A Central American Free Trade Agreement (Cafta) has been signed by the US and five countries in the region.
Free trade is widely opposed by labour activists and environmentalists
Cafta should help ease poverty, foster development and strengthen democracy in the region, US Trade Representative Robert Zoellick said.
Costa Rica, El Salvador, Guatemala, Honduras and Nicaragua signed the deal.
The agreement, which is subject to approval by US Congress, was opposed by labour activists and environmentalists.
They say the deal will cause suffering for workers and farmers, as well as for the land itself.
Critics are also worried that the trade zone, which extends patent protection for US pharmaceutical firms, will drive up healthcare costs.
But several large companies support the deal which eliminates duties on more than 80% of US manufacturing exports to region.
US farmers also back the deal since it will remove duties on 50% of US farm exports.
Remaining tariffs are due to be phased out over time.
Central America suffered from widespread civil unrest and war during the 1980s.