Go South

This story appears in the October 2005 issue of Entrepreneur. Subscribe »

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.

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.