Atlantic Council
November 2025
ADRIENNE ARSHT LATIN AMERICA CENTER
Issue brief
Why modernizing CAFTA-DR matters for the United States, and options for updating the trade pact
Enrique Millán-Mejía, Antonio Ortiz-Mena, and Rocío Rivera-Barradas
Bottom lines up front •
The United States’ free trade agreement with Central America and the Dominican Republic needs updating to address digital trade, labor standards, and supply-chain rules that have evolved since it took effect in 2005.
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Modernizing CAFTA-DR will strengthen US economic security by countering China’s influence and reducing migration pressures.
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Three paths forward exist: full USMCA accession for CAFTA-DR members; replacing the group agreement with bespoke bilateral deals; or targeted updates to specific chapters of the original agreement.
As the US government reconsiders its trade architecture, as well as its trade network in the Western Hemisphere, updating the Central America–Dominican Republic Free Trade Agreement (CAFTA-DR) should be viewed not as a simple economic exercise, but as a strategic investment in US economic security and competitiveness. An upgraded CAFTA-DR could reinforce regional stability at a time when economic fragility, migration pressures, and external influence are converging in the United States’ near abroad. Aligning CAFTA-DR’s standards with the more modern United States–Mexico–Canada Agreement (USMCA) framework—for example, on digital trade, labor, and supply-chain governance—would create a more coherent North American–Central American production corridor serving US industries, reducing dependence on distant suppliers, and supporting a more orderly regional economy. For the United States, modernizing CAFTA-DR is not about generosity; it is about strengthening the resi-
ATLANTIC COUNCIL
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lience of the neighborhood that most directly shapes its security and prosperity. CAFTA-DR has been a cornerstone of US economic engagement with this region since the agreement’s staggered entry into force between 2006 and 2009. But as global trade evolves and geopolitical competition intensifies, the agreement faces new challenges that demand modernization. CAFTA-DR was designed to establish a free trade zone among the participating countries, eliminating tariffs, granting the United States preferential market access, and creating predictable rules for trade and investment. Although it served as a model for subsequent trade promotion agreements with Colombia, Peru, Panama, and South Korea, the agreement is now twenty years old and predates major developments in digital trade, which was at its start when the agreement went into force. Today, labor and environmental standards, supply-chain rules of origin, services liberalization, and investment screens must be updated, particularly considering that the new model to