Go South

In late July, the free- trade agreement with five Central American countries and the Dominican Republic known as CAFTA-DR squeaked through the House, heralding a major expansion of an export market whose promise small business has already discovered. The hotly contested treaty was approved by the House with a vote of 217-215. President Bush affixed his signature on August 20.

Entrepreneurs in a wide range of sectors send considerable amounts of goods to Costa Rica, the Dominican Republic, El Salvador, Guatemala, Honduras and Nicaragua, countries included in the Bush-supported free-trade agreement. According to the Small Business Exporters Association, over two-thirds of the dollar value of non-oil imports going into those six countries comes from the United States. Moreover, smaller U.S. companies account for 37 percent of all U.S. exports to the CAFTA-DR region. "These are extraordinarily high percentages, among the highest for small U.S. exporters in any region of the world," says James Morrison, president of the SBEA. "Simply put, the CAFTA-DR markets have enormous built-in demand for U.S. products and services, as well as a high degree of acceptance of smaller U.S. company exporters."

Modeled after the North American Free Trade Agreement between the United States, Canada and Mexico, CAFTA-DR eliminates the tariffs U.S. companies pay when they sell to any of the six countries. The greatest benefit CAFTA-DR offers smaller American companies is lower transaction costs in the region. As transaction costs fall, increasingly small sales orders become economical to fill.

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In the end, 27 Republicans in the House deserted Bush by voting against CAFTA-DR, but 15 Democrats voted in its favor, giving the treaty at least a modicum of bipartisan legitimacy.