Earlier this summer, Vice President Kamala Harris announced more than $1.9 billion in private sector investments in northern Central America as part of its Call to Action for businesses to invest and create economic opportunities in Central America. Facilitating private sector investment is a key piece of the Biden administration’s strategy to create economic stability for Central American workers, but the administration must step in and do more.
While these private sector commitments are laudable, the administration is missing an opportunity to create the conditions for businesses to invest even further in Central America. To truly unleash economic opportunities, promote job growth, and help stabilize the region, the administration must focus on facilitating trade in Central America.
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By encouraging and incentivizing trade with Central America, the Biden administration can fulfill dual policy goals of creating more stability in the region while also bringing some key industries closer to home. But to do this, it must ensure the tools that already exist to facilitate trade with Central America can be used to their fullest potential. This includes leveraging the U.S. free trade agreement with our partners in the region.
The Central America-Dominican Republic Free Trade Agreement allows for duty-free imports of certain goods from Central American nations. In theory, duty-free treatment incentivizes industries such as apparel and textiles to shift their sourcing from countries like China and bring them closer to the Western Hemisphere. The current rules, however, make sourcing goods like apparel from the region difficult. In fact, CAFTA-DR saw record-low utilization rates in 2021. This must change.
If companies are unable to use CAFTA-DR to achieve the duty-saving benefits, they are less incentivized to grow and diversify their investments in the region. This in turn diminishes economic opportunities for the people who call the area home. Meanwhile, here in the United States, it removes the ability to utilize and strengthen relationships with our CAFTA-DR trading partners. It’s a missed opportunity for all parties.
This is something we are seeing in real time. In 2020, four out of the six CAFTA-DR member countries outside the U.S. were near the bottom of gross domestic product per capita in Latin America and the Caribbean. Similarly, the Northern Triangle nations (Guatemala, Honduras, and El Salvador — each of which is a part of CAFTA-DR) have also experienced increases in unemployment. If these problems aren’t addressed head-on, they will only get worse.
Incentivizing private companies to invest in the region by expanding and building upon the current trade foundations, including CAFTA-DR, will make it easier for companies to source goods from the region, create jobs, and foster the type of durable economic stability these countries need. If the administration wants to truly unleash private sector investment, this is where it must shift its focus next.
President Joe Biden, Harris, and U.S. Trade Representative Katherine Tai need to expand, not restrict, trade in the region. They must promote investment and open new possibilities for the people who live and work there. The benefits this will unlock for the region, coupled with the incentive it will give U.S. companies to source goods closer to home, shouldn’t be ignored.
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Blake Harden is the vice president for international trade at the Retail Industry Leaders Association.
