Regional trade agreements and export competitiveness: The uncertain path of Nicaragua's apparel exports under CAFTA

Abstract

© 2015 The Author 2015. Published by Oxford University Press on behalf of the Cambridge Political Economy Society. All rights reserved.The Central American Free Trade Agreement (CAFTA) has been a mixed blessing for economic development. While exports to the US economy have increased, dependency may hinder economic growth if countries do not diversify or upgrade before temporary provisions expire. This article evaluates the impact of the temporary Tariff Preference Levels (TPLs) granted to Nicaragua under CAFTA and the consequences of TPL expiration. Using trade statistics, country- and firm-level data from Nicaragua's National Free Zones Commission (CNZF) and data from field research, we estimate Nicaragua's apparel sector will contract as much as 30-40% after TPLs expire. Our analysis underscores how rules of origin and firm nationality affect where and how companies do business, and in so doing, often constrain sustainable export growth.