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	CAFTA-DR holds promise for VA exporters *A new free trade agreement offers Virginian exporters new opportunities and includes a provision reversing a decade-long policy to restrict duty drawback programs* Following intense lobbying from interest groups and the White House, Congress finally approved the implementing legislation for a free trade agreement with five Central American nations and the Dominican Republic (CAFTA-DR). With voting falling largely along party lines, the Senate approved the agreement on June 30 by 54-45. The tally was even closer in the House, where it squeezed through by a final margin of two votes (217-215). To see how Virginia Legislators voted visit http:///thomas.loc.gov When President Bush signed implementing legislation on August 2 committing the United States to a free trade agreement with five Central America nations (Costa Rica, El Salvador, Honduras, Guatemala and Nicaragua) and the Dominican Republic (CAFTA-DR), supporters hailed the agreement for "leveling the playing field" with nations whose exporters had heretofore enjoyed largely duty-free access to the U.S. market, despite the fact that U.S. goods and services to the same nations faced a range of tariffs and other barriers. Indeed, the favorable terms of the agreement led the U.S. International Trade Commission to project that CAFTA-DR could boost U.S. exports worldwide by nearly $2 billion - and Virginia's exporters are well positioned to share in that business. As an aggregate, the CAFTA-DR nations are already Virginia's 15th largest export market. They are also the 2nd largest export market for Virginia's apparel manufactures, the 6th largest for Virginia fabric exports, and the 12th largest for Virginia chemical products. CAFTA-DR immediately eliminates tariffs on 80% of U.S. exports and eliminates all tariffs within 10 years, including the up-to-15% tariffs on Virginia's exports of chemicals, electrical equipment, machinery, paper and processed foods. Virginia's technology sector benefits from the elimination of information technology tariffs and new protections for intellectual property rights. For Virginia's agricultural producers, including key sectors such as meat, poultry, soybeans, wheat and dairy, CAFTA-DR means the immediate elimination of tariffs on 50% of U.S. exports, and on most remaining duties within 15 years. Virginia's textile and apparel industries will see existing partnerships expanded and a more a competitive edge in the global market for our products. So CAFTA-DR means more business for the state's exporters that already do business in the region as well as new opportunities for those looking to expand internationally. Another equally laudable, yet somewhat overlooked aspect of the accord is that CAFTA-DR does not restrict the right of nationals of the seven member nations to participate in duty drawback and deferral programs, reversing a decade-long U.S. trade policy to restrict such programs in free trade agreements (FTAs). Drawback and deferral programs, of course, permit a U.S.-based manufacturer to recoup the duties paid on materials imported to the U.S. for use in the manufacturing process of a finished product that is then exported. They also refund customs duties paid on imported products that are not used in the manufacturing process, but are later exported as unused merchandise. Though the policy is recognized by the World Trade Organization as a legal export promotion program, its usefulness came under scrutiny during the intense globalization period of the last decade. During this period U.S. trade policy has focused on reducing barriers to U.S. exports through multilateral trade liberalization initiatives (principally the WTO) as well as FTAs, which rightly sought to lower the overall tariff burden for U.S. exporters. Some policy makers feared that duty drawback programs, if maintained in an FTA, could encourage competitors from non-member countries to use our FTA partners to create export platforms. As a result, beginning with the North American free trade agreement in 1994, U.S. trade negotiators sought to limit or entirely eliminate duty drawback and deferral programs for exporters in regional and bilateral trade agreements. Restrictions on duty drawback were also included in subsequent FTAs with both Jordan and Chile. With the benefit of hindsight, we now know that such fears were unfounded and that the prescribed remedy was misguided. In fact, the NAFTA experience showed that restrictions on the duty drawback program actually produced punitive effects on the very domestic industries they were intended to protect. One salient example of this unintended and unfortunate outcome of the policy was the dramatic decline in U.S. textile exports (about 25 percent) to Mexico when Mexican apparel maquilas were unable to obtain reimbursements for duties they had paid on other non-originating inputs that were permissible under the NAFTA rule of origin. The restrictive drawback program in NAFTA placed U.S. companies at a significant competitive disadvantage against our trading partners. This experience is especially relevant to our partnership with the CAFTA-DR countries, which are currently our largest apparel and yarn export market and second largest fabric export market. Thanks largely to the Caribbean Trade Partnership Act (CBTPA), our partnership with the region has created a physical infrastructure that supports apparel production and consumption of U.S. textile inputs, sustaining approximately 700,000 workers in the U.S. cotton, yarn, textile and apparel sectors. By expanding and making permanent the benefits of the CBTPA - including the maintenance of full duty drawback benefits - CAFTA-DR should help extend the success of the partnership. In light of the elimination of global textile quotas and increased competition from Asia, restricting duty drawback programs in CAFTA-DR could have jeopardized that partnership by reducing profitability for domestic producers and by making it harder for our trading partners to afford other critical inputs at competitive prices. With numerous FTA's currently under negotiation by the USTR, the policy reversal regarding duty drawback in the CAFTA-DR is a promising development. The continued elimination or restriction of duty drawback and duty deferral programs in larger agreements, such as the proposed Free Trade Area of the Americas, could place U.S. companies at a significant competitive disadvantage against our competitors. Virginia companies should be watching developments with regard to this policy carefully - and adding their voice to the growing chorus of exporters nationwide that are urging U.S. negotiators to allow the U.S. and its trading partners to maintain their existing duty drawback and duty deferral programs without restriction, in order to foster growth and development within the U.S. and to increase U.S. export competitiveness abroad. Virginia companies interested in learning more about the legal issues involved in CAFTA and Latin America can seek legal assistance from the authors at Lasa Monroig & Veve, LLP (LMV), a boutique law firm specializing in cross border transactions in Latin America. They can be reached online at www.lmwlaw.com or by phone at (202) 345-1905. Brian S. Alperstein, Esq. Director, International Practice Group balperstein@lmvlaw.com Ted Allen, Esq. Director, International Government Affairs tallen@lmvlaw.com Lasa Monroig & Veve, LLP (LMV) www.lmvlaw.com