On August 5, 2004, the United States entered into the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR) with Costa Rica, El Salvador, Guatemala, Honduras, Nicaragua, and the Dominican Republic (hereafter the CAFTA-DR countries). Congress engaged in a full year of debate before narrowly passing the implementing bill. On July 28, 2005, after assurances from Bush Administration officials on many issues, the House approved it by a two-vote margin (217 to 215), followed by passage in the Senate (55-45), clearing the measure for presidential signature on August 2, 2005 ( P.L. 109-53 ). Implementing the agreement proved equally challenging and occurred on a rolling basis after each country made legal, regulatory, and rule changes to comply with the accord's obligations. CAFTA-DR entered into force with El Salvador, Honduras, Nicaragua, and Guatemala by July 1, 2006, the Dominican Republic on March 1, 2007, and Costa Rica on January 1, 2009. This report follows up on congressional interest by providing an analysis of the trends in trade and investment since CAFTA-DR entered into force six years ago. Changes in rules governing issues such as intellectual property rights, government procurement, services, labor and others are not easily measured and will require a longer-time frame to evaluate. The report concentrates on trends in all countries, with close attention paid to the CAFTA-DR partner economies. The marginal effects on the U.S. economy are expected to be small by comparison because the CAFTA-DR countries are economically about the size of the Denver metropolitan area, and they already had duty-free access to the U.S. market under various unilateral preference programs. Historically, the United States has entered into free trade agreements (FTAs) and unilateral trade preference programs with developing countries in the pursuit of both economic and foreign policy goals. In 1983, the U.S. Congress passed the Caribbean Basin Initiative (CBI—formally the Caribbean Basin Economic Recovery Act— P.L. 98-67 ) to support political and economic stability in the Caribbean at a particularly vulnerable time (see Figure 1 , Map of Central America and the Caribbean). The CBI included limited unilateral trade preferences, which required periodic congressional reauthorization. CAFTA-DR builds on this precedent, but makes preferential access comprehensive, reciprocal, and permanent while also enhancing rules and other disciplines on trade. It is intended to strengthen economic relations as a way to stimulate growth, to foster stability, and, in the words of Congress, "to lay the foundation for further cooperation." The economic rationale rests on preferential access for agricultural and manufactured goods produced in the region. By removing regional barriers to trade, CAFTA-DR encouraged the development of specialized co-production in assembly manufacturing between the United States and CAFTA-DR countries based on comparative advantage and economies of scale. This strategy has increased the productivity (a major benefit of trade) of firms in all countries. Firm competitiveness rests on value-added supply chain relationships, particularly in the area of apparel manufacturing, later extended to automobile parts, medical equipment, integrated circuits, and other products. Tariff preferences under CAFTA-DR (and CBI previously) have helped firms remain marginally competitive with Asian and other low-cost global producers. By moving from limited unilateral trade preferences to comprehensive bilateral free trade under CAFTA-DR, U.S. exporters also stood to benefit from reduced trade barriers, both for final goods and the increasingly large intermediate goods trade characteristic of the supply chain model. Market access, therefore, was central to the FTA negotiations. Equally important for the United States were enhanced rules covering multiple disciplines including trade in services, intellectual property rights, sanitary and phytosanitary regulations, investment, government procurement, labor, and environment, among others. From the Central American and Dominican perspectives, permanently reducing barriers to the U.S. market was the core objective, assuring investors that exports would have permanent duty-free access to the large U.S. market, while ensuring lower-cost imports (including capital and intermediate goods) for consumers and producers alike. Increased trade can raise a country's long-term growth rate through multiple channels including increased market size, production specialization, scale economies, transfer of technology and managerial/worker expertise, more efficient resource use, and increased investment. With these factors in mind, the agreement takes on an added importance given the dominant role of the U.S. economy for the CAFTA-DR countries. Market access in a reciprocal trade agreement works both ways, however, so countries also face certain challenges. In the United States, CAFTA-DR raised concerns over negative effects on import-competing firms. This is often part of the cost inherent in a free trade agreement, though it is expected to be small relative to the U.S. economy as a whole. For CAFTA-DR countries, U.S. agricultural exports, including staples such as corn and rice, increasingly compete with local production of basic grains. A transition period was built in with an extended tariff phase-out schedule and safeguards as a partial response to this concern. As a matter of development policy, however, CAFTA-DR countries also envision diversifying agricultural sectors into higher value nontraditional exports, and integrating rural economies more deeply with other sectors. CAFTA-DR's success will in part be judged by how well this transition is made, and so far, results have not been uniform among the six countries. Market access is at the center of free trade agreements and refers to provisions that govern barriers to trade such as tariffs and quotas. Rules of origin determine which goods are eligible for tariff preferences based on their regional content, and are particularly relevant for textile and apparel trade. CAFTA-DR requires that each country accord national and most favored nation treatment (non-discrimination) to all parties. The FTA also replaces and consolidates in a permanent bilateral agreement trade preferences formerly extended unilaterally under the Generalized System of Preferences (GSP), the Caribbean Basin Economic Recovery Act (CBERA), and the Caribbean Basin Trade Partnership Act (CBTPA). CAFTA-DR calls for the progressive elimination of nearly all customs duties. Each country negotiated a list of its most sensitive products for which duty-free treatment is delayed, including separate provisions for certain apparel and agricultural products. For non-textile manufactured goods, duties on 80% of U.S. exports were eliminated immediately, with the rest phased out over a period of up to 10 years. For agricultural goods, duties on over 50% of U.S. exports were eliminated immediately, with the rest phased out over a period of up to 20 years. In some cases, duty-free treatment is "back loaded," meaning it will not begin for seven years or more after the agreement takes effect. For the CAFTA-DR countries, 100% of non-textile and non-agricultural goods began to enter the United States duty free upon implementation. Safeguards are retained for certain agriculture and textile goods over the period of duty phaseout, but antidumping and countervailing duties were not addressed in the CAFTA-DR, leaving all U.S. and other country trade remedy laws fully enforceable under the World Trade Organization (WTO). CAFTA-DR apparel enters the United States under a "yarn forward rule," with some exceptions, building on the standard developed for the region under the CBTPA in 2001. Yarn production and all operations that follow, from fabric production through cutting and apparel assembly, must be done in either the United States or a CAFTA-DR country, if the good is to qualify for duty-free treatment. From 2008 to 2011, 82% of qualifying textile and apparel imports from CAFTA-DR countries entered the United States under this rule. There are numerous exceptions including the "cut and assemble" rule, which allows for use of third country inputs (typically lower-cost Asian yarns and fabrics) for certain specified goods provided they are cut and assembled in a CAFTA-DR country. A de minimis rule permits duty-free entry of goods in which up to 10% of the weight of the fibers and yarns may come from third country sources. Separate rules (tariff preference levels—TPLs) for Nicaragua and Costa Rica allow for specified quantities of duty-free apparel imports that may be assembled from limited amounts of third country materials. A "short supply" list allows for use of fibers, yarns, and fabrics from third countries when not available in commercial quantities in the region, and CAFTA-DR allows for "cumulation" or the use of inputs from the various countries within the region, with limitations on the use of Mexican yarns and fabrics for wool, denim, cotton, and man-made fiber. Other exceptions exist for hand-loomed fabric of a cottage industry, folklore handicrafts, and other products. A "fabric-forward" rule allows for wool yarn from third countries to be used in certain textile and apparel goods and more detailed rules exist for specific cases of apparel manufacturing. Another 15% of qualifying imports entered duty free under these rules. Under agriculture, domestic support programs are not addressed in the CAFTA-DR, which focuses instead on reducing tariffs and defining quota levels, the most costly trade-distorting policies. Average applied tariffs on agricultural goods by most CAFTA-DR countries range from 7% to 23%. Most agricultural imports face no tariff in the United States. But for select products in all countries, the pressing challenge was negotiating tariff rate quotas (TRQs—see below), or limits on the quantity of imports that can enter the United States before higher tariffs are applied.