PRESS/TPRB/11
18July1995
TRADE POLICY REVIEW BODY
Review ofCosta Rica
TPRB 'sEvaluation
TheTrade Policy Review Body oftheWorld Trade Organization (WTO) conducted itsreview
on12and13July1995ofCosta Rica'stradepolicies. ThetextoftheChairman 'sconcluding remarks
isattached asasummary ofthesalient points which emerged during thetwo-day discussion.
Thereview enables theTPRB toconduct acollective examination ofthefullrange oftrade
policies andpractices ofeachWTO member country atregular periodic intervals tomonitor significant
trends anddevelopments which mayhaveanimpact ontheglobal trading system.
Thereview isbased ontworeports which areprepared respectively bytheWTO Secretariat
andthegovernment under review andwhich cover allaspects ofthecountry 'stradepolicies, including:
itsdomestic lawsandregulations; theinstitutional framework; bilateral, regional andother preferential
agreements; thewider economic needs andtheexternal environment.
Arecord ofthediscussions andtheChairman 'ssumming-up, together withthese tworeports,
willbepublished induecourse asthecomplete tradepolicy review ofCosta Ricaandwillbeavailable
from theWTO Secretariat, Centre William Rappard, 154ruedeLausanne, 1211 Geneva 21.
Since December 1989, thefollowing reports havebeencompleted: Argentina (1992), Australia
(1989 &1994), Austria (1992), Bangladesh (1992), Bolivia (1993), Brazil (1992), Cameroon (1995),
Canada (1990, 1992&1994), Chile (1991), Colombia (1990), Costa Rica(1995), Côted'Ivoire (1995),
Egypt (1992), theEuropean Communities (1991 &1993), Finland (1992), Ghana (1992), Hong Kong
(1990 &1994), Hungary (1991), Iceland (1994), India(1993), Indonesia (1991 and1994), Israel (1994),
Japan (1990, 1992 &1995), Kenya (1993), Korea, Rep.of(1992), Macau (1994), Malaysia (1993),
Mexico(1993),Morocco(1989),NewZealand(1990),Nigeria(1991),Norway(1991),Pakistan(1995),
Peru(1994), thePhilippines (1993), Poland (1993), Romania (1992), Senegal (1994), Singapore (1992),
South Africa (1993), Sweden (1990 &1994), Switzerland (1991), Thailand (1991), Tunisia (1994),
Turkey (1994), theUnited States (1989, 1992 &1994), Uruguay (1992) andZimbabwe (1994).
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REVIEW OFTHE TRADE POLICIES AND PRACTICES OFCOSTA RICA
Concluding Remarks oftheChairman oftheTrade Policy Review Body
Atitssecond meeting, theTrade Policy Review Body oftheWTO completed thefirstreview
ofthetrade policies andpractices ofCosta Rica. These remarks, made onmyownresponsibility,
summarize thesalient points ofthediscussion andarenotintended tosubstitute thecollective evaluation
andappreciation ofCosta Rica'strade policies andpractices.
Thediscussion developed under fourmainthemes: theoverall economic situation, tradepolicy
inthepost-Uruguay Round period, regional integration, andother, more specific policy issues.
Overall economic situation
Members praised Costa Rica'sachievements inanumber ofareas including economic, social
andtrade policy. However, itwasunfortunate thattheimbalance inpublic finances, mainly dueto
increases inGovernment spending, hadledtheGovernment toincrease tariffs earlier thisyear. While
thiswassaidtobeatemporary measure, ithadintroduced anelement ofuncertainty inthetraderégime,
despite thegeneral stability thatcharacterized Costa Rica'slegalframework. Members sought further
details ontheseincreases, suchastheircoverage, expected dateofsuppression, andwhether theywere
being applied onm.f.n. basis.
Members requested further efforts towards simplifying thetaxsystem. Concern wasexpressed
overtheuseoffiscal incentives; and,thevarying ratesoftheselective consumption taxwhich appeared
tobeapplied innon-neutral manner. Information wassought ontheproduct coverage ofindirect taxes
aswellastheportion ofdomestic consumption ofitems subject totheselective consumption taxthat
wassupplied byimported items.
Clarification wasrequested onthetypeofmeasures which were tobeadopted toreduce the
fiscal expenditure to2percentoftheGDP. Aquestion wasasked about theprospects forapproval
bytheLegislative Assembly ofthelegaltextstoimplement thereforms (LeydeReforma Financiera ).
Anumberofquestionswereaskedaboutpublicsectorreforms,inparticularinstitutionalreforms
andreduction ofthenumber ofemployees. Further explanation wassought ontheprivatization
programme aswellasgovernment procurement procedures.
Market access inservices, particularly banking andinsurance, where therewasextensive State
involvement, wasamatter ofconcern foranumber ofparticipants. Thequestion wasraised asto
whethertherewereanyplansformodifyingdiscriminatorylegislationonconstructionservices.Questions
ontourism incentives related totheirstatus (permanent ortemporary) andtheirimpact onother sectors
ofeconomic activity. Howhadrestrictions ontheshare offoreign ownership oftourism firms affected
Foreign Direct Investment inthissector? AcopyoftheNewCompetition Lawwasrequested.
Inresponse, therepresentative ofCosta RicasaidthattheGovernment hadbeenseeking a
political consensus onadrastic programme forthereduction ofthefiscal deficit tore-establish stability
andpromote growth. Inthemeantime, therecent, temporary tariff increases -within bound levels -
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togenerate revenues werelessproblematic thanmeans suchasmonetary expansion. They hadbeen
necessary tomeettheState'sobligations, including foreign debt. Hegavedetails ofthestrategy to
resolve these problems overthelonger term, including reform ofthestate. Thisrequired alegislative
programme,butthemajorpoliticalpartieshadnowreachedconsensusonthegeneralreformprogramme.
Thisprogramme would include, interalia,modernization intheareasofpublic procurement procedures,
telecommunications andinsurance. Financial sector reforms would increase theindependence ofthe
Central Bank andallow agreater roleforprivate banks.
Post-Uruguay Round Trade policy
Costa Ricawaswidely commended forthetrade liberalization efforts undertaken since 1990,
theimprovementofitsbindingcommitmentsduringtheUruguayRoundanditsparticipationasafounder
member oftheWTO. Onemember considered that"tariffication" hadresulted inhighbound rates
oncertain items.
Anumber ofquestions wereraised onthestatus ofimplementing legislation oftheUruguay
Round results inareassuchastechnical standards, certification procedures andphytosanitary protection.
Aquestion wasasked onhowthenewAnti-dumping legislation would beapplied, particularly inthe
lightoftherequirements oftherelevant WTO Agreement? Information wasrequested onwhether
allimport licenses other thanthose required fortariff quotas hadbeeneliminated inconformity with
theUruguay Round commitments.
Regarding thenewareas, clarifications were sought onthecompatibility ofcurrent legal
provisions onintellectual property withthoseoftheWTO Agreement onTRIPS, including thetimetable
forachieving suchconformity. Information wasrequested onexceptions tom.f.n. ornational treatment
inthisarea, thecoverage oftrademark protection andtheenforcement ofintellectual property rights.
Market access commitments byCosta Ricaintheservices sector, including tourism, were
considered modest andfurther improvement would bewelcome. AsCosta Ricahadnotmanifested
anyinterest inparticipating innegotiations onbasictelecommunications, financial services andmaritime
transport services, participants wondered about itsintentions inthecurrent negotiations intheseareas.
Inresponse, therepresentative ofCosta Ricagavedetails ofthelegislative programme to
incorporate theresults oftheUruguay Round. Costa Ricahadmetnotification obligations under the
agreements within therequisite time-frame. Information wasprovided onthelegalsteps which had
beentaken toimplement theobligations onelimination ofimport licences, tariffication andonspecial
safeguards. Extensive details wereprovided onthedraftlawonintellectual property tobring itinto
alignment withtheTRIPS Agreement. Thiswasbefore theCongress. Inservices, Costa Ricahad
made commitments intourism, informatics, health andeducation. Asconsensus developed, Costa
Ricahoped toparticipate constructively indiscussion inother services sectors.
Regional integration
Hopes wereexpressed thatefforts towards expanding regional andpreferential arrangements
would notbetothedetriment ofCosta Rica'smultilateral commitments including thepossibility of
makingfurtherm.f.n.tariffreductions.Participantsaskedaboutproblemsinachievingtheharmonization
ofthecommon external tariffoftheCACM andwhen agreater integration move towards aneconomic
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union within CACM could beexpected. Others wereinterested inthetimetable fornegotiations between
theCACM, Colombia andVenezuela fortheestablishment ofaFreeTrade Area.
Certain participants invited Costa Ricatonotify itsFreeTrade Areaagreement withMexico
andtheNorthernTriangleAgreement(MexicoandCACMcountries)underArticleXXIVoftheGATT.
Information wasrequested ontheoperation oftheGuaranteed Access Levels device inthecontext of
theCaribbean Basin Initiative, aswellaspreferential market access conditions agreed withPanama.
Inresponse, therepresentative ofCosta Ricasaidthatregional integration efforts weretotally
compatible withthemultilateral trading system andexisting commitments. IntheCACM, Costa Rica
wasseeking harmonization oftariff ceiling andfloors formost items, butthiswasbeing discussed
withitspartners intheregion. Noother areasofeconomic integration wereenvisaged atpresent within
CACM. TheCACM agreement hadalready beennotified byNicaragua. Details werealsoprovided
ontheagreement withMexico aswellasthenegotiations withColombia andVenezuela. Discussions
would beheldonnotifying theagreements withtheDominican Republic andPanama. Itwasdifficult
toassess theeffects ofthepreferences withPanama.
Specific policy issues
Oneparticipant considered thatimport duties, internal taxes andimport procedures should be
simplified. Information wassought onthereasons forthediscrepancy inratesapplied onportfees
forimports andexports; these should beadjusted toreflect thecostofservices. Thequestion was
asked whether maintaining compulsory customs warehousing procedures forfiscal revenue purposes.
Questions werealsoasked about thepresent customs valuation system andthepurpose ofthedatabase
tobeusedunder thenewcustoms valuation regulations. Twoparticipants requested explanations on
howsanitary requirements forimports ofpoultry, meatandcheese were operated.
Although theState holding company, CODESA, hadbeenliquidated, remaining statefirms
constituted apotentially distorting element (e.g., inareassuchasoilrefining andimports, transportation,
electricity,telecommunications,banking,insurance).Severalparticipantsrequestedadditionalinformation
onstatetrading activities. Costa Ricawasasked toindicate whether andwhen itplanned tocomply
withthenotification requirements under Article XVII.
FreeTrade Zones wereawell-recognized export promotion tool.Nevertheless, fiscal incentives
provided tocompanies inthese zones should conform totherelevant WTO provisions onsubsidies.
Clarification wassought onwhether statesubsidies wereprovided bytheNational Insurance Institute,
INS,through cropinsurance services.
Export promotion could befurther improved byproviding prompt andaccurate information
onnewmeasures.Transparencywasrequiredtohelpexportsandinvestment.Informationwasrequested
onnewexport incentives under the"Plan5000 deexportación "aswellaswhether theCIEX export
increment certificate legislation wastoberevoked.
Inresponse, therepresentative ofCosta Ricasaidthattheincentives provided forFreeTrade
Zones were inconformity withtheAgreement ofSubsidies andCountervailing Duties, andassuch
didnotconstitute asubsidy intheGATT sense. Themeasures applied toanydomestic orforeign
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firmoperating inthezones. Income taxexoneration forsuchfirms wasbeing eliminated. Details
weregiven ofthePlan5000forexport promotion, which werealsoGATT consistent. Healsoexplained
thatnewcustoms valuation procedures, designed toincrease transparency, were yettobediscussed
attheCACM level. Healsoexplained thesystem formaking available quotas onitems which were
nowsubject totariff quotas.
Therepresentative explained thecriteria usedforsetting thevarying rates oftheselective
consumption taxandensured thatthetaxwasneutral asfarasforeign tradewasconcerned. Information
wasalsoprovided ontheoperation ofCosta Rica'slegislation ontechnical standards. Sanitary
regulations, which wereinplace sinceMarch 1993, metinternational standards, andwereverysimilar
tothose oftheUnited States. WTO notification obligations onstate-trading hadbeenmetrecently.
Heclarified aspects ofthebanking legislation relating totheestablishment ofsubsidiaries of
foreign banks andexplained thatduring thecurrent revisions ofthislegislation consensus hadbeen
achieved overtheutilization oflegal rather thanarbitrary criteria fortheaccess offoreign banks.
Regarding tourism, heexplained thatseveral fiscal incentives remained inforce andthere were no
plans foraphase-out. Noevidence wasavailable overtheimpact oftheincentives toother sectors
andthelackofaForeign Direct Investment registry impeded anyappraisal inthisarea.
Finally,therepresentativeofCostaRicamadethefulltextofhisrepliesavailabletoallinterested
delegations. Thiswastobereflected inextenso intherecords ofthemeeting prepared bythe
WTO Secretariat.
*****
Inconclusion, theTPRB greatly appreciated Costa Rica'sconsiderable efforts toliberalize
itstrade policy, anditsactive participation intheGATT/WTO system since itsaccession in1990.
WearesurethattheCosta Rican authorities willgivedueconsideration totheconcerns raised during
thereview. WewishtheCosta Rican authorities wellintheongoing process ofrestructuring the
economy, andhopethatCosta Ricawillcontinue withboththepursuit ofintegrating itstrade policies
andpracticesintotheglobaleconomyinthespiritofmultilateralism,andthereshapingandmodernization
ofthepublic sector.
END