and Coleman, agreed to commit in writing those steps thatUSDA would take if imports under current trade agreements (including DR-CAFTA)exceeded the trigger level. Senate Finance Committee consideration of S. 1307 (the DR-CAFTA implementation bill) was delayed one day,until the letter was finalized and accepted by the two Senators as an adequateresolution to their concerns. The Secretary's June 29th letter to the chairmen of the House and SenateAgriculture Committees pledged to "preclude" the entry of additional sugar importsif they will exceed the trigger, and place the sugar program at risk, by: (1) makingpayments using agricultural commodities to sugar exporters in other countries inreturn for their not shipping sugar to the U.S. market, and (2) purchasing or divertingexcess imported sugar for restricted non-food use, such as ethanol. He alsocommitted to completing a study to be submitted to Congress by July 1, 2006, on thefeasibility of converting sugar into ethanol. (26) The sugarindustry early in the talks had proposed a sugar-for-ethanol program based upon theavailability of a federal subsidy. Administration negotiators rejected that request,opting instead for to use surplus sugar imports for ethanol if needed, and to conducta study. Reactions by Members to the letter were mixed, with some skeptical aboutthe assurance and others remaining opposed, in part because of the possible costs thatUSDA might incur in meeting its pledges. The U.S. sugar industry rejected theAdministration's "repackaged, short-term offer," stating that it did not address theirlong term concerns about (1) sugar that could enter in future trade agreements, (2) itsobjectives for a resolution of the dispute on Mexico sugar access to the U.S. market,and (3) the continuation of the features of the current sugar program after FY2008. A spokesman for the ASA vowed to work to defeat DR-CAFTA. (27) Congressional Budget Office Estimate. In its analysis of the DR-CAFTA implementation bill ( H.R. 3045 , S. 1307 ), CBO estimated that the domestic sugar program "will likelycost an additional $500 million over the 2006-2015 period" as a result of theagreement's guaranteed access for sugar from the six countries. CBO based itsestimate on its March 2005 assumptions about sugar market conditions over thisperiod, taking into account other trade agreement commitments (particularly thosewith Mexico under NAFTA's sugar provisions). However, the CBO analysisacknowledges that current sugar market conditions indicate costs "would likely belower in 2006 and possibly lower in 2007, with no significant change in later years." A USDA official responded that this analysis was unrealistic, adding that there wouldbe "virtually no cost" in 2006 and 2007 under the agreement's sugar provisions. Aspokesman for the U.S. sugar industry stated that the CBO analysis "confirmsCAFTA would make it impossible for the United States to maintain a sugar programthat operates at no cost to federal taxpayers." (28) Cotton. The National CottonCouncil of America (NCC) on May 10, 2005, announced it will now supportDR-CAFTA. Because NCC's diverse membership includes cotton producers,ginners, cottonseed handlers, warehousers, merchants, cooperatives, and textilemanufacturers, the organization's position reflected a shift from an earlier consensusreached among all of these interests expressing concern about this trade agreement. The resolution adopted states that the agreement "should provide the United Statesthe best opportunity to supply apparel manufacturers and other end-usemanufacturing industries in the western hemisphere" with U.S. cotton fiber and U.S.produced cotton textile products. The NCC also urged the Administration to addressthe U.S. cotton industry's trade priorities, seeking in particular action on increasedtextile competition (e.g., from China). The council initially opposed DR-CAFTAand had called upon Congress to defer considering the agreement until its textileprovisions were "thoroughly reviewed and significantly improved." The NCC'sreversal followed the decision of the National Council of Textile Organizations(NCTO) on May 5, 2005, to support DR-CAFTA. (29) Two othertrade associations representing textile firms -- the National Textile Association andthe American Manufacturing Trade Action Coalition -- opposed this agreement. Though the NCC favors reciprocal liberalization in cotton fiber trade, it haspointed out that textile and apparel provisions in trade agreements can have "as muchor more of an impact" on the domestic cotton sector than simply their agriculturalprovisions. In other FTA negotiations to date, the NCC has sought NAFTA-typerules-of-origin that directly benefit U.S. textile workers and firms as well as those inFTA partner countries, but not those in third countries. For the most part, NAFTArules require that the cotton used in yarn (the fiber-forward rule) and the yarn usedin cotton textiles (the yarn-forward rule) must originate in the United States or in thepartner country for the product to qualify for preferential trade treatment. Anyrelaxation of such rules of origin, the NCC argues, opens the U.S. cotton and textilesectors "to unfair, unbridled competition" from third countries that transship textilegoods through a FTA partner country to take advantage of its duty-free access to theU.S. market. Because of its less restrictive rules of origin, the NCC initially opposedthe DR-CAFTA -- referring to its tariff preference levels (TPLs) and "cumulation"provisions for NAFTA-origin textiles that would allow third-country textile productsto qualify for preferential treatment. (30) Beef. Cattlemen were divided onDR-CAFTA. The Ranchers-Cattlemen Action Legal Fund (R-CALF) opposedDR-CAFTA, arguing the trade agreement "does not provide balanced rights for UScattle producers." The National Cattlemen's Beef Association (NCBA) supported theagreement. Under DR-CAFTA, the five Central American countries will immediatelyeliminate their tariffs on imports of U.S. prime and choice cuts of beef, an objectivesought by the U.S. beef industry. All countries will phase out tariffs on imports ofall other beef products in 5, 10, or 15 years. Certain countries' tariff reductionschedules are backloaded for the more sensitive beef products, meaning most of thetariff reduction is delayed until the last few years of the transition period. TheDominican Republic, El Salvador, and Guatemala will create duty-free TRQs forother beef cuts totaling 2,265 MT in year 1, which will expand slowly to equal 4,110MT in the year just before quotas are completely eliminated. In 2004, U.S. sales ofbeef to all six countries totaled 1,134 MT (valued at $4.2 million). USDA has notedthat all six countries are working to recognize the U.S. meat inspection andcertification systems so as to facilitate U.S. exports. The United States will create separate duty-free TRQs for beef imported fromall countries except Guatemala. Currently, the U.S. tariff on such imports is 26%. In year 1, the quotas would total almost 23,000 MT, rising slowly each year to 37,962MT before eliminated in year 15. U.S. beef imports from Nicaragua (the leadingsupplier in the region), Costa Rica, and Honduras totaled 31,258 MT (almost $82million) last year. In elaborating on its position, R-CALF pointed out there are no safeguards forU.S. beef imported from the region, while two countries are allowed to imposespecial safeguards against U.S. beef exports. It is concerned also that the rule oforigin for beef imports could allow cattle born and raised in Argentina and Brazil butslaughtered for meat in Central America to qualify for preferential tariff treatmentwhen sold to the U.S. market. Though R-CALF acknowledged that the United Statesobtains immediate duty-free access for prime and choice beef cuts, its spokesmanstated that demand in the six countries for these products is limited because theregion is a small market and many consumers cannot afford such cuts. (31) The NCBA argued that DR-CAFTA levels the playing field by eliminatingthe 15%-30% applied tariffs that U.S. beef exports now face in the region whileproviding for adequate protections. It pointed to the long transition periods,safeguards, and the stipulation that country-specific beef TRQs can be filled onlyafter the U.S. beef TRQ under its WTO commitment is filled. (32) The American Farm Bureau Federation (AFBF) backed DR-CAFTA, statingthat U.S. agriculture has much to gain. In an economic analysis of its agriculturalprovisions, the AFBF projects that the agreement will result in an estimated net gainof $1.44 billion for U.S. agricultural trade once fully implemented in 20 years. In2024, it projects U.S. agricultural exports to the six countries will be $1.52 billionhigher than under a continuation of current trade policy. Its analysis acknowledgedthe U.S. sugar industry will experience costs as a result of the increased access to thedomestic sugar market granted to these countries -- by $81 million in year 20. (33) Fourstate-level farm bureaus (Colorado, Louisiana, North Dakota, and Wyoming)opposed DR-CAFTA, largely because members in these sugar-producing states havestrong concerns on the agreement's sugar provisions. The Minnesota affiliate tooka neutral stance. The National Farmers Union (NFU) opposed the agreement, stating thatCAFTA "offers few benefits" to U.S. farmers and "will adversely impact domesticproducers of sugar, fruit, vegetable, dairy and other commodities." The NFU claimedthat CAFTA does not address exchange rate issues, and labor and environmentalstandards, and argued that the agreement's "proponents overestimate [its] potentialbenefits," ignoring the fact that the six countries "represent small populations withlow purchasing power." (34) On March 22, 2004, USTR made public the reports of the trade advisorycommittees laying out their positions and views on CAFTA. Authorized by theTrade Act of 1974, these committees provide the views of the private sector to USTRon trade and trade policy matters, and serve as a formal mechanism through whichthe U.S. Government seeks advice during trade negotiations. The Agricultural PolicyAdvisory Committee's opinion was that CAFTA "will improve opportunities for U.S.agricultural exports" by providing for "eventual duty-free, quota-free access onessentially all products." Most of the commodity-oriented agricultural technicaladvisory committees (ATACs) for trade favored the agreement, pointing out thebenefits associated with increased market access in the region. The sweeteners ATAC reported mixed views. Sugar industry representativesexpressing the majority opinion opposed the increased access to the U.S. market thefive countries receive for their sugar, pointing out its effects on U.S. sugar producersand the threat posed to the domestic sugar program. The sugar users in the minoritysupported the agreement, acknowledging the "modest but meaningful improvement"in Central American sugar access. These committees issued separate reports on theagricultural provisions in the FTA with the Dominican Republic on April 23,2004. (35) Because full implementation of the DR-CAFTA will result in a reciprocaltrading relationship, a large portion of the U.S. agricultural and food sectors willbenefit slightly from expanding exports over time as the six countries eliminate theirtariffs and quotas on practically all U.S. commodities and food products. Theprojected increase would represent a very small share (one-half of 1%, according tothe ITC) of total U.S. agricultural exports to the world. This outcome largely reflectsthe small population of the six countries (a combined 44 million in 2003) and low percapita incomes when contrasted to the much larger markets in Asia where averageincomes are higher and agricultural import demand is growing rapidly. At the sametime, the market openings granted these countries could place additional pressure onthe U.S. sugar and cotton/textile sectors. Fearing what increased competition fromadditional imports might mean for their business outlook, sugar and cotton/textileinterests lobbied Congress to defeat or to modify this agreement. Of more interest to the U.S. agribusiness sector likely will be the agreement'sinvestment provisions -- structured to give U.S. investors in the region a predictablelegal framework and equal treatment with local investors, protections for all types ofinvestment, and transparent procedures for handling disputes. Accordingly, someU.S. food manufacturers may take advantage of lower input and labor costs toestablish food processing plants to supply the regional market as well as to export(e.g., Hispanic food products) to the U.S. market. The six countries' agricultural sectors would, in the aggregate, gain little fromthis agreement, according to the ITC's analysis, since almost all exports to the U.S.market would continue to benefit from duty-free access that they already receiveunder U.S. trade preference programs. What would change is that the agreementmakes this duty-free access permanent and sets into motion a process that in 15-20years gives these countries unrestricted access to the U.S. market for all sensitivecommodities (except sugar) now subject to U.S. agricultural tariff-rate quotas. Theexpanding U.S. quotas reserved for these countries would benefit sugar processorsin the region, and, to a lesser extent, exporters of beef and dairy products, that seekto sell to the U.S. market. The congressional debate created divisions within the U.S. agricultural sectorbetween commodity groups that expect to gain from DR-CAFTA and those whichforesee losses. Whether this tension is short-lived or continues beyond the debate onthis trade agreement will depend on whether and to what extent the BushAdministration includes comparable openings affecting these same sensitiveagricultural products in other FTAs recently negotiated (e.g., Colombia and Peru) oryet to be concluded (e.g., Panama and Thailand). Recognizing this, U.S. tradenegotiators are likely to craft these other bilateral free trade agreementsacknowledging the political realities involved in securing congressional approval. This means translating potential agricultural export gains in a trade agreement intoa bloc of supportive congressional votes. It also suggests that USTR's negotiatingstrategy must incorporate limiting U.S. trade concessions on U.S. sensitiveagricultural commodities in order to minimize the number of congressional "no"votes on a concluded free trade agreement. Following Senate approval of DR-CAFTA, most observers acknowledgedthat securing a majority in the House for DR-CAFTA would be problematic, in largepart due to opposition by the sugar sector and some segments of the textile sector. Consequently, Administration officials faced a dilemma. Should they press ahead,and work to cut deals to line up the necessary votes to make a majority? Or, shouldthey consider making further changes to the sugar and textile provisions or relateddeals sufficient to yield enough "yes" votes to win approval? As precedent for thelatter course of action, the Clinton Administration negotiated last-minute changes inNovember 1993 to NAFTA's sugar and orange juice provisions in order to secureenough votes for House passage. U.S. trade officials signaled their reluctance toconsider this option, for fear of unraveling the overall DR-CAFTA package andfacing opposition from Central American negotiators to such a scenario. Though theAdministration made commitments to some Members to address certain textileissues, the President decided to forward the final implementing bill to Congresswithout seeking any changes in the agreement itself. The DR-CAFTA implementingbill ( H.R. 3045 ) did not contain any provisions, for example, detailingthe sugar compensation provision or the textile commitments, though these issuesremained under discussion between the Administration and some House Membersuntil the very close House vote occurred. A similar debate also occurred in each of the legislative chambers of fivecountries, as their commodity and related groups sought to influence whetherDR-CAFTA should be approved or not. To date, the legislatures of the DominicanRepublic, El Salvador, Guatemala, Honduras and Nicaragua have approved the tradeagreement. The debate in Guatemala was marked by street clashes, before and afterthe vote, in which small farmers with others joined in calls for a public referendumon the agreement. Because of the upcoming presidential election, the Costa Ricanlegislature may not complete debating DR-CAFTA until early 2007. Commercial farmers that produce -- and agribusiness firms that process --sugar, beef, dairy products and non-traditional products with export potential (e.g.,fruits and vegetables) generally supported DR-CAFTA. Subsistence farmers ofstaple crops and citizen groups concerned with the trade agreement's impact on rural,primarily agricultural, areas, though, feared that the gradual removal of quotas (evenwith the safeguard provisions available during the long transition to free trade) willnot sufficiently protect their livelihood and encourage families to move to urbanareas in search of employment. Representatives reflecting the views of theseconstituents in their national legislatures worked unsuccessfully to defeat theDR-CAFTA when it was submitted for consideration. (36) SomeCentral American leaders, though, viewed the textile provisions of DR-CAFTA asnecessary to keep their textile and apparel sectors viable against Chinese competitionin the U.S. retail market and to absorb the movement of labor out of the agriculturalsector. (37) Also not yet clear is the extent to which the governments of the six countrieshave, or might be willing to dedicate, financial and technical resources to assistsubsistence and small farmers, and rural areas dependent on agriculture, adjust topossible adverse consequences of increased imports of staple commodities from theUnited States. The Bush Administration, though, has signaled that it will direct someresources from the U.S. foreign aid program in the region to help producers adverselyaffected by the agreement's agricultural provisions to adjust. In an effort to securevotes in the Senate Finance Committee for S. 1307 (the Administration'sbill submitted to implement the agreement), the Administration committed in a letterto Senator Bingaman to support additional spending of up to $150 million over fiveyears for transitional rural assistance to assist farmers in Guatemala, El Salvador, andthe Dominican Republic, beginning in FY2007. This commitment would besuperseded by U.S. resources for rural development made available under aMillennium Challenge Corporation compact, if signed earlier by any of thesecountries with the United States. (38) Another approach would be to expand upongovernment efforts (with support from the World Bank and the Inter-AmericanDevelopment Bank) to assist interested producers and entrepreneurs exploreopportunities to increase food exports to neighboring country and U.S. markets.

Summary: On August 2, 2005, President Bush signed into law the bill to implement the DominicanRepublic-Central American Free Trade Agreement, or DR-CAFTA ( P.L. 109-53 , H.R. 3045 ). Drawing much attention during congressional debate were the agreement's sugar provisionsto allow additional sugar from the region to enter the U.S. market. To assuage concerns expressedby some Members, the Administration pledged prior to Senate passage to take steps to ensure thatall sugar imports, including those under DR-CAFTA, do not exceed a "trigger" that could underminethe U.S. Department of Agriculture's ability to manage the domestic sugar program. Sugar producersand processors responded that USDA's pledge did not address their long-term concerns, andcontinued last-minute efforts to defeat the agreement. In DR-CAFTA, the United States and six countries will completely phase out tariffs andquotas -- the primary means of border protection -- on all but four agricultural commodities tradedbetween them in stages up to 20 years. The four exempted products are as follows: for the UnitedStates, sugar; for Costa Rica, fresh onions and fresh potatoes; and for the four other CentralAmerican countries, white corn. The Dominican Republic, El Salvador, Guatemala, Honduras, andNicaragua have approved the agreement; Costa Rica's legislature is currently considering it. As ittakes effect on a rolling basis, the U.S. agricultural sector will over time gain free access to the sixhighly protected markets on a reciprocal basis, matching these countries' current duty-free entry fornearly all their agricultural exports to the United States. Other provisions establish safeguards forspecified agricultural products to protect U.S. and the region's producers from sudden import surges;prohibit the use of export subsidies between partners; and establish a mechanism to address sanitaryand phytosanitary barriers to agricultural trade. DR-CAFTA's provisions, once fully implemented, are expected to result in trade gains,though small, for the U.S. agricultural sector. The U.S. International Trade Commission (ITC)estimates that $328 million in additional exports (primarily grains, meat products, and processedfood products) would be offset by a $52 million increase in imports (largely reflecting additionalaccess granted for sugar and beef from the six countries). Of the $2.7 billion increase in total U.S.exports that the ITC projects under DR-CAFTA, 12% would be attributable to the U.S. agriculturalsector. Most U.S. commodity groups, agribusiness and food manufacturing firms, and the AmericanFarm Bureau Federation (a general farm organization) supported DR-CAFTA, expecting to benefitfrom the guaranteed increased access to these six markets. Cotton producers announced theirsupport only after one major textile trade association came out in favor of it. The U.S. sugar industrystrongly opposed the additional access for sugar imports from these countries, fearing its economicimpact on domestic producers and processors. Two cattlemen trade organizations held differingpositions on the agreement's beef provisions. The National Farmers Union (a general farmorganization) opposed DR-CAFTA. Congress is expected to monitor developments on DR-CAFTAimplementation during the second session of the 109th Congress. This report will be updated.