CAFTA

Definition

CAFTA, or the Central America Free Trade Agreement, is a trade agreement between the United States and several Central American countries aimed at promoting trade and economic integration. The agreement reduces tariffs and trade barriers, facilitating a more open market for goods and services. CAFTA is significant in understanding contemporary political challenges as it reflects the economic strategies of the U.S. in Latin America and the implications for regional development and political relations.

5 Must Know Facts For Your Next Test

1. CAFTA was signed in 2004 and includes the United States, Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua.
2. The agreement aims to enhance trade by eliminating tariffs on goods, which encourages economic growth among member countries.
3. Critics of CAFTA argue that it can lead to negative impacts on local industries and labor rights due to increased competition from larger U.S. companies.
4. CAFTA is part of a broader strategy by the U.S. to strengthen ties with Latin American nations while countering influences from other powers like China.
5. The implementation of CAFTA has led to increased exports from Central America to the U.S., but also raises concerns about environmental degradation and social inequality.

Review Questions

• How does CAFTA illustrate the relationship between trade agreements and political dynamics in Central America?
  • CAFTA serves as a clear example of how trade agreements can shape political relationships in Central America. By lowering tariffs and promoting economic ties with the United States, member countries are encouraged to align their political systems with U.S. interests, fostering stability but also dependence. This dynamic highlights the balance between pursuing economic growth through integration and maintaining political sovereignty within the region.
• Evaluate the impact of CAFTA on local economies in Central America and discuss both its benefits and drawbacks.
  • The impact of CAFTA on local economies has been mixed. On one hand, it has increased exports from Central America to the U.S., creating job opportunities and stimulating economic growth. On the other hand, many local industries struggle to compete with larger U.S. companies, leading to job losses and concerns about labor rights. Additionally, environmental issues arise as countries may prioritize economic gains over sustainable practices. This duality reflects the complexity of trade agreements in addressing local needs while participating in a global economy.
• Analyze how CAFTA fits into the larger context of U.S. foreign policy towards Latin America in the 21st century.
  • CAFTA is an essential component of U.S. foreign policy towards Latin America in the 21st century, aiming to strengthen economic ties while countering the influence of rival powers like China. By promoting free trade, the U.S. seeks to foster regional stability, security, and economic prosperity that aligns with its strategic interests. However, this approach also raises questions about U.S. dominance in regional affairs and its impact on local governance, social justice, and environmental sustainability, illustrating the complex interplay between economic objectives and political realities.

Related terms

Free Trade Agreement: A pact between two or more nations to reduce or eliminate trade barriers, allowing for easier access to each other’s markets.

Trade Liberalization:

The process of reducing government restrictions on international trade, making it easier for goods and services to flow across borders.

Economic Integration: The unification of economic policies among different states through the elimination of trade barriers and the coordination of monetary policies.