On August 5, 2004, the United States Trade Representative (USTR) and trade ministers from Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic signed the Dominican Republic-Central America-United States Free Trade Agreement (the CAFTA-DR; see Appendix A , Chronology of Negotiations). The CAFTA-DR is a regional trade agreement with all parties subject to "the same set of obligations and commitments," but with each country defining its own market access schedule with the United States. It is a comprehensive and reciprocal trade agreement, replacing U.S. unilateral preferential trade treatment extended to these countries under the Caribbean Basin Economic Recovery Act (CBERA), the Caribbean Basin Trade Partnership Act (CBTPA), and the Generalized System of Preferences (GSP). The U.S. Congress did not consider implementing legislation for nearly a year after the CAFTA-DR was signed because it was so controversial. On June 30, 2005, however, the Senate passed S. 1307 by a vote of 54 to 45. The House followed on July 28, 2005, passing H.R. 3045 by a vote of 217 to 215. President Bush signed the bill into law on August 2, 2005 ( P.L. 109-53 , 119 Stat. 462). El Salvador, Honduras, Guatemala, the Dominican Republic, and Nicaragua also ratified the agreement, in that order. The CAFTA-DR was expected to enter into force on January 1, 2006, but none of the ratifying countries had completed the legal and regulatory measures needed to comply with the agreement. The USTR announced that the CAFTA-DR would take effect on a rolling basis when countries fulfilled these obligations. It entered into force on March 1, 2006 and was implemented for El Salvador, Honduras, Nicaragua, Guatemala, and the Dominican Republic within the next year. In Costa Rica, CAFTA-DR was highly controversial because it required major restructuring of public sector monopolies over electricity, insurance, and telecommunications. Public sector unions were at the center of this concern, but small farmers and other workers also voiced opposition. Oscar Arias won a slim presidential victory in 2006 on a pro-CAFTA platform, but opposition in the National Assembly was able to delay consideration of the agreement. In the end, the Electoral Tribunal ruled in favor of a petition to hold a national referendum on the CAFTA-DR. On October 7, 2007, with a 60% participation rate, the people of Costa Rica voted 51.6% to 48.4% in favor of CAFTA-DR. Following passage of 14 implementing bills in the Costa Rican National Assembly, the United States implemented the agreement with Costa Rica on January 1, 2009. This report discusses negotiation issues and evolution of the CAFTA-DR agreement from the time negotiations commenced on January 27, 2003 until its implementation by the last country on January 1, 2009. It will not be updated. The CAFTA-DR was the most controversial free trade agreement (FTA) vote since the North American Free Trade Agreement (NAFTA) implementing legislation was passed in 1993. Many lawmakers were uncomfortable with the agreement as written, particularly the labor provisions, treatment of certain sensitive industries (sugar and textiles), investor-state relations, pharmaceutical data protection, and basic sovereignty issues. It was also caught up in an overarching congressional controversy over how trade negotiation objectives should be defined in FTAs based on the Trade Promotion Authority (TPA) framework, as well as, concern by some Members over the perceived ineffectiveness of the executive-legislative consultation process. These issues were raised repeatedly in "mock markups" of draft implementing bills held by the Senate Finance and House Ways and Means Committees on June 14 and 15, 2005, respectively. The Senate Finance Committee voted 11-9 to approve the draft legislation, with one non-binding amendment that would have extended the trade adjustment assistance program to cover workers in services industries. The House Ways and Means Committee voted 25-16 for approval of the draft legislation, also adding a non-binding amendment with "a requirement that the Administration report on activities conducted by the CAFTA-DR countries and the United States to build capacity on labor issues," and a provision requiring monitoring of CAFTA-DR's effects on U.S. services industries. A "mock conference" was not held, to the expressed consternation of some Members. The Bush Administration sent the final implementing bill to Congress on June 23, 2005. It included a new Section 403, the House amendment requiring that the Administration transmit biennial reports on progress made in implementing the labor provisions, including the Labor Cooperation and Capacity Building Mechanism. It also called for monitoring progress in meeting the challenges outlined in the so-called White Paper on labor produced by the vice ministers of trade and labor of the CAFTA-DR countries. Under TPA procedures, identical bills were introduced jointly as H.R. 3045 and S. 1307 and referred to the House Ways and Means and Senate Finance Committees. The Senate Finance Committee acted first, favorably reporting out S. 1307 by voice vote on June 29, 2005. The House Ways and Means Committee followed suit, reporting favorably by a vote of 25 to 16 on June 30, 2005. The measure came before the full Senate on June 30, 2005, where, following 20 hours of floor debate, S. 1307 passed 54 to 45. H.R. 3045 did not come before the House until July 28, 2005, where, following two hours of debate, it narrowly passed 217 to 215. On the same day, the Senate voted 56 to 44 to substitute H.R. 3045 for S. 1307 , a necessary procedural vote to comply with the constitutional requirement that revenue bills originate in the House. President Bush signed H.R. 3045 into law on August 2, 2005 ( P.L. 109-53 , 119 Stat. 462). Passage in the Senate was by a slimmer margin than with earlier trade agreements and required accommodation outside the implementing legislation to labor, textile, and sugar interests. In a letter from USTR Rob Portman to Senator Jeff Bingaman, the Administration promised to allocate $40 million of fiscal 2006 foreign operations appropriations for "labor and environmental enforcement capacity building assistance," and to continue to request this level of funding in budgets for fiscal years 2007 through 2009. Some $3 million is to be used for funding International Labor Organization (ILO) reporting on progress in labor law enforcement and working conditions in these countries. An additional $10 million annual commitment for five years was made for transitional rural assistance for El Salvador, Guatemala, and the Dominican Republic, or until these countries can qualify for anticipated assistance from the U.S. Millennium Challenge Corporation. In another letter, Secretary of Agriculture Mike Johanns assured Senator Saxby Chambliss and Representative Bob Goodlatte, the respective agriculture committee chairs, that the Administration would not allow the CAFTA-DR to interfere with the operation of the sugar program as defined in the Farm Security and Rural Investment Act of 2002 (the Farm Bill) through FY2007, when it expires. In particular, he promised to take steps should additional sugar imports due to the CAFTA-DR, NAFTA, and other trade agreements jeopardize the sugar program operations by exceeding the import trigger threshold. Should this occur, the U.S. Secretary of Agriculture agreed to preclude entry of additional sugar imports into the domestic sweetener market by either making direct payments to exporters or using agricultural commodities to purchase sugar to be used for nonfood use (ethanol production). Separately, for the textile and apparel issues, promises were made to: (1) change the rules of origin to require that all pocketings and linings come from the CAFTA-DR countries (rather than third party countries like China); (2) negotiate a new stricter customs enforcement agreement with Mexico before the CAFTA-DR cumulation rules take effect allowing Mexican inputs to be used in CAFTA-DR textile and apparel products; and (3) require Nicaragua to increase use of U.S. fabric to qualify as duty-free under their tariff preference levels. Other accommodations were made to win House support of H.R. 3045 , including passage in the House on July 27, 2005, of the U.S. Trade Rights Enforcement Act ( H.R. 3283 ). This bill would allow greater recourse to pursue trade complaints against China and other non-market economies. Not all interest groups, however, could be appeased. Despite efforts to win over all groups, the sugar industry and some textile groups chose not to support the bill and strong Democratic opposition remained over a number of other issues that may prove to be enduring challenges to future trade agreements, if crafted from the CAFTA-DR framework. Countries trade because it is in their national economic interest to do so, a proposition long supported by theory and practice. Comparative advantage has been recognized for nearly 200 years as a core principle explaining the efficiency gains that can come from trade among countries by virtue of their fundamental differences. It states that countries can improve their overall economic welfare by producing those goods at which they are relatively more efficient, while trading for the rest. Intra-industry trade is the other major insight that explains trade patterns, in which the benefits from exchange among countries occur based on specialized production, product differentiation, and economies of scale. Many Latin American countries have liberalized trade policies recognizing the contribution that trade (and related investment) can make to economic growth and development. As an important caveat, trade is at best only part of a broad development agenda, and is no substitute for the promotion of political freedom, macroeconomic stability, sound institutions, and the need for complementary social and economic policies. Comparative advantage provides the rationale for U.S.-Central American (and Dominican Republic) trade in agriculture, textiles, apparel, and capital goods.