January 08,2003

Grassley Endorses U.S.-Central America Trade Talks

Grassley Supports Efforts to Open U.S.- Central American Markets, Seeks Continued Access and Growth for U.S. Agricultural Exports

WASHINGTON – Sen. Chuck Grassley, incoming chairman of the Committee on Finance,
today expressed his support for the President’s initiative for a U.S.-Central America free trade
agreement (CAFTA). With negotiations set to begin in late January, Grassley said an agreement is the right step forward in opening trade with Latin America and expanding markets for U.S. exports in agriculture and other products throughout the world.

“The success of our negotiations with Chile makes clear that we can and should continue to
develop markets for our agricultural and other sectors within the Western Hemisphere,” Grassley
said. “The member nations of CAFTA, which include El Salvador, Guatemala, Honduras, Costa
Rica and Nicaragua, are already close trading partners. A free trade agreement with these nations represents a unique opportunity not only for U.S. farmers, businesses and workers, but also for promoting development, security and prosperity in this region.”

Grassley said a free trade agreement with Central America can also serve as a building block
toward the goals of a region-wide Free Trade Area of the Americas and the development of other
bilateral and multilateral trade agreements that the United States is seeking globally. “Expanding commercial ties with the world community and our Latin American partners helps keep the U.S. economy growing. That means increased farm income and better job opportunities for American workers,” Grassley said.

“Our farmers and workers deserve the long-awaited benefits that came with the passage of
the Trade Act of 2002.” Grassley said. “Free and fair trade are the cornerstones for building greater economic prosperity in the United States and helping to promote stability throughout the world. The launch of these negotiations today also re-affirms the promise of prosperity inherent in the renewal of Trade Promotion Authority.”

The following are highlights of a U.S.-Central America free trade agreement from the Office
of the U.S. Trade Representative:

Free Trade With Central America
Strengthening Democracy, Promoting Prosperity

Central America: A Large and Growing Market

The United States exported $9 billion in goods to the five Central American countries in 2001, about the same as U.S. exports to Russia, India and Indonesia com bined. U.S. exports to the region have been growing, up 42% since 1996.

The U.S. is the main supplier of goods and services to Central American economies: 40% of total
goods im ports by Central America com e from the United States.

Key U.S. exports to the region include m achinery and equipm ent; chemicals and plastics; foodstuffs including apples, corn, wheat and rice; textiles and apparel; and paper. 78% of U.S. exporters to the region are small and medium-d businesses, and such firm s generate nearly half of U.S. export value to Central America.

Strengthening Democracy, Promoting Prosperity

In a single generation, Central Am erica has been transformed from a region of Cold W ar-era conflict into an area of rising prosperity.

Economic reform in Central America has already helped to raise incomes and fight poverty. For
example, since 1991 El Salvador worked to tackle inflation, cut spending, crack down on corruption, privatize inefficient state-run businesses, and open the country to trade. As a result, per capita incomes in El Salvador grew 10 times faster in the 1990s than in the 1980s
Free trade is about freedom, and a U.S.-Central America FTA will further strengthen nascent
democracies and economic reforms through basic building blocks for long-term development, such as:

The rule of law
Open, transparent governance
Protection of private property rights and investments
Market-based competition rather than oligarchies and state monopolies
Beneficial regional integration

Addressing Market Access Barriers

In the negotiations, the U.S. will seek to address high tariffs on U.S. agricultural and industrial goods, ensuring that food inspection rules are based on sound science, restrictive licensing practices, protection of intellectual property, and limits on access by U.S. service providers.

President Bush announced his intention to explore an FTA with Central America on January 16, 2002, and notified Congress of his intention to begin free trade negotiations last autumn, following passage of Trade Promotion Authority. USTR held public hearings on November 19, 2002. The first working level negotiating round will begin on January 27 in San Jose, Costa Rica. Eight additional negotiating rounds are planned, and talks are expected to conclude in December 2003.

Leveling the Playing Field For U.S. Products

U.S. products face a competitive disadvantage in the region, because Central American countrieshave been very active in negotiating free trade agreements that do not include the United States. More than 20 trade agreements grant preferences in Central America to products from Mexico, Canada, Chile, and several South Am erican nations.

For example, U.S. apple growers are very interested in the Central American market. But nearly $4 million in U.S. apples exported to Costa Rica last year paid a 15% import tariff, while Canadian apples enter Costa Rica duty-free.

Under the Caribbean Basin Initiative (CBI) and other U.S. preference programs, U.S. tariffs on Central American goods are already low, with 74% of regional imports entering the U.S. duty-free in 2002. But one-way preference programs must be renewed periodically, while an FTA would establish a more stable environment for trade and investm ent. A free trade agreement would also be reciprocal, giving U .S. goods duty-free treatment.

A Key Element in America’s Trade Liberalizing Strategy

The United States seeks to liberalize trade through multilateral, regional, and bilateral initiatives. An FTA with Central America is a critical elem ent of this strategy.

In addition to the bilateral benefits of an FTA, the negotiation with Central America will  complement the goal of completing a Free Trade Area of the Americas (FTAA) by January 2005. Negotiations on CAFTA will increase momentum toward lowering trade barriers and set a positive example for other small economies in the Western Hemisphere.

Agreement between the U.S. and Central America on free trade would promote a greater
convergence of positions at the FTAA negotiating table. Together with NAFTA and the U.S.-Chile
FTA, an agreement with Central America would improve the likelihood of forging common views on a wide range of topics.