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.