Maximizing Gains from Regional Trade Agreements in Central America (English)

Regional trade agreements (RTAs) are pivotal in enhancing trade and participation in Global Value Chains (GVCs). Over the past two decades, numerous trade agreements have been ratified, driven by theoretical and empirical support for trade integration as a catalyst for economic prosperity. Studies confirm that RTAs generally boost trade among member nations and foster policy stability, which is crucial for GVCs and sustained investment. Deep trade agreements, when executed effectively, can significantly stimulate trade and GVC-related commerce. They are also instrumental in economic development, as the stipulated trade rules shape the way countries interact, invest, and progress (Matto, Rocha and Ruta 2020). However, the magnitude and direction of RTAs' effects differ greatly across countries, sectors, and over time. Some RTAs may even have a negligible or adverse impact on trade. Factors specific to countries or country pairs, such as institutional quality, along with the design of the agreement, profoundly influence the outcomes. Hence, evaluating the impact of agreements on member countries is essential for informing economic policies, guiding future trade policy reforms for the involved nations, and informing the negotiation of new arrangements. This report marks the 20th anniversary of the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR), one of the most comprehensive RTAs in Latin America. Signed in 2004 and entering into force from 2006 to 2009, CAFTA-DR has been a cornerstone in the region, replacing or enhancing other integration efforts like the Central American Common Market (CACM) and the Central American Economic Integration System (SIECA); and superseding the Caribbean Basin Initiative (CBI), which granted preferential US market access to Central American and Caribbean states. CAFTA-DR encompasses an extensive array of provisions, nearly 50 percent more than the average for Latin American and Caribbean (LAC) RTAs, making it a notably thorough agreement. Beyond its trade outcomes and policy-related content, the agreement also generated gains that are difficult to quantify, such as crafting a regional integration/cooperation vision, strengthening key regional institutions (e.g., SIECA, regional and country-level trade facilitation committees) and building know-how and negotiations skills that were leveraged by subsequent RTAs.