WT/TPR/S/83 Trade Policy Review
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II. TRADE POLICY REGIME: FRAMEWORK AND OBJECTIVES
(1) INTRODUCTION
1. Since the previous Trade Policy Review of Costa Rica there have been no fundamental
changes to the legal, trade and investment regime.  Costa Rica's foreign trade policy has sought to
promote, facilitate and consolidate its integration in the international economy, in a particularly stable
institutional and legal framework.  The policy is primarily conducted by the Ministry of ForeignTrade, whose functions have been extended to make it the chief spokesman for all foreign trade-
related issues.  A bill to modernize the legal framework for the telecommunications sector, regarded
as of crucial importance, was submitted to the Legislative Assembly but later withdrawn.
2. Costa Rica is a founder Member of the WTO, whose agreements take precedence over
domestic legislation.  Costa Rica participates actively in the multilateral trading system.  It was thefirst Latin American country to accede to the Inform ation Technology Agreement, it took part in the
negotiations on financial services and adopted the Fifth Protocol and it participated as an observer in
the Negotiating Group on Basic Telecommunications.  Along with its participation in the multilateral
system, Costa Rica is playing an increasingly dynamic role in various regional integration schemes.
Costa Rica is a member of the Central American Common Market and has free trade agreements withChile, Mexico, Panama and the Dominican Republic.  It is also negotiating an agreement with Canada
and participating in the negotiations for the Free Trade Area of the Americas.  Costa Rica has been a
member of the Cairns Group since 1999.
(2) F
ORMULATION AND APPLICATION OF TRADE POLICY
(i) General legal and institutional framework
3. Costa Rica is a republic whose territory is divided into provinces, cantons and districts.  The
Constitution requires the State to secure the greatest well-being of all the country's inhabitants, byorganizing and stimulating production and the faires t distribution of wealth.  The Government of the
Republic is vested in three separate powers, the Executive, the Legislature and the Judiciary.
4. The Executive Power is exercised by the President of the Republic and the ministers of the
Government.  The President and the two vice-presidents are elected simultaneously by a majority of
votes exceeding 40 per cent of the number of votes cast.  The presidential term is four years, withoutthe possibility of re-election.  The President has the exclusive power to appoint and dismiss ministers
of the Government.  The Executive is entitled to conclude international agreements, public treaties
and pacts, promulgate and implement them once approved by the Legislative Assembly, or by a
Constituent Assembly when required by the Constitution.
5. The Legislative Assembly exercises the legislative power.  The Assembly is made up of
57 deputies who hold office for four years and may not be re-elected for a consecutive term.  The
exclusive powers of the Assembly include:  enacting, reforming, repealing and interpreting laws;
appointing judges to the Supreme Court of Justice;   setting national taxes and authorizing municipal
taxes;  and approving international conventions and public treaties.  Public treaties and international
conventions which assign or transfer certain powers to a community legal system for commonregional purposes require the approval of not less than two thirds of the members of the Assembly.
Such was the case with the Protocol to the General Treaty for Central American Economic
Integration, approved by Costa Rica on 26 September 1996.  Under this Protocol, the Contracting
Parties decided to transfer certain powers to the Council of Ministers for Economic Integration
(COMIECO), which is responsible, in particular, for the coordination, harmonization, convergence
and unification of countries' tariff policies.  Accordingly, the Minister of Foreign Trade of Costa Rica,Costa Rica WT/TPR/S/83
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as a member of COMIECO, can change customs duties by Executive Decree without the need for
such changes to be approved by the Legislative Assembly.  Lower-ranking protocols deriving from
public treaties or international conventions approved by the Assembly do not require legislative
approval when those instruments ex pressly authorize such protocols.
6. The Judicial Power is vested  in the Supreme Court of Justice and other courts established by
law.  A special Chamber of the Supreme Court can rule, by an absolute majority of its members, onwhether laws of any kind and acts subject to public law are constitutional.  The Supreme Court is also
responsible for hearing submissions on proposed constitutional reforms, approval of international
conventions or treaties and other bills.
(ii) Trade policy objectives and formulation
7. Foreign trade policy is part of the general development policy designed to achieve higher
standards of living for all Costa Ricans through economic and social development.  The general
objective of foreign trade is to promote, facilitate and consolidate Costa Rica's integration in the
international economy.  In the view of the Costa Rica n authorities, this objective reflects the fact that
neither the size of the Costa Rican economy nor the Central American market are sufficient to provide
the opportunities for growth that the country needs.  Consequently, foreign trade policy hinges on aseries of specific approaches:
- Promoting the domestic changes necessary to develop a more efficient economy and
generate higher levels of export growth;
- improving and securing access by Costa Rican products to foreign markets, thereby
creating an environment suited to investment and productive activity;
- defending Costa Rican trade interests against protectionist measures by other
countries;
- fully involving all the country's sectors in exporting;
- promoting Costa Rica's exportable products abroad, especially those of small- and
medium-sized enterprises;
- promoting the requisite conditions for domestic and foreign investment and
establishing programmes to attract investment in sectors with competitive advantages;
- establishing rules and procedures for the proper management of trade relations.
8. These approaches, overseen by the Ministry of Foreign Trade (COMEX) are directly tied in
with the activities of two institutions:  the Foreign Trade Promotion Body ( Promotora de Comercio
Exterior , PROCOMER), responsible for promoting exportable products abroad, especially those of
small- and medium-sized enterprises, and the Costa Rican Coalition for Development Initiatives(Coalición Costarricense de Iniciativas de Desarrollo,  CINDE), a private organization whose object
is to foster the conditions needed to attract domestic and foreign investment and at the same time
establish investment programmes.
9. COMEX also uses a number of other tools, including unilateral opening up, negotiation of
trade and investment agreements, regional integration and participation in the multilateral system.WT/TPR/S/83 Trade Policy Review
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10. The trade policy attaches great importance to the various efforts to achieve greater regional
integration in the hemisphere, notably specific actions such as the negotiation of bilateral free trade
agreements with trading partners in the hemisphere and the country's efforts in Central America and in
the Free Trade Area of the Americas (FTAA).  Costa Rica regards these actions as extremely useful,
firstly in achieving greater trade liberalization and, secondly, as a complement to the country's work
within the WTO.
11. The authorities pointed out that Costa Rica' foreign trade policy does not place special
emphasis on the pursuit of sectoral objectives.
12. In order to achieve the proposed foreign trade policy objectives, a number of changes were
made as from 1995 to strengthen the institutional basis of foreign trade.  The most important was the
enactment in October 1996 of the Law establishing the Ministry of Foreign Trade, which laid downthe functions and powers of COMEX, as well as it s obligations and responsibilities.  With a view to
maintaining a unified and consistent policy with a single point of contact abroad, issues related to
Central American Integration and tariff policy were transferred from the Ministry of the Economy,
Industry and Trade to COMEX.  Since the second half of 1998, all foreign trade matters have been
conducted and handled by COMEX.
13. COMEX's task is to shape, conduct and coordinate Costa Rica's foreign trade policy, which
means the framework of rules, policies and programmes formally established to promote the country's
integration in the international economy.  COMEX is responsible for negotiating trade agreements
and monitoring their appropriate application.  For the latter purpose, the Department for the
Application of International Trade Agreements ( Dirección de Aplicación de Acuerdos Comerciales
Internacionales ) was created, so as to ensure compliance, both by the Government of Costa Rica and
by the governments of its trading partners, with all their obligations under the bilateral, regional ormultilateral treaties, agreements and other trade or investment instruments signed by Costa Rica.  It is
also responsible for periodic evaluations of the application of these treaties and agreements, in both
economic and legal terms.
14. Furthermore, Article 4 of the Law establishing the Ministry of Foreign Trade establishes an
Advisory Council on Foreign Trade to advise the Executive on defining foreign trade and foreigninvestment policies, and to promote mechanisms for coordination and cooperation with the private
sector to implement these policies and conduct international trade negotiations.  The Council is
chaired by the Minister of Foreign Trade, and is made up of the Ministers of the Economy, Industry
and Trade, Agriculture and Livestock, Foreign Affairs and Worship and producers' and consumers'
representatives.
1
(iii) Principal trade laws and regulations
15. The Constitution takes precedence over all other laws.  Public treaties, international
agreements and pacts, duly approved by the Legislative Assembly, have higher authority than laws
from the time of their promulgation or the day designated therein.  Public treaties and international
agreements relating to the country's territorial integrity or political structure require approval by notless than three quarters of the members of the Legislative Assembly, and two thirds of the members of
a Constituent Assembly convened for that purpose.   Up to now, no treaty or agreement of that type
has been submitted to the Legislative Assembly.
16. The principal laws and regulations governing trade are listed in Table AII.1.  The principal
specific change necessary to align Costa Rican legislation with Uruguay Round commitments was
                                                     
1 The membership of the Council is set out in Law No. 8056 of 15 January 2001.Costa Rica WT/TPR/S/83
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made with the enactment of the Law on the Appl ication of the Uruguay Round Multilateral Trade
Negotiations, Law No. 7473 of 23 December 1994.  In addition, the country has introduced
amendments or new laws in specific spheres such as customs valuation or intellectual property
(see Chapter III), and in the framework of the Central American Common Market (see (ii)(a)).  On the
other hand, the bill to modernize the legal framework and stimulate the opening up of the
telecommunications sector was withdrawn from the current parliament (Chapter IV.5.(iii)).
(3) FOREIGN INVESTMENT REGIME
17. Costa Rica does not have a specific law on foreign investment.  The ordinary laws apply
equally to nationals and foreigners under Article 19 of the Constitution, which provides that
foreigners shall enjoy the same rights and have the same obligations as nationals, with the exception
of such limitations as may be laid down in the Constitution or by law.  In Resolution No. 5965-94 of11 October 1994, the Supreme Court of Justice gave its interpretation of that article of the
Constitution and stated that only limitations laid down in the Constitution or in such legislation to
which the Constitution makes explicit reference may validly differentiate between foreigners and
nationals.  Nevertheless, any discriminatory legislation which has not been declared unconstitutional
may remain in force.  Examples of this are the laws of some professional bodies which lay downresidence or nationality requirements for membership and have not to date been referred to the
Constitutional Court.
18. Some activities are reserved by the Constitution or by law to the State.  Both Costa Ricans
and foreigners are prohibited from engaging in the following activities, which are a monopoly of the
State:  the importing, refining and distribution of petroleum;  the production of alcohol;  insurance
services;  the sale and distribution of electricity;  and postal services.  Otherwise, although the
ownership of certain sectors is reserved to the State, the Constitution explicitly allows them to beoperated by concessions granted under specific laws.  In principle, these concessions may be issued to
both nationals or foreigners in the following activ ities:  operation of railways, ports and airports;
electricity generation;  exploitation of natural resources;  and telecommunications services.  However,
in some cases there are limitations to national treatment (see Chapter IV).
19. The investment arrangements in Costa Rica are supplemented by bilateral, regional and
multilateral treaties which provide guarantees and protection for foreign investment.  The Free Trade
Agreement between Costa Rica and Mexico contains provisions on investment, as do the treaties
negotiated with Chile and the Dominican Republic.  Costa Rica ratified the Agreement establishing
the "Inter-American Development Bank of the Inte r-American Investment Corporation" and is a
member of the World Bank's Multilateral Investment Guarantee Agency (MIGA).
20. At the end of January 2001, Costa Rica had agr eements on mutual investment promotion and
protection with the following countries: Argentina (Law No. 8068 of 30 January 2001);  Canada (Law
No. 7870 of 25 May 1999);  Chile (Law No. 7748 of 23 March 1998);  Chinese Taipei (Law No. 7994
of 21 February 2000);  Czech Republic (Law N o. 8076 of 30 January 2001);  France (Law No. 7691
of 4 November 1997;  Germany (Law No. 7695 of  5 November 1997);  Netherlands (Law No. 8081
of 30 January 2001);  Paraguay (Law No. 8069 of  30 January 2001);  Spain (Law No. 7869 of
13 April 1999;  Switzerland (Law No. 3725 of 12 August 1966);  United Kingdom (Law No. 7715 of
31 October 1997); and Venezuela (Law No. 8067 of 30 January 2001).  A new agreement with
Switzerland is in the course of approval, as is an agreement with the Republic of Korea (draft Law
No. 14238).  Negotiations have also been completed and the signature of three additional treaties
(Belgium and Luxembourg, Bolivia and Poland) is pending, and negotiations have begun with
19 other partners (Austria, Barbados, Brazil, Colo mbia, Denmark, Ecuador, Finland, Greece, Ireland,
Italy, Jamaica, Norway, Peru, Portugal, Romani a, Sweden, Turkey, United States and Uruguay).WT/TPR/S/83 Trade Policy Review
Page 18
21. Foreign investment is promoted mainly through the Costa Rican Coalition for Development
Initiatives (CINDE).  The object of this private organization is to promote the conditions necessary to
attract domestic and foreign investment and at the same time establish investment programmes.
(4) INTERNATIONAL RELATIONS
(i) World Trade Organization
22. Costa Rica signed the Protocol of Accession  to the GATT in November 1989 and concluded
the process a year later with the approval of that instrument by the Legislative Assembly.  The
Marrakesh Agreement establishing the WTO was ratified by the Legislative Assembly on
26 December 1994.2  As international treaties, the WTO Agreements take precedence over domestic
legislation and may be invoked directly before the courts.  Costa Rica has made use of the transition
periods available to developing countries.
23. Under the terms of the commitments entered into, Costa Rica has submitted several
notifications to the WTO (Table AII.2).
24. Costa Rica has played an active role in the multilateral trading system, taking advantage of
the tools it offers so as to secure better terms of access for its products and to defend its commercial
interests.   Both in GATT and in the WTO, Costa Rica has used the dispute settlement mechanismsavailable to it, both as an applicant and as a third party, to defend the conditions for access of its
exports to the international market (see Chapter III.3.(x)).  Indeed, the first dispute concerning trade in
textiles and clothing settled under the multilateral system involved Costa Rica as an applicant, and
ended with the elimination of the measures imposed on Costa Rican exports of underwear to the
United States market after the Appellate Body upheld the ruling in favour of Costa Rica.
3
25. Since 1995, apart from the case mentioned above, Costa Rica has requested consultations
with Trinidad and Tobago on measures affecting Costa Rican exports of pasta.4  Costa Rica also asked
to be joined in the following proceedings:  cons ultations requested by the United States, Guatemala,
Honduras and Mexico concerning the European Communities regime for the importation, sale and
distribution of bananas5;  consultations requested by Panama concerning the same Community
regime6; and consultations requested by Brazil concerning measures by the European Communities
concerning special preferential treatment granted to imports of soluble coffee under the EuropeanGeneralized System of Preferences.
7
26. Since 1997, Costa Rica has taken part in the Committee on the Expansion of Trade in
Information Technology Products, and was the first Latin American country to accede to the
Information Technology Agreement (ITA) adopted at the Ministerial Conference in Singapore in
December 1996.  Costa Rica has endeavoured to seek an extension of the range of products originallycovered by the ITA and considers it very important to move ahead in the negotiations on this subject.
In this connection, Costa Rican policy pursues three very specific objectives:  to consolidate the
process of opening up this sector to encourage access to and use of information technology products
in the country;  to support the policy of attracting investment in high technology;  and to support
national education policy by encouraging computer training at all levels of education.  Furthermore,
                                                     
2 See WTO (1995), Trade Policy Review of Costa Rica , Chapter II.4.
3 WTO documents WT/DS24/R of 8 November 1996 and WT/DS24/AB/R of 10 February 1997.
4 WTO document WT/DS185/1 of 23 November 1999 and WT/DS187/1 of 20 January 2000.
5 WTO document WT/DS16/7 of 30 October 1995.
6 WTO document WT/DS105/6 of 14 November 1997.
7 WTO document WT/DS154/4 of 5 January 1999.Costa Rica WT/TPR/S/83
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Costa Rica has been keen to clarify the differences in classification that have arisen among Members
and hopes to see continued examination of non-tariff measures affecting such products.
27. Costa Rica has been taking part in the negotiations on financial services and has accepted the
Fifth Protocol annexed to the General Agreement on Trade in Services, which was approved by
Law No. 7897 of 18 August 1999.  Costa Rica also participated as an observer in the Negotiating
Group on Basic Telecommunications (see Chapter IV.5).
28. In the context of the preparations for the WTO Ministerial Conference in Seattle in 1999,
Costa Rica spoke in favour of including a multilateral framework for investments in trade negotiations
within the WTO.  Costa Rica takes the view that the WTO is the forum for developing a framework of
principles which fully and comprehensively regulate investment to ensure that the interests of both
developed and developing countries are taken into account.  Such an agreement should be based onthe principle of non-discrimination, and the gu arantees of most-favoured-nation treatment and
national treatment should therefore be two fundamental elements.  The scope of the agreement and the
adoption of a broader or narrower concept of in vestment are factors which, in Costa Rica's opinion,
should be examined with great care.  Other topics for discussion proposed by Costa Rica include
performance requirements, investment incentives and dispute settlement.
8
29. On the occasion of the Seattle Ministerial Conference, Costa Rica was formally accepted as a
member of the Cairns Group.  In this connection, Costa Rica's main objective in the negotiations on
agriculture under Article 20 of the Agreement on Agriculture is the establishment of a fair and
market-oriented system of agricultural trade, putting trade in agricultural goods on the same plane as
trade in other products.  Costa Rica considers that agricultural commitments should address three
areas:  total elimination of export subsidies;  reduction of domestic support measures and the
elimination of trade-distorting measures;  and improved market access, through reductions in dutiesand peak tariffs, elimination of tariff escalation and non-tariff barriers that still exist, and increased
tariff quotas and enhanced systems of administration.
30. With respect to the negotiations on trade in services established in Article XIX of the General
Agreement on Trade in Services (GATS),  Cost a Rica recognizes the need to supplement the
development of the GATS rules, especially on subsidies and safeguards.  However, given its fiscalconstraints, Costa Rica is anxious that such provisions should lead to the greatest possible discipline
in the use of subsidies in these sectors.  In addition, Costa Rica recognizes the importance of the
process of including further service sectors within the rules on market access and national treatment,
and considers that it should be a gradual one, respecting the realities in each country.
(ii) Preferential agreements
(a) Central American Common Market (CACM)
31. In 1963 Costa Rica became a signatory to the General Treaty on Central American Economic
Integration, which established the CACM.  The CACM's members also include El Salvador,
Guatemala, Honduras and Nicaragua.  Since the previous trade policy review of Costa Rica, there
have been major changes in the process of Central American integration.  At the institutional level,
the Tegucigalpa Protocol to the Charter of the Organization of Central American States entered into
force on 26 June 1995, and amended the legal regional framework creating the Central American
Integration System as the institutional framework for Central American regional integration.   The
Guatemala Protocol to the General Treaty on Central American Economic Integration was also
                                                     
8 WTO document WT/GC/W/280 of 29 July 1999.WT/TPR/S/83 Trade Policy Review
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ratified and entered into force.  It defines the objectives, principles and measures to achieve economic
union, the goal set by the Central American presidents as a complement to the Tegucigalpa Protocol.9
32. In the matter of regional regulations, regional trade rules are being aligned with the
commitments of each Central American country in the WTO.  By the end of 2000, nine new
regulations had been approved in the following fields:  origin of goods, unfair business practices,
safeguard measures, standardization measures, metrology and authorization procedures, as well assanitary and phytosanitary procedures.  Approval of a regulation on disputes settlement is pending and
negotiations are under way to conclude a treaty on services and investment.  At the present time, there
are no initiatives concerning government procurement at the Central American level.
33. As to the enhancement of the free trade area, the majority of intra-regional barriers to trade
have been removed.  By the end of 2000, the vast majority of products originating in the region had azero tariff.  The main exceptions included products such as coffee, sugar, ethyl alcohol, wheat flour or
petroleum products (see Table III.3).
34. With respect to the Central American import duty, the Second and Third Protocols to the
Convention on the Central American Tariffs and Customs Regime were signed, and they allow the
application of a tariff in excess of 100 per cent for farm products subject to tariffs during the UruguayRound and establish a new tariff policy with rates of 0, 5, 10 and 15 per cent (Chapter III.2.( iii)).
However, despite the common approach adopted by the countries in Central America, there is no
common external tariff because the tariff lines to which they apply each rate are not necessarily the
same from one country to another.  The authorities pointed out that, in January 2001, Guatemala was
applying CAUCA III, signed in 1999;  Costa Rica and Nicaragua, CAUCA II, signed in 1993;
Honduras was applying national legislation and in El  Salvador, the Central American Court of Justice
had imposed a protective measure to suspend the application of CAUCA III.
35. In the context of the present report, the authorities indicated that the new CACM tariff policy
has allowed Costa Rica, mainly, greater liberalization of a captive market, and the region, in general,
greater integration in world trade.  According to the authorities, in the past six years the process of
easing CACM tariffs has encouraged the entry of external competitors, both for raw materials and
intermediate and final goods.
36. Despite the fact that in the past few years the trade flow between Costa Rica and the CACM
region has grown more slowly than overall flows, Central America continues to be a very important
destination for Costa Rican exports.  In 2000, 8 per cent of all exports went to the Central American
market.  In the past six years, Costa Rican exports to the region grew at an annual average of
13.4 per cent, while imports grew by the equivalent of 7.1 per cent.  Guatemala and Nicaragua werethe main purchasers of Costa Rican products, absorbing some 31 per cent of Costa Rica's total exports
to the region.  The main products exported to Guatemala include food products, medicines, articles of
hygiene and textiles.  In the case of Nicaragua, the recovery of its economy combined with its
geographical proximity has encouraged the export of a wide variety of products, albeit in small
quantities.  Costa Rica now exports over 2,000 di fferent products to the CACM, notably medicines,
certain food products, textiles, articles of hygiene, herbicides and insecticides, aluminium wire and
cable, new tyres, corrugated rolled products, PVC tubes and accessories and glass containers.
                                                     
9 For a detailed description of the process of Central American integration and how it has developed in
the last decade, see WTO (1999), Trade Policy Review of Nicaragua , Chapter II.6.(ii).Costa Rica WT/TPR/S/83
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(b) Free Trade Agreement with Mexico
37. Since the entry into force of the Free Trade Agreement between Costa Rica and Mexico in
1995, trade flows between the two countries have increased significantly.  Between 1994 and 1999,
Costa Rican exports to the Mexican market grew by an annual average of 40 per cent, while imports
from the same market did so by an annual average of 20 per cent.
38. The timetable for tariff reductions initially envisaged in the Free Trade Agreement has been
speeded up significantly, so that by the end of 2000, the bulk of the tariffs were applied under a
regime of free trade in both directions.  The Costa Rican authorities said that the Free Trade
Agreement offers major benefits to Costa Rica in terms of MFN tariffs applied by Mexico.
Costa Rica has succeeded in positioning itself as the main exporter to the Mexican market for
products such as palm oil, palm nuts and kernels, hairdressing appliances and PVC products, forwhich Costa Rica supplied between 59 and 100 per cent of the total imported by Mexico in 1999.
39. Despite the positive results achieved in the first five years of the Free Trade Agreement, in
January 1999 a number of measures were adopted to revitalize the Agreement.  In particular, Costa
Rica requested improved conditions of access for 43 agricultural and industrial products in 54 tariff
lines.  The resulting agreements covered products such as milk, bovine meat, powders for preparingdrinks, powdered cocoa, palm oils and palm hearts, tyres, tyre flaps, plastic furniture, certain PVC
products, sailing boats and pleasure craft.  The main benefits obtained by Costa Rica include quotas
for access to the Mexican market for agricultural products (powdered cocoa, bovine meat, milk and
powders for the preparation of drinks).  In turn, Costa Rica granted Mexico duty-free quotas for honey
and fresh avocados and faster tariff reductions on palm oils and palm hearts, soya sauce, unsweetened
corn flakes, among others.
40. With respect to foreign direct investment flows, Mexican investment in Costa Rica has
increased significantly since 1994, with Mexico becoming the second most important country as a
source of foreign direct investment in Costa Rica in  the last five years (Chapter I.4).  Over half of
Mexican  investment in Costa Rica is concentrated in the food industry and mines and quarries.  The
latter is the result of the recent entry into the domestic market of the main cement manufacturer in
Mexico (Cemex).
(c) Free Trade Agreement with Panama
41. Since 1973, trade in goods between Costa Rica and Panama has been governed by the Free
Trade and Preferential Trade Agreement.  This agreement is rather more limited in scope than, for
example, the Free Trade Agreement between Costa Rica and Mexico (see Table III.3).
42. In 1998, Costa Rica, together with the other CACM countries, began negotiations with
Panama with a view to establishing a new treaty that would not only cover a wider range of tariffs, but
would also include provisions on rules of origin and customs procedures, investment, services,
government procurement, anti-dumping measures, sanitary and phytosanitary measures and dispute
settlement.  However, the negotiations did not encounter a propitious climate and were suspended in
1999.  In March 2000, the CACM member countries and Panama agreed to re-open negotiations on afree trade agreement, based on the text of the free trade agreement between Central America and
Chile.  In March 2001, the VII
th Round of Negotiations was concluded.
(d) Free Trade Agreement with the Dominican Republic
43. In November 1998, in San Salvador, negotiations were completed on a Free Trade Agreement
between the CACM and the Dominican Republic.  This new generation trade agreement establishesWT/TPR/S/83 Trade Policy Review
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rules and disciplines applicable not only to trade in goods, but also other matters such a trade in
services, investment, government procurement, competition policy, dispute settlement and intellectual
property.
44. In principle, each signatory undertook, when the Free Trade Agreement entered into force, to
eliminate customs tariffs on all goods originating from the parties.  However, several exceptions were
laid down.  For some products, a programme of phased tariffs reductions was agreed, to be completedin 2004.  The main products covered by this programme are:  bovine and pig meat, prawns, dairy
products, tomato-based products, various paper products, various plastic products and various
medicines.  In addition, the following products were excluded from the undertakings on liberalization:
sugar, petroleum products, roasted and unroasted coffee, wheat flour, ethyl alcohol, rice, chicken,
powdered milk, onions, garlic, beans, tobacco and cigarettes.  Despite these exclusions, preferentialquotas were established between the Dominican Republic and some of the Central American
countries.  In this connection, Costa Rica obtained preferential quotas for chicken breasts and
powdered milk.
45. The Free Trade Agreement between the CACM and the Dominican Republic was approved in
Costa Rica by Law No. 7882 of 8 July 1999.  However, at the end of 2000, the Agreement was stillsubject to the process of parliamentary approval in the Dominican Republic.
(e) Free Trade Agreement with Chile
46. In September 1999, negotiations were concluded in San José for the Free Trade Agreement
between Costa Rica and Chile.  Like the Agreement with the Dominican Republic, this Agreement
establishes rules and disciplines applicable not only to trade in goods but also to other matters such as
trade in services, investment, government procurement, air transport and dispute settlement.  The
Agreement was approved by Costa Rica on 25 January 2001, and will enter into force when it isapproved in Chile.
47. The CACM member countries and Chile agreed that market access would be negotiated
bilaterally between each Central American country and Chile.  Thus, Costa Rica and Chile bilaterally
negotiated the entry of products into the Costa Rican and Chilean markets.  As a general negotiating
principle, Chile undertook to accept an asymmetric treaty, i.e. with longer time limits for access byChilean products to the Costa Rican market.
48. The majority of Costa Rican products will enter Chile with a zero tariff as soon as the Free
Trade Agreement enters into force.  The products excluded represent some 4 per cent of tariff lines.
As far as access to the Costa Rican market, the following tariff reduction programme was established:
immediate reduction from the entry into force of the treaty for goods not produced in the country, for
example, salmon, grapes, apples, copper, ambulances;  reduction over five years for products with an
MFN tariff of 10 per cent or less, for example certain fish such as hake, cod, lobster and certain flour
and starch;  reduction over 12 years for products with an MFN tariff higher than 10 per cent, including
most domestic industrial production, e.g. food products, metal engineering and plastics, and reduction
over 16 years for part of domestic agricultural production, e.g. pig meat, avocados and sausages.
Bovine meat will be subject to a special reduct ion programme starting in 2006 and ending in 2011.
49. In the light of sensitivities in their productive sectors, both countries agreed to exclude several
products from the tariff reduction programme.  Chile excluded goods where imports were subject to
price-band mechanisms, i.e. wheat, wheat flour, edible oils and sugar.  Costa Rica excluded chicken
meat and sausages, dairy products, most vegetables and the forestry sector (wood and wood furniture).
All the exclusions were agreed in both directions.Costa Rica WT/TPR/S/83
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(f) Trade arrangements under negotiation
50. Since the previous report by the Secretariat, Costa Rica has sought to negotiate free trade
agreements with  other trading partners as a way of achieving the central objective of its foreign trade
policy, namely to promote, facilitate and consolidate the country's growing integration in the
international economy.
51. Costa Rica is playing an active role in the process of creating the Free Trade Area of the
Americas (FTAA).  Costa Rica held the presidency and organized the Fourth Ministerial Summit in
San José in 1998 and chaired the Working Group on Investment and the Negotiating Group on
Investment from 1995 to 1999.  Since November 1999, as a result of the Toronto Ministerial
Declaration,  Costa Rica has chaired the Negotia ting Group on Dispute Settlement.  The Costa Rican
authorities indicated that, by the end of 2000, the FTAA process had reached an important stage inwhich the negotiating groups were preparing drafts for the next ministerial meeting, to be held in
Argentina in 2001.  Costa Rica has played an important part in this stage, and is convinced that the
drafts will make for major progress in this initiative.
52. Also in 2000, Costa Rica and Canada began negotiations on a free trade agreement,
establishing as the basis of negotiation the text of the Free Trade Agreement between Canada andChile.
10  In mid-January 2001, the fifth round of negotiations was held in Ottawa.  Both parties
expressed satisfaction at the progress in the negotiations and expected to sign the agreement in
April 2001.
(iii) Other agreements
53. Apart from the integration programmes negotiated, Costa Rica has enjoyed unilateral
concessions granted by Canada, the United States and the European Union (EU) under the
Generalized System of Preferences (GSP), and the United States' Caribbean Basin Initiative (CBI)since before 1995.
54. In May 2000, the United States passed the Trade and Development Act 2000, which extended
the benefits of the CBI.  With the passing of that Act, Costa Rica and the other countries in the region
enjoy preferential access to the United States market for some products which had in the past been
excluded from the Initiative.  The measure grants tariff benefits up to September 2008 or until theFTAA enters into force.
55. The extension of these advantages means the elimination of duties on added value paid on
textiles products made in the region with cloth from the United States.  In addition, free trade is
permitted in a number of clothing items made from regional cloth using United States coarse thread
up to an annual ceiling of 250 million square metres of local cloth, as well as T-shirts and singletsmade with cloth from the region using United States coarse thread up to a ceiling of
4.2 million dozen.  These ceilings will be increased by up to 16 per cent a year until 2004.  After that,
the position will be reviewed to determine the percentage growth.
56. Again, some products outside the CBI (canned tuna, leather articles, petroleum products,
clocks and clock parts) continue to be excepted from duty free imports, although parity is grantedunder the North American Free Trade Agreement (NAFTA) for such articles when it is established
that they receive the same tariff treatment as Mexican products under NAFTA.
                                                     
10 For a description of the Free Trade Agreement between Canada and Chile see WTO (1998), Trade
Policy Review of Canada , Table II.2.WT/TPR/S/83 Trade Policy Review
Page 24
57. The majority of Costa Rican products entering the United States with preferential treatment
do so through the CBI.  From 1995 to 1999, a total of 1,303 Costa Rican products entered the
United States market through the CBI.  From 1998, the growth in sales of micro-electronic
components in the United States market, subject to MFN treatment, meant that CBI exports were a
smaller proportion of the total (Table II.1).  Thus, the value of exports to the United States under the
CBI fell from 40 per cent in 1995 to 22 per cent of the total exported in 1999.
Table II.1
Exports under special regimes, 1995-1999(Millions of US dollars and percentages)
Destination of exports 1995 1996 1997 1998 1999
United States 1,481.4 1,793.7 2,073.3 2,551.1 3,452.0
CBI (%) 39.8 39.9 39.0 32.3 21.9
with GSP (%) 2.8 1.9 2.9 2.1 0.7
Othera (%) 57.4 58.2 58.1 65.6 77.4
European Union 823.1 845.4 862.6 1,174.7 1,431.6
with GSPb (%) 56.5 57.4 60.8 47.5 98.5
without GSP (%) 43.5 42.6 39.2 52.5 1.5
Canada 39.6 54.8 70.9 87.2 40.1
with GSP (%) 83.1 92.2 92.8 97.2 96.8
without GSP (%) 16.9 7.8 7.2 2.8 3.2
a Includes exports entering under the MFN regime and some special minor programmes.
b Includes special GSP to encourage drug control policies.
Source: WTO Secretariat, based on information provided by the Costa Rican authorities.
58. Products traditionally exported through the CBI are tropical pineapples, hairdryers, jewellery,
gaskets, flowers and buds.  More recently, other goods such as leather handbags and cassava root have
been included in the mechanism.  Conversely, the share of fresh and frozen bovine meat in the totalexported through the CBI has declined significantly in the past five years.
59. According to provisional estimates, the authorities were hoping that the extension of the CBI
advantages would lead to an increase of close on US$100 million in Costa Rican exports in 2001 and
2002, mainly in the textiles sector.  While the majority of Costa Rican goods entered the United States
market under the CBI regime, the extension of CBI benefits will allow for products that werepreviously excluded, including textiles, which are particularly important.
60. Costa Rican exports to the United States under the GSP are more limited than under the CBI.
In 1999, only 150 products entered under the GSP.  Since 1995, the main products GSP exports were
fresh and dried fruit, palm hearts, ethylene polymer packaging, hairdryers, cigars and wooden doors
and frames.  It should be noted that the latter three products have lost some of their importance since
1997, giving way to other products such as printed circuits and rolled aluminium sheets.
61. The EU's tariff preferences to Costa Rica under the GSP cover 89 per cent of Costa Rica's
tariff range.  The products excluded from these preferences consist of agricultural products (70 per
cent) and industrial products (30 per cent).  In 1999, the EU extended the preferences to the industrial
sector for a list of specific products, which encouraged the growth in the number of Costa Rican
products exported under the GSP.  The number has increased since 1995, from a total of 316 products
to a total of 829 products in 1999.  The amount exported under the GSP rose in the last two yearsfrom 48 per cent of the total exported in 1997 to 98 per cent in 1999.  This increase is mainly due to
the extension of the list of products covered by the GSP and exports of modular circuits in 1998.  The
growth in exports of modular circuits since 1998 and the extension of the list of goods helped
Costa Rican sales to that region to reach US$1,432 million in 1999 (Table II.1).  Furthermore, the EUCosta Rica WT/TPR/S/83
Page 25
applies a special GSP to Central American countries that maintain drug control policies.  Costa Rica
currently exports 418 products under this mechanism.  Four of the main products exported to the EU,
coffee, pineapples, marine products and computer pa rts, enter that market under the special GSP for
Central America.
62. With respect to Costa Rican exports to Canada, in the last five years, between 83 and 97 per
cent of the total benefited from the Canadian G SP.  The main exports which received special
treatment under the GSP were decaffeinated coffee, sugar, machine parts and accessories, palm hearts
and vegetable dyes, and dried fish and other marine products.  The number of products exported to
Canada under the GSP rose from 151 in 1995 to 192 in 1999 (six-digit tariff subheadings).