Costa Rica WT/TPR/S/1
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V. TRADE POLICIES AND PRACTICES BYSECTOR
(1) Overview
1. Aprocess ofprogressive market opening andrationalization oftheimport régime hasbeen
underway inCosta Ricasince1986, while amoreneutral outward oriented policy hasbeenimplemented
since 1990. These programmes haveresulted inimportant shifts intrade policy, which isnowmore
neutral between sectors thanpreviously -because ofreduced levels ofintervention allround -butwhich
remains somewhat difficult toquantify. Thisisbecause different forms ofintervention apply invarying
degrees indifferent sectors oftheeconomy.
2. Inthepast,non-traditionalagriculturebenefitedfromthepromotionofexportstomarketsoutside
theregion (Modelo dePromoción delasExportaciones NoTradicionales aTerceros Mercados ),while
export taxes were applied totraditional items. Import competing agriculture remained protected,
interalia,forfoodsecurity andpoverty alleviation, byimport restrictions andapricefixing mechanism.
However, import restrictions inthisareahavebeentariffied in1995, generally within aceiling binding
rateof45percent,aspartofCosta Rica'sUruguay Round commitments. Tariffication oftheseimport
restrictions in1995, under Uruguay Round commitments, hasincreased thespread ofnominal tariffs
markedly, withmaxima rising to109percentforagricultural rawmaterials andto270percentfor
processed andmanufactured foods. These tariffication ratesstand outside Costa Rica'sgeneral ceiling
bindings level of45percent. Therelatively small number oftariff linessubject totariffication is
reflected inthemoderate increase seenin1995 inthesimple average rateforagriculture, which rose
from11.6to12.3percent. Theincrease ismore marked forfoodandtobacco manufacturing where
theaverages risefrom14.9to18.7andfrom19to28.3percent,andthehighest tariffied rateincreases
to270percent; fordairy products, theaverage risesfrom 14.9 to64.4percent.
3. Manufacturing, which waslargely builtonanimport-substitution model, ismainly protected
bytariffs, which averaged 10.8percent,but,asdiscussed later, thereisconsiderable variability between
sectors. Export subsidies, which werealsousedformanufactured exports, arenowbeing phased out.
Inservices,tourismhasbenefitedfromspecificincentives,includinginvestmentincentives(ChapterIII).
Various services sectors arealsocharacterized byaconsiderable degree ofStateintervention ofwhich
theimpact ishardtoassess, butthepublic sector reforms discussed inChapter Ishould leadtoa
reduction ofsuchinvolvement.
4. Anoverview ofthe1994 m.f.n. tariff structure applying tomerchandise imports isgiven in
Chart V.1; details ofthe1994and1995tariffaverages (excluding theApril 1995changes) areshown
inTable AV.1.
5. Looking tothefuture, although export subsidies arebeing eliminated, non-traditional exports
(andtourism)maybefurtherenhancedundertheexportpromotionprogramme,Plan5000(ChapterIV),
which,interalia,aimstoallocateresourcestoactivitieswhereCostaRicaenjoyscomparativeadvantage.
Themostdynamic branches oftheindustrial sector arethose which export thelarger partoftheiroutput,
aswellasconstruction materials; thelocalcontent ofthese sectors stands ataround 60percent.WT/TPR/S/1
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6. Recent proposals foraction formulated bytheprivate sector encompass requests for:a
zeropercentimport tariff forrawmaterials (Chapter IV);prompt andefficient legislation onunfair
trade practices; lower interest rates; reduced port, electricity andtelecommunication tariffs; andthe
improvement oftheinfrastructure which facilitates exports.1Theprivate sector views theseasessential
conditions forthesuccessful implementation ofPlan5000.However, fiscal constraints, discussed
inChapter Iwilllimittheability toactonthese demands.
7. Apart from thepublic sector reforms mentioned above, consideration isbeing given tothe
possibility ofderegulation ofadiverse range ofindustries suchasalcohol, foodstuffs, agro-chemicals,
pharmaceuticals, consumer goods, grains, saltandcement andrepresentation offoreign firms.2
8. Thestructure ofCosta Rica'seconomy hasevolved somewhat inthepastdecade. There has
beenaslight increase intheshare oftheindustrial sector (including construction andpower generation)
inGDP (to27percent) attheexpense ofagriculture (now 18percent), while services, accounting
for56percentofGDP, continue todominate theeconomy (Chart I.3). Within theservices sector,
theshares ofcertain industries suchastransportation andtelecommunications, and,toalesser extent,
finance, insurance andbusiness haveincreased theirrelative importance, while theshares ofconstruction
andrealestate services havedeclined.3Theshare oftrade ingoods andservices inGDP hasrisen
steadily tosome 90percent(Chapter I),andnon-traditional exports havegrown faster thantraditional
exports (Chart V.2).4Intheperiod 1980-93 non-traditional exports recorded average annual growth
of14percent. Halfofthese (non-traditional) exports arecomposed ofprimary sector items, while
theremainder aremanufactured items produced under themaquila andfree-zones régimes, asdiscussed
inChapter IV.Finally, markets havebecome diversified, reducing dependence onCACM partners.5
9. Despite thedifficulties ofassessing thebalance among therange ofpolicies being applied,
thecontinuing liberalization process should leadtoimproved resource allocation andfacilitate the
transformation oftheCosta Rican economy tohelpitadapt tofuture challenges inthehemisphere and
intheworld economy.
1Aspresented atthethird National Conference ofEntrepreneurs (IIICongreso Nacional deEmpresarios ),
heldinNovember 1994 (LaNación ,4November 1994).
2Ministerio deEconomía, Industria yComercio (1994).
3MIDEPLAN/UNDP (1994).
4Traditionalexportitemscomprisecattle,pigs,horses,beefmeat,freshprawns,tunafish(asof1989),bananas,
rawtobacco, coffee grains; hides andskins (nottanned) ofcattle andpigs, sawn wood andunprocessed minerals;
anditems covered bylaw-contracts (contratos -ley)withtheGovernment. Non-traditional items areproducts
other than these items; such items arenotcontained inthelistofLaw6826, 10November 1982 andits
amendments.
5Between 1985 and1993, theshare ofmerchandise exports destined forthirdnon-regional markets rosefrom
48percentto83percent.WT/TPR/S/1
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(2) Agriculture
10. Agriculture (asdesignated inISIC)6accounts forapproximately 60percentofCosta Rica's
export earnings (Table AV.3). Thesector asdefined onanational accounts basis, accounts for
18percentofGDP(Chart I.3).Agricultural production canbedivided intothreegroups: "traditional"
export items (seeabove), "non-traditional" export items (flowers, plants, pineapples, mango, papaya,
melon, rootsandtubercles, macadamia nuts,African palm, coconuts, fishproducts) andself-sufficiency
items (maize, dried beans andrice). In1992, bananas, coffee anddairy products represented more
than61percentofagricultural output (Chart V.3).
11. Until themid-1980s, Costa Rica'sagricultural policies were aimed atproviding favourable
access tolandownership andsupport services forsmall producers. There wasahighdegree ofState
intervention inthesector tosupport domestic production. From thenon,revised policy objectives
were aimed atgenerating employment andraising theincome ofthepopulation inrural areas,
specialization ofproduction ingeographical orclimatic zones, self-sufficiency incertain basic foods
(maize, dried beans andrice), export diversification andagro-industrial development. These objectives
were supported byanumber ofsectoral programmes, thecontinuation oftheBanana Development
Programme (Programa deFomento Bananero ),andtheestablishment oftheNational Committee for
Research andTechnology Transfer inAgriculture (Comisión Nacional deInvestigación deTransferencia
deTecnología Agropecuaria, CONITA) toco-ordinate policies inthisarea.
6ISIC Category I,including agriculture, forestry, fishing butexcluding food manufacturing.Costa Rica WT/TPR/S/1
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12. After 1990, theaimofself-sufficiency wastempered byemphasis onthereduction ofproduction
costs, including cutting thedeficits ofthepublic sector agencies involved (because ofbudgetary
constraints), aswellasachieving greater convergence between domestic andinternational prices for
basic foods (section (i)(d) below).7Atpresent, theself-sufficiency criterion istobeapplied onlyto
items which canbecompetitively produced.
13. Today, overall agricultural policy objectives canbebriefly summed upas:toprovide producers
withopportunities toadopt profitable andsustainable production methods; toimprove producers 'access
totechnical assistance services; toassist them indiversifying andincreasing theircompetitiveness
inbothdomestic andforeign markets; andtopromote thesustainable utilization ofnatural resources.
Theauthorities alsoseektomodernize andaddflexibility totheinstitutional framework forthesector,
aswellastoincrease private sector participation intheprocess ofidentifying andresolving problems.
14. TheMinistry ofAgriculture andLivestock (MAG) isresponsible fortheco-ordination of
agricultural sector policies. Itprovides services which contribute topromoting productivity (through
research andtechnology transfer); thedevelopment ofalternative crops; theutilization ofarable land;
andtheprotection ofanimals, plants andcrops fromdiseases aswellaspublic health (phytosanitary
andsanitary measures). Italsohasanadvisory andsupport rôleintheinsertion ofsmall- andmedium-
scaleproducers inthemarketing ofperishable fruitandvegetables inthedomestic andforeign markets.
7Thispolicy change obliged producers ofbasic foodcrops either todiversify ortoshifttowards permanent
crops forexports, particularly those ofnon-traditional items.WT/TPR/S/1
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Since 1992, MAG expenditure onservices tofarmers hasrisenbyabout 31percent;in1994itstood
ataround US$10 million, ofwhich 3percentwasdevoted tomarketing activities.8
15. Asdiscussed inChapter IV(2)(ix), import licensing andauthorizations, themaininstruments
previously usedtoprotect agriculture, wereeliminated andtariffied inDecember 1994incompliance
withCosta Rica'sUruguay Round commitments. InlinewiththeUruguay Round Agreement on
Agriculture, Costa Ricahasbound itstariffs onallagricultural products. From acurrent ceiling level
of,generally, 55percent,bound ratesaretofallto45percentby2004. Some "tariffied" items are
alsobound atthese levels, giving access tothespecial safeguard provisions oftheAgreement on
Agriculture.
16. Items bound atlevels above thegeneral 45percentceiling leveltobeimplemented in2004
include: 50percent-blueorgreen cheese, chocolate preparations, certain fruitjuices; 94.7percent-
dairy products, icecream andsimilar products, whisky andspirituous liquors; 60percent-vermouth
andotheraromatic grape wines, andfermented beverages; and233percent-poultry meatandsausages
andpreparations thereof (Schedule LXXXV, 15April 1994). Imports above prescribed "minimum
access" tariffquotas (themselves subject toexpansion overtheUruguay Round implementation period)
attract thehigher ratesofduties.
17. Export taxes affect bananas, coffee, cattle andmeat, asdiscussed below. Tariff concessions
apply toimports ofagricultural inputs andequipment while profit margins ontheirsaleswere, until
December 1994fixedbytheGovernment. Minimum producer support prices hadalsoapplied towhite
maize andtobacco untilthen, while those fordried beans, intheform ofareference price, aretobe
abolished byJune1995. Recommended prices apply torice(Chapter IV(4)(iv) andbelow). Preferential
credit assistance isprovided tosmall-scale producers, while several measures apply tosafeguard and
exploit forest resources inasustainable manner (Chapter IV(4)(i) and(vii), andbelow).
18. Under implementing legislation fortheUruguay Round, measures affecting thefarmsector
havebeenextensively modified inthelightofCosta Rica'sWTO commitments anditspolicy objective
ofreduced Stateinvolvement intrading activities. Toimplement theprovisions oftheWTO agreements,
anumber ofnewmechanisms havebeenputinplace (e.g., thefunction ofthecommodity exchange,
BOLPRO, inimport related licences e.g.forimports subject totariff quotas, etc.).
(i) Crops andlivestock
(a) Bananas
19. In1993, Costa Ricawastheworld 'ssecond-largest exporter ofbananas andtheleading exporter
intheUnion ofBanana Exporting Countries (Unión dePaíses Exportadores deBanano, UPEB), the
regional association ofbanana producers.9Banana exports accounted formore thanonefifthoftotal
export earnings in1993 (Table AV.3).10
8MAG, Planning Directorate (Dirección dePlanificación ).
9Between 1983 and1993, Costa Rica'sshare tototalUPEB members exports rosebymore than39percent.
Other UPEB countries areColombia, theDominican Republic, Guatemala, Honduras, Nicaragua, Panama and
Venezuela.
10Since 1989 buoyant banana prices andlowcoffee prices havegenerally made thebanana industry thelargest
exporter earner.Costa Rica WT/TPR/S/1
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20. Bothproduction andtrade arehighly concentrated, although lessthaninother countries in
theregion.In1993,fourbananatradingcompanieswereresponsibleforexportingmorethan75percent
ofthevolume ofdomestic production while only8percentwasexported directly byindependent
producers.11About 52percentoftotalexports wereproduced onlandowned bytrading companies,
although theshare ofindependent growers hasbeenrising.
21. In1993, thebanana industry represented about 22percentofthevalue added byagro-industrial
activities. Theindustry isthecountry 'slargest employer. Incontrast totherestofCentral America,
where overthreequarters oftheproduction isinthehands oftransnational corporations, inCosta Rica
independent growers account forhalftheproduction.12Nevertheless, astransnational banana trading
companies (comercializadoras )haveadefacto monopoly inexport anddistribution networks, the
producers areobliged toselltothem.
22. TheGovernment hasalways beenconcerned withtheordered andsustainable growth ofthis
activity, andin1971 established theNational Banana Corporation (Corporación Bananera Nacional,
CORBANA) tomaintain anequitable framework ofrelations between domestic producers andtrading
companies.13CORBANA, interalia,recommends theminimum f.o.b. export price.
23. Between1978and1993,underaseriesofBananaDevelopmentProgrammes(PlanesdeFomento
Bananero )there wasamajor expansion oftheareaunder cultivation (Chart V.4).14Forexample,
the1985 PlandeFomento Bananero returned toproduction 8,000 acres (hectáreas )ofabandoned
plantations, while newareaswerealsodeveloped.15Asignificant reduction oftheexport taxforbananas
in1985, contributed totherapid expansion oftheindustry.16Between 1985 and1991 thevolume of
production grew bymore than76percent.17
11These companies andtheir export shares are:Standard Fruit Co.(27.7 percent), Banana Development
Co., BANDECO (21.9 percent), Compañía Bananera Atlántica Ltda. ,COBAL (17.8 percent) andthe
Comerzializadora Bananeros deCosta Rica, BACORI (8.0percent). Three newtrading companies (Geest
Caribbean, Difrusa SA,Nobility Co.), contributed another 10.8 percent(CORBANA, 1994.)
12Latin American Economy &Business ,July1994.
13Until 1990, CORBANA wasknown astheAsociación Bananera Nacional (Law 7147, 24April 1990).
TheAsociación wascreated in1971 (Law 4895, 8November 1971) following asevere sectoral crisis.
14Decree 9297-H-A, 2November 1978.
15Decrees16563-MAGand16564-P-H-MEIC,24September1985;Decree21992-H-MAG,18February1993.
16EIU(1993), p.17.
17MIDEPLAN/UNDP (1994).WT/TPR/S/1
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24. Theadoption bytheEuropean Union ofacommon banana régime in1993 (Chapter VI)has
hadmajor effects onCosta Rica'sproduction andtradeinbananas. In1993, 1,000 hectares ofbanana-
growing landwereabandoned. Theintroduction oftheEUquotas wasalsoassociated withafallin
world prices in1993. However, despite these events, thevolume ofexports roseby10.6percent
(1.8million tonnes) inthatyear. Exports toEurope asawhole rosebyabout 25percentincontrast
witha1.3percentriseinexports totheUnited States, while there wasadecline inexports toAsia
andOceania. Theincrease inEuropean sales waspartly duetolarger sales intraditional markets
(Belgium, Germany, theUnited Kingdom, Sweden) andpartly related totheopening ofnewmarkets
(Spain, Lithuania andPoland).18According toEurostat data,in1993 thevalue andquantity ofsales
totheEuropean Union dropped bysome 17percent,compared totheprevious year; thelarger part
ofthesalestotheEuropean Continent wasdirected tocountries outside theEU.
25. However, in1994, according totheChamber ofBanana Growers (Cámara deBananeros ),
exports wereexpected tofallto1.5million tonnes andsome 11,000 workers wereexpected tobemade
redundant.19Thiswasmainly ascribed totheeffect ofthenewquantitative restrictions intheEUmarket,
andtoalesser extent toafallinproduction caused bytheblack sigatoka fungus; ithasbeenreported
thatdepressed prices meant thatgrowers could notafford totakemeasures tocombat thefungus.20
18CORBANA (1994).
19EIU(1994a), p.14.
20Latin American Economy &Business ,December 1994.Costa Rica WT/TPR/S/1
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26. Under theEUrégime, aquota of514,800 tonnes hasbeenallocated toCosta Ricafor1995.
worth approximately US$250 million, in1995.21AsofJanuary 1995, banana exports totheEUwithin
thetariffquota mustbeaccompanied byexport certificates obtained fromtheCosta Rican Government
through CORBANA. These aregranted toallproducers either directly orthrough trading companies
onthebasisofthepartoftheirproduction which wasdestined forexport overtheprevious sixmonths.
27. Costa Ricafavours regional co-operation torestrict thesupply ofbananas totheworld market
inorder tosupport export prices.22Ithasalsosuggested totheUnion ofBanana Exporting Countries
thesetting upofafund, financed byanexport levy, toencourage marginal producers toshifttoother
crops.23In1993, thethenpresident ofUPEB wasoftheviewthatLatin American banana production
shouldbereducedtoallowpricestorecover,mitigatingthemedium-runthreatoflowerpricesto170,000
jobsintheregion.24Costa Ricadoesnotshare thisview.
(b) Coffee
28. Coffee isCosta Rica'ssecond-ranking agricultural product anditssecond-largest export item.
Theindustry consists mainly ofsmall buttechnically-advanced plantations, producing highyields of
quality coffee. Production hasrisenbysome 64percentinthelast15years25,andtheindustry employs
about 6percentofthetotalworkforce.
29. Exports, mainly ofgreen coffee, werevalued atoverUS$200 million in1992, down byone
third from their 1985 value because oftheslump inprices (Table AV.3). In1994, Costa Rica
represented 2.6percentofworld coffee production, thusranking asthe11thlargest producer.26In
volume terms, coffee exports from the1992/93 harvest roseby17percentovertheprevious year,
attaining record levels (mainly duetoariseinexports toGermany, ItalyandtheNetherlands); invalue
terms, however, therisewasamodest 2.8percent(Chart V.5). Themainmarkets weretheEuropean
Union (55percent)andtheUnited States (22percent), while otherEuropean andAmerican countries
accounted for11and5percent.27
30. Inthecropyear1993/94, exports were estimated ataround 2.9million bagsof60kg.If
maintained, themid-1994 riseincoffee prices (partly duetothefrostinBrazil inJune1994) should
helpcoffee regain itsearlier importance inexport revenues. Expectations werethatthe1994/95 coffee
harvest would besoldatprices atleast120percenthigher thantheprevious harvest, giving arise
ofUS$650 million invalue.28
21EIU(1994c), p.16.
22Proposal ofPresident Figueres cited inEIU(1994d), p.10.
23Latin American Economy andBusiness ,October 1994.
24Tribune Desfosses ,25November 1993.
25MIDEPLAN/UNDP (1994).
26ICAFE (1994), p.5.
27ICAFE (1994), p.76-79.
28EIU(1994d), p.1.WT/TPR/S/1
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31. Although coffee trading isfullycarried outbytheprivate sector, theState supervises and
monitors trading through theCoffee Institute (Instituto delCafédeCosta Rica, ICAFE), established
in1961toensure abalance inthebenefits accruing toproducers, processing firms, exporters andcoffee
roasters. Themanagement board (Junta Directiva )ofICAFE, composed ofGovernment andindustry
representatives, formulates, implements andadministers coffee policies.29
32. Themain taskofICAFE istoregulate allaspects relating totheprocessing andmarketing
ofcoffee bothathome andabroad. ICAFE setsthefinalprice (precio deliquidación alproductor )
tobepaidbyprocessing firms (beneficiadoras )toproducers bythecompletion ofeachharvest onthe
basis ofnegotiated market prices.
33. Onthebasisofprioranalysis undertaken byitsmanagement board andtheInternational Coffee
Agreement, ICAFE setsquotas forexports (maximum quota), domestic consumption (minimum quota)
andtheamount tobesetasideforretention purposes.30Processing firms areallocated theexport quotas
which they musteither usewithin aspecific period setbyICAFE, orselldirectly toforeign buyers
29Law 2762, 21June 1961; Law7301, 2July1992. Following thelatest crisis inworld coffee prices, ICAFE
became afinancially autonomous entity which cansupport producers indifficult periods. Asof1992, aprice
stabilization fund (FONECAFE) ensures thataprofitable price ismaintained forcoffee producers.
30Inrecent years consumption quotas ranged from 1to10percentofdomestic production. Between 1991
and1993, thedomestic consumption quota wasreduced by27percent; in1993 itstood at8.45percent. For
the1993/94 crop aminimum quota of1percentwasfixed forthenational market.Costa Rica WT/TPR/S/1
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orexporting firms. These arecalculated bytaking intoaccount theoutput ofeachfirmforthepast
oneortwocrops while deducting theshare destined fordomestic consumption. ICAFE issues the
export permit andthecertificate oforigin. Itsinspectors attheports ofPuerta Limón andCaldera
check shipments prior toloading.
34. ICAFE iscurrently examining means tomodernize thesystem ofcoffee trading. ACommittee
wasappointed tostudy ways ofexploiting Costa Rica'scomparative advantage incoffee production
aswellasaprompt trading mechanism.
35. Asexplained (Chapter IV(3)(viii), Costa Rica, incompliance withitscommitments asamember
oftheAssociation ofCoffee Producing Countries (Asociación dePaíses Productores deCafé, APPC),
withheld 20percentofitscoffee stocks (249,400 bagsof60kg. or6percentofthetotalretained
byAPPC) fortheperiod ofOctober 1993toApril 1994. Theresulting improvement ofprices inearly
1994 prompted APPC members, on10May1994, torelease halfoftheirwithheld stocks; thirteen
dayslatertheydecided torelease (between JulyandSeptember 1994) remaining stocks inan"orderly
manner".31InMarch 1995, anewretention planwasagreed within APPC; pricelevels wereupdated.
36. Table V.1provides anoverview oftheAPPC 'scoffee retention plan.
Table V.1
Coffee: Operational stages oftheAPPC Retention Scheme, 1994 and1995
Indicative Price (US$ cents perlb.) Retained quantity
(percent)1994 1995
Retention phase Upto75
From 75.01 to80Upto165
From 165.1 to18020
10
Neutral phase From 80.01 to85 From 180.1 to190 0
Liquidation ofwithheld stocks 85.01 andabove From 190.1 and
above0
Reintroduction ofretention phase From 85to80.01
Lessthan80.01...
...10
20
... Notavailable.
Note: Theindicative price refers totheflexible 20-day average Indicative Price setbytheInternational Coffee Organization.
Source: ICAFE (1994); Government ofCosta Rica.
37. Despite aconverging trend, world market prices donotyetapply todomestic consumption.
Thegapbetween domestic andexport prices (forCaféOroquality) wasgradually reduced byabout
halfbetween 1989and1993, when domestic prices were34.6percentlower thanexport prices. This
convergence wasduetoboththedropinworld prices andtheriseindomestic prices. Intheperiod
1994-1995theexporttaxes(seebelow)constitutedthesoledifferencebetweendomesticandinternational
coffee prices.
31ICAFE (1994), p.48;Latin American Economy &Business ,June 1994; EIU(1994c), p.16.WT/TPR/S/1
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38. InOctober 1992, withtheobjective ofensuring afairer pricetoproducers andahigher quality
fordomestic consumers, newconditions were established forcoffee traded forlocal consumption.
ICAFE replaced theprevious auction system bydirect negotiations between interested parties orthrough
official domestic commodities markets inCosta Rica(e.g., BOLPRO, discussed inChapter IV). As
aresult, 99percentofthequantity made available tothedomestic market in1993 wassoldthrough
direct deals.
39. Until February 1995, theexport taxoncoffee (Table IV.6) applied atdifferent ratesaccording
todestination. InAugust 1994, theConstitutional Court suspended thetaxforoneharvest-year.32
InFebruary 1995, anewexport taxwasintroduced withtwoelements: 1percenttofinance ICAFE
andavariable rateforgeneral government revenue (Table IV.6). Thelatter canveryfrom 1to
12percentandislevied when theexport price exceeds US$92per46kgbag. Thetaxiscalculated
onthef.o.b. value.33
(c) Sugar
40. Costa Ricaconsumes 70percentofdomestic production ofsugar, while exports ofrawsugar,
valued atUS$27 million in1992andUS$30million in1993, gomainly tothequota-controlled U.S.
market atprices wellabove world market prices. TheUnited States retains partofitsimports onthe
basisofanannual orbi-annual sugar quota (Chapter IV(3)(viii)); therestisre-exported tothirdmarkets.
In1993, about 80percentofsugar exports went totheUnited States, which re-exported around
60percent. Between 1988and1993sugar wasalsoexported totheRepublic ofKorea, Mexico, the
former Soviet Union andNicaragua.
41. TheAgro-Industrial Sugar Cane League (LigaAgrícola eIndustrial delaCaña deAzúcar,
LAICA),anon-profitmakingpublicinstitutioncreatedin1965,encompassestheFederationofChambers
ofSugarcane Producers (Federación deCámaras deProductores deCaña)andtheChamber ofSugar
Millers (Cámara deAzucareros ),andisfinanced byitsmembers34.Itssix-member management board
(Junta Directiva )comprises tworepresentatives ofeachchamber aswellastheMinister ofAgriculture
andLivestock andtheMinister ofEconomy, Industry andCommerce.
42. LAICA 'sobjective istoensure fairandequitable relations between producers andtheindustry,
and,tothisend,itintervenes inallsugar-related activities. Itpurchases, imports, exports, stores,
distributes andmarkets domestically produced sugar anditsby-products. Asof1January 1995, sugar
imports andexports canbeundertaken freely byanyinterested operator. Inrecent years, exports of
1,000 tonnes ofsugar toGermany (1991/1992) weretheonlysugar exports notundertaken byLAICA.
Until May1994, theconsumer price forsugar wasfixed byMEIC. Asstated inChapter IV(4)(iv),
atpresent LAICA calculates prices onthebasis ofproduction costs. Sugarcane producers andmills
receive aspecific share oftheamount, taking intoaccount revenue fromsugar (andby-products) sales
tothedomestic andforeign markets minus LAICA 'soperational costs.
32Producers challenged thetaxonthebasis thatitwasexcessively onerous forasector which hadsuffered
lowprices overseveral years (EIU (1994d), p.18).
33Decree 23974, 20January 1995.
34Law 3579, 4November 1965.Costa Rica WT/TPR/S/1
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43. Tariffs aretheonlyborder measure currently applied withrespect tosugar imports, which
areverysmall (Table AV.3).
(d) Rice, maize anddried beans
44. Rice, maize anddried beans, which comprise thestaple diet,arethemainitems thathavebeen
subject toself-sufficiency policies implemented forsocial welfare reasons. Inrecent years, domestic
production ofriceanddried beans, mainly bysmall andmedium-sized farms, hasvaried considerably
eachyear,buttheoutput ofmaize hasfallen by50percent.35According totheauthorities, CNPimports
ofriceandmaize haverisenconsiderably since1980. Asof1992, when maize imports wereliberalized,
theprivate sector isincreasingly involved inthese operations. Table AV.3 reflects imports upto1992
butnotthereafter.
45. Inthepasttheself-sufficiency policy hasbeenmainly implemented through aproducer price
support mechanism, supplemented bycroppurchase arrangements andtechnical assistance, butthe
netgains toproducers varygreatly. TheFAO hasestimated thatbetween 1986 to1989, Costa Rica
subsidized itsdomestic cropofmaize byanaverage of39.1percentorUS$91.6 permetric tonne
inProducer Subsidy Equivalents (PSE). Ontheother hand, rice,dried beans (frijoles )andsorghum
weresubject tonegative PSErates(Chart V.6).36Other elements which weretaken intoaccount for
these calculations included general services toproducers suchasresearch andinfrastructure; direct
payments tocompensate damages duetonatural disasters; and,reduction inthecostofinputs bymeans
ofinterest-rate discounts (bonificación deintereses ),particularly formaize.
46. Asdiscussed above (Chapter IV(2)(xi) and(4)(iv)), untilDecember 1994 theprice support
policy wasimplemented bytheNational Production Council (Consejo Nacional deProducción ,CNP)
which engaged inimports ofyellow maize andsorghum, while itfixed theminimum producer price
andpurchased specific quantities ofwhite maize anddried beans. According totheGovernment, a
lackofadequate international supplies ofwhite maize anddriedbeans obliged ittomaintain pricefixing
measures toensure thedomestic supply ofthese items.
35MIDEPLAN/UNDP (1994).
36ThePSE, agauge ofthelevel ofsupport totheagricultural sector, isthepayment thatwould berequired
tocompensate farmers forthelossofincome resulting from theremoval ofassistance. Anegative PSErate
indicates thatacommodity isbeing taxed instead ofsupported byGovernment policies, directly orindirectly.
World prices, exchange ratesordomestic production canalterPSErateswithout anypolicy change. More details
onthemethodology usedforcalculating andinterpreting PSE'sisfound inseveral TPR reports, including those
onArgentina, Brazil andZimbabwe.WT/TPR/S/1
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Costa Rica WT/TPR/S/1
Page 103
47. Since 1992, thetrading activities oftheCNPhavebeenmainly limited tospecific commitments
relating, interalia,tofoodsecurity.37Currently theCNP isintheprocess ofliquidating itsstocks
ofwhite maize. With respect todried beans, itisexpected tocease purchasing inMay1995. The
CNP willhenceforth intervene inthemarket onlyinexceptional circumstances. Ithasalsooverseen
theclosure offourprocessing plants (Guacima, Liberia, LaManagua, Rita)andhasinitiated procedures
forthetransfer offourmore plants (laChina, Terraba, Barranca, ElMolino) tosocial stock companies.
Itiscurrently moving towards fullcostrecovery (including transportation, processing, etc.)insetting
itssalesprice.38Market intervention mechanisms remain tobeestablished toadminister foodsupplies
andreserves.39
48. Inaddition tothemanagement offoodsecurity reserves, theCNP isexpected tofocus onthe
marketing ofagricultural products (through thecommodity exchange, BOLPRO) andthedevelopment
ofagro-industry. Asaservices supplier, itisexpected tofacilitate access toinformation, financing
andmarketing while providing technical andmanagerial training toproducers. Tohelpproducers
market theirproducts internationally itplans tointroduce quality certification services byJune1995.
49. Costa Rica'sUruguay Round commitments toprogressive reduction ofthelevelofAggregate
Measurement ofSupport (AMS) cover thepricesupport mechanism andcompulsory purchases bythe
CNP (Chapter IV(4)(iv)).
50. TheNational RiceOffice (ONA) aprivate sector, semi-autonomous institution, wascreated
in1985toensure smooth relations between producers andtheprocessors, taking account ofconsumer
interests.40However, theONA'sfundamental objective istoprotect domestic rice-related activities
andmaintain afoodsecurity stockpile.
51. Tofurther theseobjectives, theONA makes recommendations withrespect tofinancial matters
(toStatebanks), areastobecultivated, producer prices (toMEIC), cropinsurance (totheINS), research
andtechnology transfer (toMAG), andseeds allocation (totheNational Seeds Office. TheONA
monitors sowing methods, productivity ofland, thelevel ofthericestockpile (onamonthly basis)
anddomestic consumption. Itupdates thecostpatterns (modelos decostos deproducción )usedto
calculate producer prices, andprepares forecasts todetermine quantities tobeimported. Untilrecently,
ONA alsoadministered import andexport licences forrice;these were granted onauthorization by
theCNP. TheONA itself isnotallowed tocarry outsalestothedomestic market orabroad.
52. In1994, adverse weather conditions caused ashortage ofrice,forcing theCNP tomake
purchases of42,559 tonnes from theUnited States andEcuador; 10,184 tonnes werealsoimported
through theONA. According toestimates bytheCentral American Agricultural Council (Consejo
Agropecuario Centroamericano, CORECA) drought damage fromthe1994/95 grain harvest forCosta
Rica wasthesmallest among Central American countries, although losses attained US$1 million.
37These refertostockpiles equivalent totwomonths ofdomestic consumption ofwheat, riceandyellow maize
aswellasthree months forwhite maize anddried beans.
38CNP (1994).
39SeparatestudiesbyboththeFAOandPeatMarwick,preparedin1993,pointedoutthat,despitethereduction
ofitstrading activities anditsnewguidelines, theCNP would have operational difficulties unless itproceeded
toa50percentreduction ofitsstaff; however, in1994 staffroseby20percent.
40Law 7014, 14November 1985.WT/TPR/S/1
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Overall, itisestimated that6percentofthemaize andricecrops aswellas4percentofdried beans
maybelost.41
(e) Livestock
53. Meat wasthethirdmostimportant merchandise export itemin1993 andvirtually allexports
weredirected totheUnited States. Nicaragua, Guatemala andElSalvador areimportant markets for
dairy products. Total exports were valued atUS$45 million in1992 (Table I.3).
54. Thesizeofthenational herdhasdiminished by20percentinrecent years. Ifthistrend
continues, self-sufficiency inmeatcould soonend.InDecember 1993, beeffarmers sought subsidized
credit. They alsosupported theconclusion oftheFreeTrade Agreement withMexico (Chapter II),
which wasseen asapotential market offsetting thelossoftheU.S. market share following
implementation oftheNAFTA andUruguay Round commitments intheU.S.42
55. Asstated inChapter IV,restrictive licensing requirements andconsumer pricecontrols have,
inthepast,affected meatanddairy production andtrade. In1992, themeatsector wasliberalized.
Imports ofcattle andmeat areunrestrained, while thetotalquantity forexport issetintheAnnual
Livestock Programme (Programa Anual Ganadero )prepared bytheCNP, taking account ofdomestic
needs.43Theauthorities notethatthisprogramme hasnotrade restrictive effects.
(ii) Forestry
56. Until 1990, Costa Ricahadaveryhighrateofdeforestation despite thefactthattheformal
forestry industry waslittledeveloped.44Theshare oflandareacovered byforest fellfrom53percent
in1950 to27percentby1987.
57. Anewlawonforestry wasintroduced inJuly1990 (Law 7174, 16July1990). Thiswas
supplemented withanewsectoral plan, drawn upinOctober 1993 (Chapter IV).Under theplanthe
Governmenthasasupervisoryrôlewhiletheindustryisencouragedtoinvestinnewtechnologysawmills
andreforestation. Thelawalsoprovides fortheexemption offirms engaged inforest exploitation
fromcertain landandsales-related revenue taxes(impuesto territorial, impuesto sobre tierras ocultas,
impuesto sobre larenta poringresos derivados delosproductos delaplantación ).
58. Accordingtoofficialdata,between1987and1993,thevolumeofwooddeliveredtothedomestic
industry roseby10percent. Theauthorities consider thatthismoderate increase improves thechances
forthesustainable development oftheindustry.
41Latin American Economy &Business ,November 1994.
42EIU(1994b), p.17.
43Decree 21210-MEIC-MAG, 3March 1992.
44In1991, theU.S.-based World Resources Institute considered thatCosta Ricahadthehighest deforestation
rateoftheworld.Costa Rica WT/TPR/S/1
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(iii) Fishing
59. Thefisheries sector isnotparticularly developed inCosta Rica. Thereasons include thelack
ofportinfrastructure forindustrial fishing boats, lackoffinancial means fordevelopment, inadequate
fishing methods anduneven distribution ofbenefits atthedifferent marketing stages. Coastal fishing
(particularly onthePacific coast) isalsorestrained bycontamination generated byurban andagricultural
development.
60. There issome commercial fishing oftunaandother deepseaspecies, mainly byforeign fleets
operating inCosta Rican waters. In1993, 3,000 tonnes oftunawerecaught byforeign-flag fishing
boats, paying fishing rights totheCosta Rican authorities. Thiscatch waslanded forprocessing in
Costa Rica'sthree plants which mainly supply domestic andregional markets and,toalesser extent,
theJapanese andEuropean markets. Thedomestic fleetcatches anaverage of700tones oftunaeach
year. Other species (e.g., prawn, redsnapper, swordfish) caught bynational boats aremarketed either
athome orinNorth America.
61. Costa Ricawasinvolved asathirdparty toaGATT panel overtheU.S.prohibition onimports
ofyellowfin tuna(Chapter VI).
62. InMarch 1994, theCosta Rican Institute forFisheries andAquaculture (Instituto Costarricense
delaPesca yAcuacultura, INCOPESCA), anautonomous Stateagency, wascreated.45INCOPESCA
isexpected topropose aprogramme forthedevelopment ofthecommercially viable fisheries andfish-
farming activities aswellastoprepare andimplement thefisheries legislation. Itisalsotoprovide
policy guidelines, interalia,forthepreservation ofwater resources; thepromotion ofseafood
consumption; thedevelopment ofportinfrastructure; andtheco-ordination ofnational andinternational
cooperation. INCOPESCA 'sactivities should contribute toanincrease indomestic processing oftuna
fishcaught bydomestic andforeign vessels, aswellasproviding marketing assistance forfishproducts.
(3) Mining andEnergy
(i) Mining
63. Despite theexistence ofseveral studies, nocomplete evaluation ofCosta Rica'smineral reserves
hasyetbeenmade. Although relatively unimportant atpresent, themining sector seems tohave
significant potential.46Goldandsilver arecurrently mined onasmall scalewhile considerable deposits
havebeenquantified bytheprivate sector (1and2million ounces respectively).
64. Non-metallic mineral resources appear tohavesignificant potential. Athirdcement plantwas
recently established, andactivities suchasextraction oflimestone andmarble production (alsosiliceous
sandfortheproduction ofglassware) havebeendeveloped. Apotential market forCosta Rican stone
could betheeastcoast oftheUnited States.
45Law 7384, 16March 1994.
46There arereserves ofironanddeposits ofbauxite, manganese, mercury andsulphur (EIU (1993), p.18).WT/TPR/S/1
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65. Stateinvolvement inthemining sector isatapreliminary stageandisconfined toonecompany,
theMinera Nacional SA(MINASA), created in1984asasubsidiary oftheState-owned holding company
CODESA (Chapter IV). MINASA 'srôleistopromote theindustry 'sdevelopment by,interalia,
preparing basiceconomic geology studies anditmayalsoparticipate inmining activities withtheprivate
sector, which must beauthorized bytheMinistry ofEnergy andMines (MIRENEM).
66. Goldextraction hasfallen considerably inrecent years. Three private sector goldexploitation
projects maybeinitiated inthenorthern partofthecountry. Since 1992, goldexports havebeensubject
toregistration withMIRENEM; ofgoldtobeexported mustbedeposited withaStatebank; provision
oflaboratory analysis specifying weight, purity andestimated value; andexport licensing from
MIRENEM (Chapter IV(3)(v)).47Mining activities arealsosubject toenvironmental protection and
geological controls.
(ii) Energy
(a) Hydrocarbons
67. Oilreserves arebelieved tobeextensive butsofar,exploitation hasnotproven economic.48
Preliminary studies bytheState-owned oilcompany. RECOPE, haveindicated thepossible existence
ofnatural gasreserves.
68. AsindicatedinChapterIV(2)(xi),RECOPEenjoysmonopolyrightsinrespectoftheimportation,
refining anddistribution inbulkofpetroleum anditsderivatives.49Noprivatization plans existfor
these activities; transportation ofrefined products andownership ofpetrol stations areintheprivate
sector.50
69. Despite theexistence oftheSanJoséPactwithVenezuela andMexico (Chapter II(6)(iv)) which
provides fortied-loan facilities forenergy-related projects ofthepublic sector, RECOPE 'soilsupplies
aremainly purchased ontheworld market under internationally publicized tenders.51
70. Government policy istopreserve RECOPE 'smonopoly andincrease domestic oilrefining
capacity.
47Regulation ongoldexports, 31August 1992, anditsamendments.
48EIU(1993), p.18.
49RECOPE'smonopoly,initiallyestablishedin1974(Law5508,17April1974),wasreaffirmedbyLaw7356,
6October 1993 (seeChapter IV(2)(xi)).
50According totheauthorities, 450companies areengaged inthetransportation offuels while 275petrol
stations areoperational.
51RECOPE purchases oilfrom 36different suppliers. In1992, imports originated from theSanJoséPact
donor countries, Mexico (45percent) andVenezuela (9percent), aswellasfrom Colombia (32percent) and
Ecuador (14percent).Costa Rica WT/TPR/S/1
Page 107
71. Since 1994, alawonhydrocarbons hasallowed private sector participation intheexploration
andexploitation ofhydrocarbon reserves, which hadpreviously beenreserved forRECOPE.52These
operations arenowregulated bytheMIRENEM andaresubject tostrict environmental controls. Any
resulting production istoprimarily cover domestic needs orcontribute tothenational strategic stockpile
atprices nothigher thanthose prevailing intheworld trade market; thus,inorder toexport, private
companies areobliged tofulfiltheseobjectives.53Royalties areprogressively applied uptoamaximum
of15percentoftheworld price forequivalent crude oilformore than1,000 barrels perday. So
farnosuchactivities havebeenundertaken.
(b) Electricity
72. In1991, 95percentofthecountry 'selectricity wasgenerated byhydro-electric power plants
andthebalance byoil-fired power stations. Inaneffort toshifttoward renewable energy resources,
inApril 1994a55MWgeothermal plantbegan production. A20MWwindplantshould beoperational
by1997 anditsoutput should besoldtotheCosta Rican Electricity Institute (Instituto Costarricense
deElectricidad, ICE), theStatemonopoly; aproject foranother similar plantisunder consideration.54
73. Asmentioned inChapter III,nomore than15percentoftheinstalled electricity generating
capacity canbeprivately-owned. Atpresent, virtually allelectricity isgenerated byICE.55In1993,
ICEanditssubsidiary theNational Power andLight Company (Compañía Nacional deFuerza yLuz,
CNFL) distributed 85percentoftheelectricity generated inCosta Rica; twomunicipal enterprises
andfourrural co-operatives were responsible fortheremainder.
74. Inaddition toprice controls (Chapter IV(4)(iv)), electricity ratesarefixed byICE'sNational
Electricity Service (Servicio Nacional deElectricidad ,SNE) ona"no-loss" basisanddiffer according
totheconsumer category.56Thiscross-sectoral subsidization should beeliminated inthemedium-term
when anewpricing policy, focused onacostrecovery approach, isintroduced.
75. Costa Ricaexports electricity toother countries inCentral America (Honduras, Nicaragua and
Panama)underspecificcontracts.Accordingtotheauthorities,exportpriceslaiddowninthesecontracts
reflect75percentoftheproductioncostsofthemostefficientthermalplants.However,exportcontracts
areonlyfulfilled when there areenergy surpluses. Themostrecent saleswerein1992 and1994 to
Nicaragua andHonduras. Thelatest price wasUS$0.143 perkWh.
76. Costa Ricaparticipates inthework oftheCentral American Electrification Council (Consejo
CentroamericanodeElectrificacióndeAméricaCentral,CEAC)whoserôleistoachieveamoreefficient
utilization ofregional resources. Theinter-connection ofelectricity networks intheregion isseen
52Law 7399, 3May 1994.
53Article 36ofLaw7399.
54EIU(1994b), p.17andEIU(1994d), p.20.
55In1993, seven private companies generated 10.95 MWor0.6percentoftotalelectricity production in
Costa Rica (ICE, 1994, p.5).
56In1994, theprice charged toindustry was30perlower thanthatoftheother sectors oftheeconomy but
21percenthigher thantherateapplied tohouseholds. Rates forbothmanufacturing andresidential consumers
were below overall average electricity price.WT/TPR/S/1
Page 108Trade Policy Review Mechanism
asapriority inviewoftheregional electric power shortage. Aproject toinstall ahighvoltage line
from Guatemala toPanama (SIEPAC) should befullycompleted bytheyear2004.
(4) Manufacturing
77. Themanufacturing sector accounted for18percentofGDP in1993 (Table I.1). Themain
sub-sectors arefoodproducts (28.7 percentofvalue added inmanufacturing in1992), beverages
(14.7 percent), textiles andclothing (6.7percentcombined), other chemicals (6.2percent), electrical
machinery (4.8percent), paper products (4.2percent) andindustrial chemicals (3.9percent)
(Table V.2).
78. Anindication ofdynamic sectors intrade maybeobtained from Tables V.3andAV.3. The
highrateofgrowth inbothimports andexports, across many industrial sectors intheperiod 1985-92,
compared toageneral decline intheperiod 1980-85, isevident. Exports ofmanufactures grew at
anannual average rateof12.1percentbetween 1985and1992, while imports grew at13.8percent.
Food manufacturing isthelargest export sector, followed bychemicals andchemical products. The
fastest growing sector wastobacco manufactures, followed byclothing. However, substantial growth
wasrecorded overawiderange ofindustries, anindication ofthesuccess ofthediversification policy.
Metal manufactures andchemicals (including refined petroleum) arethelargest import sectors.
79. Thesizeable andgrowing imports ofthetextiles industry, combined withthegrowth ofexports
ofclothing,areindicativeoftheprocessingofimportedtextilesintogarments.Thisactivityhasbenefited
from U.S. value added tariff provisions aswellasimproved access totheU.S. market under the
Caribbean Basin Initiative (Chapter II(6)(i)). Thisisanareawhere future prospects depend onthe
capacity oftheindustry (andtheeconomy asawhole) toadapt tonewchallenges under theliberalization
oftheU.S.market asMFA provisions aredismantled under theUruguay Round agreements.
80. Under theimport substitution policy thatprevailed inCACM countries until1986, Costa Rica's
manufacturing output (mainly forthedomestic andregional markets) initially grewrapidly, particularly
during the1960s. Inthe1980s, themanufacturing sector wasparticularly affected bythedecline
indemand caused bytherecession andlackofbusiness confidence intheregion inthewake ofthe
debtcrisis. Exports toother CACM countries fellsharply. Inthefirststageofthepolicy re-orientation
undertaken byCosta Ricatopromote greater integration intotheworld economy (Chapter I),the
Government introduced several incentives (such asoff-shore assembly andfree-trade zones) toboost
manufacturedexportstotherestoftheworld.TheseattractedanumberofU.S.multinationals,including
GTE, Motorola, Mennen, Firestone, Coca-Cola andPhilip Morris. Inaddition totheincentives, foreign
firms were alsoattracted bythecountry 'spolitical stability, skilled labour force andaccess toboth
theAtlantic andPacific.
81. Under thereform programme, thepolicy objective forthesector hasbeentoraisedomestic
value added inproducts ofexport interest, reducing theheavy dependence onimported materials and
parts. Between 1987 and1992, there wasaslight increase intheshare ofdomestic value added to
output formanufacturing asawhole. Themostimportant increases inthevalue added/output ratio
occurred innon-ferrous metals (which hadpreviously beenentirely imported), textiles, andtransport
equipment.
82. Since1994,newpolicyelementsincludegreateremphasisonincreasingcompetitiveness,assisting
processing, encouraging technology transfer andfostering agro-industrial activities. TheMEIC, the
CNP, theUniversities andtechnology-related institutions aretobeinvolved.Costa Rica WT/TPR/S/1
Page 109
Table V.2
Manufacturing output andvalue added, 1987 and1992, andnumber ofestablishments, 1990
(Percentandnumber)
ISIC Description Gross output Value added Value
added/gross
outputEstablishments
(units)
1987 1992 1987 1992 1987 1992 1990
Value (US$ million) 2,573 3,599 770 1,126 29.9 31.3 8,540
Share intotal
311-312 Food products 40.3 36.5 31.1 28.7 23.1 24.6 1,935
313 Beverages 6.8 8.3 12.4 14.7 54.5 55.1 43
314 Tobacco 1.4 1.7 2.9 3.5 62.5 63.6 9
321 Textiles 2.6 2.2 3.1 2.6 34.7 37.1 221
322 Clothing 2.1 3.2 2.7 4.1 38.8 39.4 1,163
323 Leather products 0.4 0.3 0.6 0.4 37.8 38.7 105
324 Footwear 0.6 0.7 0.8 0.9 39.5 40.1 250
331 Wood products 1.9 1.4 2.7 2.0 42.1 42.7 363
332 Furniture except metal 2.1 1.7 2.2 1.7 31.5 32.0 1,450
341 Paper products 3.7 5.1 3.2 4.2 25.8 25.5 34
342 Printing 3.3 3.1 3.8 3.4 34.5 35.0 322
351 Industrial chemicals 3.3 5.0 2.7 3.9 24.1 24.7 20
352 Other chemicals, incl.
pharma.5.3 6.3 5.4 6.2 30.4 30.5 143
353 Petroleum refineries 8.5 4.0 7.6 3.4 26.6 27.1 3
354 Petroleum andcoal
products0.0 0.0 0.0 0.0 33.1 33.6
355 Rubber products 1.7 1.3 1.9 1.4 33.1 34.1 59
356 Plastic products 3.1 3.3 3.6 3.8 35.2 35.8 69
361 Pottery andchina 0.2 0.3 0.2 0.4 35.4 36.0 227
362 Glass andproducts 0.9 0.8 1.1 0.9 36.4 37.0 25
369 Other non-metallic mineral
products2.5 2.6 3.0 2.6 35.6 32.1 343
371 Ironandsteel ... ... ... ... ... ... 17
372 Non-ferrous metal 0.0 0.1 0.0 0.1 0.0 24.3 12
381 Fabricated metal products 2.0 2.9 1.6 2.2 23.3 23.5 785
382 Non-electric machinery,
incl.computers1.7 1.4 1.9 1.5 33.7 34.3 461
383 Electrical machinery 4.2 6.0 3.6 4.8 25.8 24.9 110
384 Transport equipment 1.0 1.3 1.6 2.1 48.6 51.3 135
385 Professional andscientific
equipment... ... ... ... ... ... 52
390 Other manufactured
products0.3 0.3 0.3 0.4 37.8 38.9 184
... Notavailable.
Source: Government ofCosta Rica; UN(1993).WT/TPR/S/1
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Table V.3
(a)Costa Rica'simport trade withtheworld 1980, 1985 and1992 byISIC three-digit codes andfour-digit SITC Rev.1 items
(US$'000andpercent)
ISIC Description Imports
Annual av.growth
1980 1985 1992 1980-85 1985-92
Total 1,501,964 1,058,502 2,475,804 -6.8 12.9
1 Agriculture 72,399 47,869 132,797 -7.9 15.7
11 Agriculture andhunting 63,354 38,397 111,797 -9.5 16.5
111 Agriculture andlivestock production 61,911 38,307 110,633 -9.2 16.4
113 Hunting, trapping andgame propagation 1,443 90 1,164 -42.6 44.2
12 Forestry andlogging 7,428 5,435 3,505 -6.1 -6.1
121 Forestry 6,536 5,275 3,139 -4.2 -7.1
122 Logging 892 160 366 -29.1 12.5
130 Fishing 1,617 4,037 17,495 20.1 23.3
2 Mining andquarrying 135,763 99,810 95,618 -6.0 -0.6
210 Coalmining 29 28 7 -0.7 -18.0
220 Crude petroleum andnatural gasproduction 128,017 94,018 86,346 -6.0 -1.2
230 Metal oremining 2 1 0 -12.9 -100.0
290 Other mining 7,715 5,763 9,265 -5.7 7.0
3 Manufacturing 1,293,801 910,820 2,247,389 -6.8 13.8
31 Manufacture offood, beverages andtobacco 84,733 55,105 107,359 -8.2 10.0
311/312 Food manufacturing 72,584 47,287 95,306 -8.2 10.5
313 Beverages industries 11,603 7,557 11,578 -8.2 6.3
314 Tobacco manufactures 546 261 475 -13.7 8.9
32 Textiles, wearing apparel andleather
production94,458 62,121 146,020 -8.0 13.0
321 Manufacture oftextiles 61,473 47,918 107,731 -4.9 12.3
322 Manufactures ofwearing apparel, except
footwear17,990 10,229 23,844 -10.7 12.9
323 Manufacture ofleather andproducts ofleather 2,591 655 2,402 -24.0 20.4
324 Manufacture offootwear 12,404 3,319 12,043 -23.2 20.2
33 Manufacture ofwood andfurniture 1,980 680 6,347 -19.2 37.6
331 Manufacture ofwood, except furniture 1,980 680 6,347 -19.2 37.6
34 Manufacture ofpaper, printing andpublishing 104,595 70,266 238,480 -7.6 19.1
341 Manufacture ofpaper andpaper products 88,810 59,161 160,999 -7.8 15.4
342 Printing andpublishing 15,785 11,105 77,481 -6.8 32.0
Table V.3a (cont'd)Costa Rica WT/TPR/S/1
Page 111
ISIC Description Imports
Annual av.growth
1980 1985 1992 1980-85 1985-92
35 Manufacture ofchemicals andchemical 401,663 327,511 674,151 -4.0 10.9
351 Manufacture ofindustrial chemicals 169,251 145,873 336,108 -2.9 12.7
352 Manufacture ofother chemical products 81,323 67,725 129,309 -3.6 9.7
353 Petroleum refineries 110,372 88,557 156,311 -4.3 8.5
354 Manufacture ofmiscellaneous products of
petroleum andcoal9,127 1,746 205 -28.2 -26.4
355 Manufacture ofrubber products 17,065 13,315 28,806 -4.8 11.7
356 Manufacture ofplastic products 14,525 10,295 23,412 -6.7 12.5
36 Manufacture ofnon-metallic mineral products 25,552 16,177 38,889 -8.7 13.3
361 Manufacture ofpottery, china and
earthenware4,088 2,199 10,651 -11.7 25.3
362 Manufacture ofglass ... ... ... n.a. n.a.
369 Manufacture ofother non-metallic mineral 6,189 3,948 7,894 -8.6 10.4
37 Basic metal industries 98,246 65,653 155,641 -7.7 13.1
371 Ironandsteelbasic industries 73,577 48,421 117,142 -8.0 13.5
372 Non-ferrous metal basic industries 24,669 17,232 38,499 -6.9 12.2
38 Manufacture offabricated metal products 464,807 299,483 846,330 -8.4 16.0
381 Fabricated metal products except machinery
andequipment67,157 42,359 92,184 -8.8 11.7
382 Manufacture ofmachinery except electrical 162,264 124,525 328,593 -5.2 14.9
383 Manufacture ofelectrical machinery 111,508 52,601 160,639 -14.0 17.3
384 Manufacture oftransport equipment 106,427 66,457 224,425 -9.0 19.0
385 Manufacture ofprofessional andscientific
equipment17,451 13,541 40,489 -4.9 16.9
390 Other manufacturing industries 17,767 13,824 34,172 -4.9 13.8
410 Electricity andgas 1 3 0 24.6 -100.0
... Notavailable.
n.a. Notapplicable.
Source: WTO estimates based ondatasupplied bytheGovernment.WT/TPR/S/1
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Table V.3
(b)Costa Rica'sexport trade withtheworld 1980, 1985 and1992 byISIC three-digit codes andfour-digit SITC Rev.1 items
(US$'000andpercent)
ISIC Description Exports
Annual av.growth
1980 1985 1992 1980-85 1985-92
Total 966,731 924,602 1,682,566 -0.9 8.9
1 Agriculture 536,722 609,632 1,008,682 2.6 7.5
11 Agriculture andhunting 529,240 581,940 920,887 1.9 6.8
111 Agriculture andlivestock production 529,239 581,833 919,162 1.9 6.8
113 Hunting, trapping andgame propagation 1 107 1,725 154.6 48.8
12 Forestry andlogging 20 185 75 56.0 -12.1
121 Forestry 3 101 72 102.0 -4.7
122 Logging 17 84 3 37.6 -37.9
130 Fishing 7,462 27,507 87,720 29.8 18.0
2 Mining andquarrying 1,286 249 595 -28.0 13.3
210 Coalmining 0 0 0 n.a. n.a.
220 Crude petroleum andnatural gasproduction 1,150 0 16 -100.0 n.a.
230 Metal oremining 0 0 0 n.a. n.a.
290 Other mining 136 249 579 12.9 12.8
3 Manufacturing 428,723 302,259 673,289 -6.8 12.1
31 Manufacture offood, beverages and
tobacco133,215 86,751 188,946 -8.2 11.8
311/312 Food manufacturing 132,161 86,286 184,396 -8.2 11.5
313 Beverages industries 245 70 226 -22.2 18.2
314 Tobacco manufactures 809 395 4,324 -13.4 40.8
32 Textiles, wearing apparel andleather
production70,287 37,768 107,395 -11.7 16.1
321 Manufacture oftextiles 33,203 16,417 25,256 -13.1 6.3
322 Manufactures ofwearing apparel, except
footwear19,542 10,519 69,362 -11.7 30.9
323 Manufacture ofleather andproducts of
leather7,756 5,790 5,035 -5.7 -2.0
324 Manufacture offootwear 9,786 5,042 7,742 -12.4 6.3
Table V.3b (cont'd)Costa Rica WT/TPR/S/1
Page 113
ISIC Description Exports
Annual av.growth
1980 1985 1992 1980-85 1985-92
33 Manufacture ofwood andfurniture 8,862 7,675 16,155 -2.8 11.2
331 Manufacture ofwood, except furniture 8,862 7,675 16,155 -2.8 11.2
34 Manufacture ofpaper, printing and
publishing19,864 10,464 35,451 -12.0 19.0
341 Manufacture ofpaper andpaper products 16,863 8,199 28,189 -13.4 19.3
342 Printing andpublishing 3,001 2,265 7,262 -5.5 18.1
35 Manufacture ofchemicals andchemical 103,469 94,347 173,352 -1.8 9.1
351 Manufacture ofinf^dustrial chemicals 32,379 26,552 52,304 -3.9 10.2
352 Manufacture ofother chemical products 37,370 34,028 51,036 -1.9 6.0
353 Petroleum refineries 5,039 4,560 9,909 -2.0 11.7
354 Manufacture ofmiscellaneous products of
petroleum andcoal0 0 3 n.a. n.a.
355 Manufacture ofrubber products 10,982 16,464 39,541 8.4 13.3
356 Manufacture ofplastic products 17,699 12,743 20,559 -6.4 7.1
36 Manufacture ofnon-metallic mineral
products9,422 10,774 19,869 2.7 9.1
361 Manufacture ofpottery, china and
earthenware670 3,238 5,122 37.0 6.8
362 Manufacture ofglass 7,793 6,342 12,081 -4.0 9.6
369 Manufacture ofother non-metallic mineral 959 1,194 2,666 4.5 12.2
37 Basic metal industries 15,047 9,683 28,770 -8.4 16.8
371 Ironandsteelbasic industries 14,402 5,780 13,872 -16.7 13.3
372 Non-ferrous metal basic industries 645 3,903 14,898 43.3 21.1
38 Manufacture offabricated metal products 65,081 41,977 96,489 -8.4 12.6
381 Fabricated metal products except machinery
andequipment17,402 16,059 27,406 -1.6 7.9
382 Manufacture ofmachinery except electrical 7,026 3,510 11,551 -13.0 18.6
383 Manufacture ofelectrical machinery 36,097 21,170 46,101 -10.1 11.8
384 Manufacture oftransport equipment 3,887 1,098 1,013 -22.3 -1.1
385 Manufacture ofprofessional andscientific
equipment669 140 10,418 -26.9 85.1
390 Other manufacturing industries 3,476 2,820 6,862 -4.1 13.5
410 Electricity andgas 0 12,462 0 n.a. -100.0
n.a. Notapplicable.
Source: WTO estimates based ondatasupplied bytheGovernment.WT/TPR/S/1
Page 114Trade Policy Review Mechanism
83. Tariffs continue tobeapplied inanon-neutral manner across industrial sectors. (Chart V.1
andTable AV.1) Asnoted intheintroduction, tariffication under theUruguay Round agreement has
increased thedegree oftariff dispersion (focusing onselected products) considerably.
84. Tariff escalation, usedtopromote thepolicy ofincreasing domestic value added, ispronounced
between semi-manufactures andfinalgoods: semi-processed goods havean8.4percentaverage m.f.n.
ratewhile fully-processed goods benefit fromanaverage 12.1percentrate(Table AV.2). Escalation
isparticularlypronouncedinpassingfromsemi-processedtofinalstagesinfoodmanufacturing,industrial
chemicals, petroleum refining andnon-metallic mineral products. However, under apolicy designed
toprotect theproduction ofrawmaterial ofdomestic orCACM origin, rawmaterials benefit from
anaverage 10.2percentm.f.n. rate.Thus, theoverall effects oftariffpolicy remain somewhat unclear.
85. Apart from import tariffs, general export, adjustment andregional assistance incentives and
export restrictions (affecting textiles andclothing, maintained inview ofrestrictions inimporting
countries), which aredescribed intherelevant sections ofChapter IV,noindustry-specific measures
apply tothemanufacturing industry atpresent.
86. Except forbeer, wine(oflessthan12alcoholic content) andalcohol contained infoodstuffs,
thecirculation ofallspirituous liquors, alcohol andalcoholic beverages within theCosta Rican territory
issubject toGovernment control.57Asstated inChapter IV(2)(xi), FANAL (Fábrica Nacional de
Licores ),thestate-owned company hasamonopoly overproduction anduseofethyl alcohol for
processing liquors. However, legislation fortherevaluation ofFANAL 'smonopoly rights isunder
consideration.
(5) Services
87. Asnoted earlier, theservices sector accounts for56percentofCosta Rica'sGDP. In1992,
retail trade, tourism, finance andrealestate activities wereresponsible formore thanhalfofthevalue
added byservices industries (Chart V.7).
88. Between 1985and1992, Costa Rica'simports andexports ofcommercial services areestimated
tohaverisenbytwo-andthree-fold,reachingUS$684millionandUS$813million.58Tourismaccounted
formore than54percentofallexports ofservices while seatransportation offreight andtravel from
Costa Ricaaccounted formore thantwothirds oftotalimports ofservices.
89. Theauthorities havesupplied details ofconditions governing trade inservices inCosta Rica
intheprincipal sectors; thesearesetoutinAnnex V.1.From thisinformation, itappears thatanumber
ofrestrictions onmarket access (whether bycross-border supply orbycommercial presence) exist
insectors such astransportation, telecommunications andbroadcasting, andfinancial services.
Reciprocity provisions govern theinvolvement offoreign interests inanumber ofservice industries,
while preference isexpressly given toCosta Rican operators insome cases.
57Article 443oftheFiscal Code (Código Fiscal ).
58GATT (1994), p.102and104.Costa Rica WT/TPR/S/1
Page 115
90. TheState isheavily involved intrade inanumber ofservices, including, interalia,supply
offuelsandelectricity,banking,insuranceandtelecommunications,forwhatareheldtobesocialwelfare
purposes.
91. ThescheduleconcludedbyCostaRicaundertheGeneralAgreementonTradeinServicescovers
thefollowing sectors: computer andrelated services, education, health-related andsocial services,
andtourism andtourist-related services. "Horizontal" commitments apply totwomodes ofsupply,
namely commercial presence andthepresence ofnatural persons. Inrespect oftheformer, existing
legalrestrictions relating tocommercial presence offoreign natural and/or legalpersons inconcessions
granted bytheStateinthe"land maritime zone" (the200-metre widestripalong theAtlantic andPacific
coasts) arebound inCosta Rica'sSchedule. Inrespect ofthelatter, Costa Ricahascommitted itself
toauthorize theentry andstayofforeign managerial/executive staff(uptotwopersons ineach
enterprise) inthecountry.59Inaddition, specific sectoral limitations relating tocommercial presence,
orthepresence ofnatural persons, werebound inthesectors ofeducation, health andtourism. Most
ofthespecific bindings inCosta Rica'sschedule relate toconsumption abroad (Mode 2ofsupply under
theGATS) where, withtheexception oftwoactivities ("other higher education services" and"travel
agencies andtouroperators services") ithasbound regulatory situations withnolimitations.
59These arecontained inGATS/SC/22, 15April 1994.WT/TPR/S/1
Page 116Trade Policy Review Mechanism
92. Inviewofitscommitmentsvis-à-visitsCACMpartners,andtosafeguardpossiblefuturetreaties
ofthesame type, Costa Ricaalsoexempted, foranindefinite period, professional, advertising and
landtransportation (passenger andfreight) services fromthem.f.n. treatment envisaged under Article II
oftheGATS. Other horizontal exemptions wereinvoked forpreferential measures arising frombilateral
reciprocal agreements fortheprotection andpromotion ofinvestment.
93. SofarCosta Ricahasnotsignalled anyintention totakepartinthenegotiations onbasic
telecommunications, financial andmaritime transport services. Ithasobserver status intheNegotiating
Group onBasic Telecommunications.
94. Costa Ricaissignatory toanumber oftreaties relating totrade inservices (Table AV.5).
Forexample, asmentioned inChapter II,theFreeTrade Agreement withMexico contains commitments
intheareaofservices. Bilateral agreements onairtransportation havebeensigned withColombia
andEcuador, butawait theapproval oftheLegislative Assembly, which should beobtained inthe
course of1995.
(i) Tourism
95. Tourism hasbeenoneofthemostdynamic sectors oftheeconomy inrecent years; since1993
ithasbeenthelargest foreign exchange earner. Costa Ricahastargeted well-to-do tourists andhas
recently developed "eco-tourism" aswellaswhite-water rafting. Most tourists come fromtheUnited
States andCanada. Substantial investments aretaking place inhotels andother facilities toprovide
capacity forfuture growth.60Theauthorities expect thesector togrow atratesofaround 10percent
inthenextfewyears.
96. Foreign participation inthetourist industry isgoverned bytheconditions setoutinsection E
ofAnnex V.1.
97. Since1985,incentivesfortouristdevelopmenthavebeengrantedonthebasisoftourismcontracts
(contratos turísticos )between theCosta Rican Tourist Institute (Instituto Costarricense deTurismo,
ICT)andinterested companies.61These mustbeengaged intourism-related activities andmeetspecific
criteria Chapter IV(4)(iii)). In1992, thefiscal incentive consisting ofthededuction fromtherevenue
tax(impuesto sobre larenta)uptoanamount equivalent to50percentofthesuminvested inshares
ofanycompany having concluded atourism contract, wassuppressed. Atpresent firms engaged hotel
services, water andairtransport oftourists, tourism activities andcarhireandwhich haveconcluded
atourism contract benefit todifferent extents fromcertain permanent incentives which include tariff
andinternal taxconcessions, reductions onequipment andparts, andaccelerated depreciation ofassets.
60EIU(1993), p.19.
61Law 6990, 30July1985.Costa Rica WT/TPR/S/1
Page 117
98. Between 1986andJune1994, tourism incentives attracted totalinvestment ofUS$577 million.
Thelargest part(84percent)ofthisinvestment wasdirected towards hotelinfrastructure, carrental,
water transport andtourism agency activities. Fiscal revenue foregone fromtaxconcessions onhotel
activities(salesandconsumptiontaxes)exceededUS$237millionwhileimportsofsomeUS$118million
benefited from tariff concessions under thetourism contracts régime.62
(ii) Banking, finance andinsurance
99. Conditions applying tothebanking, finance andinsurance sectors aresetoutinsection Hof
Annex V.1.
100. Inrecent years, thebanking sector hasbeensubject toaprocess ofderegulation, including
theelimination ofinterest ratefixing bytheCentral Bank; thesuppression ofCentral Bank ceilings
ontheportfolioassets/reserves(topesdecartera)maintainedbyprivatebankingandfinancialinstitutions;
authorization forprivate banks toreceive deposits withaone-month minimum duration andtoparticipate
intheforeign exchange market; theelimination ofrestrictions onthepurchase offoreign currency
forcapital transactions; andtherepeal oftherestriction onsigning contracts requiring payment inforeign
currency.
101. CurrentbankinglegislationdifferentiatesbetweenState-banks(referredtoasthenationalbanking
system, Sistema Bancario Nacional )andprivately owned banks. Asmentioned inChapters IandIV,
State-owned banks havemonopoly powers oncurrent accounts anddemand deposits.63Private banks
donothaveaccess totherediscount facilities oftheCentral Bank. Nofiscal concessions apply tothe
banking activities inCosta Rica.
102. Subsidiaries offoreign banks musthavetheirownseparate legalstatus (personalidad jurídica
propia )suchas,forexample, astock company (sociedad anónima ),aunion orfederated cooperative
(federación cooperativa ).Shares mustbedistributed to20physical persons, eachofwhom mustpossess
nomore than5percentoftheassets. Inconsequence, asingle foreign bankcannot establish awholly
owned subsidiary inCosta Rica.
103. Asnoted inChapter I,financial sector reform hasbeenakeyelement intheprogramme of
macroeconomic stabilization andstructural reform. Inlate1994, abilltoreform thelawgoverning
theCentral Bank (LeyOrgánica delBanco Central deCosta Rica)wasunder scrutiny byaspecial
committee (Comisión Especial Mixta )oftheLegislative Assembly andshould beenforced bymid-1995.
According totheBill,theCentral Bank would mainly focus onmonetary stabilization matters; the
rediscount facility would apply toallfinancial entities; current account deposits would beauthorized
atallbanks (private andpublic); andfurther liberalization inforeign exchange operations would be
launched. AHighAuthority forfinancial entities (Superintendencia General deEntidades Financieras )
should replace theexisting Auditor-General 'sOffice forFinancial Entities (Auditoría General de
Entidades Financieras ,AGEF) which monitors thefunctioning ofallbanking andfinancial institutions
(including theCentral Bank) operating inCosta Rica.
62Data supplied bytheICT.
63Restrictions inbanking were introduced in1948 when thesector wasnationalized.WT/TPR/S/1
Page 118Trade Policy Review Mechanism
104. Until recently, inCosta Ricathere werefourStatebanks (Table IV.5), 16private banks and
foursavings institutions. InJuly1991, thecombined assets oftheStatebanks weresixtimes higher
thantotalassets ofprivate sector institutions.64InSeptember 1994, theGovernment announced that
itwould closedown theState-owned Banco Anglo Costarricense, following losses ofUS$100 million
caused bypoorinvestments; its100orsobranches weretobetransferred totheremaining threeState
banks.65
105. Atpresent, theU.S.Citibank andtheMexican Banco Bancrecey SAaretheonlyforeign banks
operating inCosta Rica. Citibank S.A. opened forbusiness inlate1993, andbytheendof1994
represented nearly 0.2percentoftotalassets heldbyallbanks inCosta Rica. Banco Bancrecey SA,
which initiated operations attheendof1994, held0.05percentoftotalassets.
106. There isaState monopoly, through theNational Insurance Institute (Instituto Nacional de
Seguros ,INS)onallclasses ofinsurance, except forcontracts concluded byexisting co-operative or
mutual lifeinsurance companies: theINShasadeJuremonopoly onlifeinsurance.66TheCosta Rican
market forinsurance wasworth C/28.1billion (about US$186 million) in1993, when salesgrew by
33.4percentinvalue terms. Themajor branches were automobile (31.7 percent), labour risks
(25.4 percent) andproperty damage insurance (15.8 percent).67
107. Foreign companies caninsure merchandise imports andexports. Inprinciple, there isno
obligation forexporters tosigncontracts withINSinorder toobtain export credit.
108. TheINSisseenasanessential partofCosta Rica'ssocial welfare achievements andadefense
element against market imperfections. Theauthorities consider theINSasoneofthelargest andmost
efficient insurance companies inLatin America; in1993 thepremium revenue 'sshare toGDP stood
at3.1percent. Premiums arecalculated bymultiplying theinsured amount bythetariff setbythe
INS.
109. Apart frominsurance related activities, theINSprovides substantial financial support toCosta
Rica'sfirebrigade (Cuerpo deBomberos deCosta Rica).Itisalsoinvolved inloans forhousing;
in1993 these stood ataround US$12 million. Since 1993, INShasoffered stock broker services at
thenational stock exchange (Bolsa Nacional deValores ).
110. Inearly 1995, Economic Affairs Commission oftherestructuring andmodernization ofthe
insurance market wereunder examination bytheLegislative Assembly. Consideration wasbeing given
totheprivatization oftheinsurance agents 'network; themodernization ofinsurance legislation; the
introduction offinancial control bythegeneral auditing body, AGEF; themodernization ofelectronic
dataprocessing operations; theprogressive privatization ofthelosses adjustment process; andco-
operation withinternational insurance andre-insurance companies.
64EIU(1993), p.21.
65Latin American Weekly Report ,29September 1994.
66Law 12,30October 1924.
67Instituto Nacional deSeguros (1994).Costa Rica WT/TPR/S/1
Page 119
(iv) Telecommunications
111. Conditions applying totelecommunications andbroadcasting services aresetoutinSection G
ofAnnex V.1.
112. Current legislation ontelecommunications datesfrom1963. Under theConstitution, ownership
ofwireless/broadcasting services isreserved fortheState. Their exploitation canbegranted bylaw
toanyprivate orpublic entity. TheCosta Rican Electricity Institute (Instituto Costarricense de
Electricidad ,ICE)anditssubsidiary company, Radiográfica Costarricense SA(RACSA), weregranted
these rights inperpetuity bylaw,andthese arethesolecompanies authorized toexploit thissector.68
Theauthorities consider thattheseareexclusive rights. However, thereisnoconstitutional impediment
fortheLegislativeAssemblytoapprovethegrantingofafranchisetoanyothercompany(public,private,
domestic orforeign).
113. Tariffs fortelecommunication services aresetbytheNational Electricity Service (Servicio
Nacional deElectricidad ,SNE), aState institution, andarebased onoverall costs including among
others operation-, maintenance- anddevelopment-related expenditure aswellascapital costs.Users
canbeaskedtopayadditionalextraordinarybillswhenevertheirinternationalcallsexceedby25percent
ormore theiraverage consumption overtheprevious threemonths.69These billsmustbesettled within
fivedaysupon receipt.
114. Domestic telecom users arenotpermitted tosublease, sellorhand over international
telecommunication services tothirdpersons; install telephone equipment notinconformity withICE's
specifications orincompetition withtelecommunication services provided byICE; usecredit cards
orother unauthorized means forthepayment ofinternational calls; useICE'stelecommunications
infrastructure andinternational services inaninappropriate manner (e.g.through answering orautomatic
callmachines orother unauthorized devices) withtheobjective ofrendering services which compete
withthose ofICE.70
115. Under theRegulation onSemi-Public Telephones inProductive Centres (Reglamento para
Servicios Telefónicos Semi-publicos enCentros Productivos ),semi-private cable orwireless telephone
networks fortourist, industrial oragricultural complexes inruralareas mustbeinstalled either byICE
orafranchised firm, while theequipment remains theproperty ofICE. Franchised firms areobliged
toprovide public telephone services foratleasteighthours eachdayandtoapply tariffs communicated
byICE.
116. Theauthorities statethat,asamember oftheInternational Telecommunication Union (ITU),
Costa Ricafollows therecommendations ofcommittees ofthisinstitution. ICEenforces norms for
telecommunications equipment. Noforeign telecommunication authority isinvolved intheprocess.
68Law 3226, 28October 1963, authorized ICEtoestablish andoperate telecommunication services. Under
Law3293, 18June 1964, ICEandRACSA areentitled toexploit international telecommunication services.
69Article 16oftheReglamento para Servicios deTelecomunicaciones internacionales ,published on
2May 1994.
70Article 27oftheReglamento para Servicios deTelecomunicaciones internacionales ,published on
2May 1994.WT/TPR/S/1
Page 120Trade Policy Review Mechanism
117. Theauthoritiesregardtheresaleofinternationaltelecommunicationservicesbyoff-shoreforeign
companies (e.g., VIATEL, DIAL SERVICE) which areneither registered nortaxed inCosta Rica
asaserious problem. Apart from general fiscal concerns, ICE'stelecommunications infrastructure
isutilized freeofcharge, while thelower tariffs practised bysuchcompanies areseenasinjuring ICE's
business. They aresaidtolureaway domestic users, bypass domestically established tariffs, elude
agreements signed withforeign carriers (with implications onICE'sbalance ofpayments withthem)
andtransfer itspotential revenues tothecountry ofdestination ofthecall.Nevertheless, noimmediate
action hasbeentaken onthismatter sofar,mainly because theissue canonlyberesolved bythe
Legislative Assembly.71
118. According toitsRegulation onMobile Telephones (Reglamento paraelServicio Telefónico
Móvil of18May1979), ICEisthesoleentity allowed tosupply mobile telephone service (MOVILTEL )
inCosta Rica. Equipment installed inprivate vehicles attheowner 'scostremains theproperty of
ICE.
119. ICE'smonopoly status withrespect tocellular telephone operations remains tobeclarified.
MILLICOM, aBelgian company, started operating in1990. Onthebasis ofaconcession granted
bytheMinistry oftheInterior (Ministerio deGovernación )ICE'strade union challenged the
constitutionality ofthatdecision intheConstitutional Court. Asaresult, MILLICOM wasgiven until
May1995 toobtain theAssembly 'sapproval foritsoperations butsofarthere hasbeennochange.
Other companies arerequired toobtain frequencies through public tendering. According toICE,
MILLICOM applies tariffs higher thanthose oftheState company.
120. Abillonbroadcasting (Proyecto deLeydeRadiodifusión )aimed atregulating thedistribution
ofradiofrequenciesforcellulartelephoneswasexpectedtobeapprovedin1995,thusresolvingproblems
inthisarea.
121. CostaRicaisexpectedtobenefitfromaventure,knownasPanAmericanCable,betweenCentral
American telecommunications companies (including ICE)andtwoforeign companies, AT&T (United
States) andTelefónica (Spain).72Under thisproject, estimated atUS$500 million, afibreopticcable
network system isexpected tolinktheUnited States toChile by1997.
71Apossibility forgranting franchises relating totheexploitation ofthenetwork isprovided bythelaw.
According tothepublic prosecutor 'soffice (Procuraduría General ),itseems thatthefranchise conditions must
bedetermined andapparently canbeauthorized bytheLegislative Assembly.
72EIU(1994c), p.8.Costa Rica WT/TPR/S/1
Page 121
Annex V.1
CONDITIONS GOVERNING TRADE INSERVICES INCOSTA RICA
A. Construction Services
Construction companies mustberegistered withtheAssociation ofEngineers. Registration
feesandmonthly payments aredifferent fornational andforeign companies.
Tobeawarded apublic works contract, aforeign company mustestablish itsheadoffice on
Costa Rican territory orcreate adomestic corporation inCosta Rica.
Preference forpublic works contracts isgenerally given todomestic sub-contractors.
Inbidsforconstruction contracts, domestic enterprises maybenefit from discounted costs.
Foreign companies areentitled todiscount onlyifthere arenodomestic enterprises onthemarket.
B. Transport, Warehouse andCommunication Services
Railtransport
TheCosta Rican Railway Institute plans, operates andadministers every newrailway network
andrelated services. Nevertheless, theLawonPublic Works Concessions authorizes thefranchising
ofnewrailway systems forpublic service.
Road transport
Permission tooperate international passenger transportation services bylandisgranted bythe
MinistryofPublicWorksandTransporttodomesticcompanies,tocompanieswhichsatisfytheminimum
domestic capital requirement, oronthebasisofreciprocity. Theminimum domestic capital requirement
specifies that51percentofthecapital andcontrol ofthecompany mustremain inthehands ofnatural
personsofCostaRicannationality.TheMinistrymayalsograntauthorizationforinternationalpassenger
transportation bylandagainst payment tocompanies, 60percentofwhose capital isCentral American.
Such authorizations aregranted onthebasis oftheprinciple ofreciprocity.
OnlyCentral American vehicles, trailers, containers andchassis mayloadcargo being shipped
toorfrom Central America.
Inorder tobeawarded apublic works contract, aforeign company must establish itshead
office onCosta Rican territory orcreate acorporation inCosta Rica.
TheMinistry ofPublic Works andTransport maylimitinternational passenger transportation
services bylandwhere there is"destructive" competition.
Preference isgenerally given toCosta Rican companies overforeign companies forconcessions
onbuslines andtaxiservices. Forsuch concessions, preference isgiven to:(1)previous
concessionaires; (2)users'co-operatives.WT/TPR/S/1
Page 122Trade Policy Review Mechanism
Foreign motor vehicles, trailers andsemi-trailers arenotallowed totransport cargo within
Costa Rica; onlyCosta Rican nationals maytransport localcargo.
Foreign multimodal transport companies must hireCosta Rican carriers tomove trucks and
containers.
Foreign commercial transport vehicles, trailers pulled bynational truck-tractors andcontainer
chassis mayremain inCosta Ricaforuptoonemonth; foreign containers mayremain inthecountry
foruptotwomonths.
TheMinistry ofNatural Resources, Energy andMining authorizes fueltransportation services,
subject toevidence ofeconomic need.
TheGovernment hasamonopoly onpostal services.
Seatransport andportfacilities
TheCosta Rican Pacific Ports Institute (Instituto Costarricense dePuertos delPacífico )
administersportservicesandrelatedfacilitiesinthePacificports.TheAdministrativeandPortAuthority
forEconomic Development oftheAtlantic Coast (Junta Administrativa yPortuaria deDesarrollo
Económico delaVertiente Atlántica )issimilarly responsible forportoperations ontheAtlantic coast.
These authorities maycontract enterprises tocarry outthese operations.
Only Costa Rican nationals mayregister vessels intheNational Registry forVessels.
Concessions forcoastal shipping linesaregranted onlytoCosta Ricans ordomestic companies
whose capital includes aminimum of60percentpaidupbyCosta Rican nationals.
Airtransport andairport facilities
TheLawonPublic Works Concession authorizes theconcession ofnewairport systems for
public service.
TheGeneral Civil Aviation Office issues operating licences forinternational transportation
services based ontheprinciple ofreciprocity. TheOffice maydenypermits toairlines where there
areenough airlines already orwhere theymaycause "destructive" competition. Foreign international
aircarriers must keepapermanent high-ranking representative inCosta Rica.
TheGeneral Civil Aviation Office alsocontrols auxiliary navigation andairtraffic services.
TheOffice mayaward contracts forairtraffic control services toqualified technical entities ornon-profit
national companies.
National airports areunder theauthority andcontrol oftheState. Ininternational airports,
theGeneral Civil Aviation Office mayputoutconcessions onservices totender where nooperating
licence isrequired. Where aconcession hasbeen awarded forconstruction work requiring sub-
contractors, preference forsuchsub-contracts willbegiven todomestic bidders.
Thefirebrigade provides fire-fighting andfire-prevention services atJuanSantamaría Airport.Costa Rica WT/TPR/S/1
Page 123
Only Costa Rican nationals mayoperate localairtransport services andtheymustbeableto
show that51percentofthecapital andcontrol ofthecompany isinthehands ofCosta Ricans.
TheAircraft Register Office registers aircraft operating services, against payment, inthename
ofCosta Rican nationals only.
Inorder tobeawarded apublic works contract, aforeign company musttransfer itsheadoffice
orcreate adomestic corporation.
Where adomestic airline lacks equipment, itmayleaseaircraft abroad foramaximum period
ofsixmonths.
C. Business Services
Foreign natural persons mayengage inbusiness iftheyhavebeenresiding permanently inCosta
Ricafor10years.
Theoperation ofplacement andsupply services ofpersonnel against payment isprohibited.
Aerial photography services maybesupplied byCosta Rican technicians only. Domestic aerial
photography companies must beabletoshow that51percentofthecapital andthecontrol ofthe
company isinthehands ofCosta Rican nationals. TheGeneral CivilAviation Office maydenypermits
toenterprises offering aerial photography services where existing services already suffice orwhere
there isadanger of"destructive" competition.
TheCosta Rican Petroleum Refinery (RECOPE) hasamonopoly ontherefining ofcrude oil
anditsderivatives forthedomestic market.
Hydraulic power isunder Statecontrol andmaybeoperated byindividuals holding anofficial
concession.
Only Costa Ricans mayserve inthepolice force aspolice officers.
D. Educational Services
Authorizationtoestablishaprivateuniversityissubjecttotheavailabilityofappropriateacademic
staff.
Adequate resources mustbeavailable tocreate twouniversity schools oronefaculty withtwo
schools.
Profit-making inuniversity higher education isprohibited.
Thecreation ofcorporations oranyother business enterprises offering university education
isprohibited.WT/TPR/S/1
Page 124Trade Policy Review Mechanism
E. Tourism Services
Foreign enterprises mayparticipate intourism development if50percentoftheircapital belongs
toCosta Rican nationals. Concessions arenotgranted toenterprises whose foreign capital and
membership exceed 50percent, ortoforeigners whohave notresided inCosta Ricaforatleast
fiveyears.
Only Costa Rican nationals mayparticipate intourism development inthecoastal areas.
Concessions inthecoastal areas arenotgranted tocorporations withbearer shares, tocompanies
domiciled abroad ortocompanies established byforeigners inCosta Rica.
Tourist guide licences aregranted toCosta Rican nationals only.
Toensureoptimumqualityofservices,theCostaRicanTourismInstitute(ICT)avoidssaturating
thetravel agency market.
F. Health services
Only members oftheappropriate medical association arepermitted topractise inthehealth
services. Doctors andparamedics mustprovide proof ofmore thanfiveyears'residence inCosta Rica.
Foreign nurses arerequired tositanexamination, unless theyareexempted under areciprocity
agreement.
TheStatemayrecruit foreign dentists onlywhere there arenoCosta Rican dentists available.
Unless otherwise stipulated inreciprocity agreements, universities mayrequire foreign dentists who
wishtopractise inCosta Ricatopassanexam. Foreign odontologists maypractise inCosta Ricasubject
toreciprocal treatment intheircountry oforigin.
Foreign veterinary surgeons maypractise theirprofession subject toreciprocal treatment in
theircountry oforigin, andprovided theyhaveresided inthecountry forfiveyears.
G. Telecommunications
Radio services areunder Statecontrol, andmaybeoperated byindividuals holding anofficial
licence. Permission toestablish, manage andoperate aradioortelevision broadcasting station isgranted
onlytoCosta Rican nationals, naturalized citizens with10years'residence inCosta Ricaorcompanies
whose capital includes aminimum of65percentpaidupbynationals.
Permission tooperate telegraph andtelephone services isgranted toCosta Rican nationals only,
under State control.
Nomore than30percentofcinema andtelevision commercials maybeforeign. TheState
generally purchases onlydomestic advertising orinformation material; itpurchases foreign material
onlywhen itisofartistic oreducational value. Commercials containing tunes recorded abroad are
taxed alump sumofC/1,000.Costa Rica WT/TPR/S/1
Page 125
Commercial shorts fromoutside Central America aresubject toataxof100percentadvalorem,
butthetaxmaynotbelessthanC/10,000 ormore thanC/50,000. Commercial shorts aredeemed to
benational iftheyaremade inother Central American countries which grant reciprocity inthisarea.
H. Financial Services (banking, insurance andfinancial services ingeneral)
General
TheCentral Bank ofCosta Ricahasthefollowing exclusive functions: (i)toactasadvisor,
financial agent andcash-keeping bankfortheState; (ii)tomaintain custody overthelegalreserves
ofthenational banking system andensure thesettlement ofcompensatory balances between thebanks;
(iii)topromote favourable conditions forthestrengthening ofthenational banking system andthe
maintenance ofliquidity, solvency andefficient operation; (iv)toassume overall responsibility for
bankcredit; (v)togrant authorizations fortheoperation ofprivate banks; (vi)tomaintain custody
overState monetary reserves; (vii) toissue notes andcoins.
TheFinancial Entities Inspection Department (Auditoria General deEntidades Financieras )
carries outinspections onallbanks, non-banking financial companies andotherfinancial intermediaries.
TheDepartmentisexclusivelyresponsiblefortheinspectionofallentitieswithinitssphereofcompetence
andforensuring thattherules andregulations governing thefinancial sector arerespected.
Foreigners mayconduct business intheterritory ofCosta Ricaprovided theyarepermanently
established inthecountry andcanprove atleast10years'residence, except where international
agreements provide otherwise.
Banking
Only State banks mayreceive cashdeposits andinvest them infinancial operations.
OnlytheStateCommercial Banks mayhavesavings departments andcapitalization departments.
Theexchange offoreign currency intolocal currency andviceversa, which takes place on
thefreemarket, mayonlybeoperated through theCentral Bank ofCosta Rica, theStateCommercial
Banks, andtheother banks ofthenational banking system subject toapproval bytheCentral Bank
ofIssue.
TheBoard ofDirectors oftheCentral Bank mayauthorize theorganization andestablishment
ofprivate banks which meetthelegalrequirements. Itmaygrant ordenyauthorizations ongrounds
oflegality, expediency orusefulness.
Private banks must beconstituted ascorporations, co-operative unions orfederations.
Private banks constituted ascorporations must haveatleast20shareholders intheform of
natural persons, none ofwhom mayholdmore than5percentofthebank'scapital. Each private
bankmust haveacapital ofnotlessthanC/300million.WT/TPR/S/1
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Theconstitution andoperation ofaco-operative bankissubject totheparticipation ofatleast
10solvent Costa Rican co-operatives. Thenetworth ofeachbankisvariable andconsists ofitsshare
capital made upoftheassets bought inbyCosta Rican co-operatives. Shares andassets mustremain
inthehands ofCosta Rican co-operatives.
Itispossible toconstitute, onanon-profit-making basis, "solidarity banks" fordevelopment
andsocial assistance withaminimum capital ofC/50million.
"Solidaritybanks"areconstitutedbybringingtogetheratleast25CostaRicannon-profit-making
associations deemed bytheFinancial Entities Inspection Department tobesolvent.
Non-banking financial enterprises
Non-banking financial enterprises mustmaintain asubscribed andpaidcapital ofnotlessthan
onefifthoftheminimum capital stipulated inArticle 151oftheOrganic LawoftheNational Banking
System forPrivate Banks. Thatcapital mustbeassessed andapproved bytheInspection Department.
Persons applying forauthorization tosetupaninvestment company mustsubmit astudy to
justify theirproject. Investment companies mustbeconstituted ascorporations withcapital ofatleast
C/10million. Direct orindirect participation inthecapital ofinvestment companies byforeign
governments orofficial foreign representations, foreign financial entities orgroupings offoreign natural
orlegalpersons, isprohibited.
Itisprohibited forcommercial banks andnon-banking financial enterprises tobuyproducts,
realestate ormerchandise thatisnotessential totheireveryday operation.
Securities andcommodity trading
Withrespect totheregulation, inspection andsurveillance ofthesecurities market, theNational
Securities Commission isresponsible forensuring thatallparticipants comply withtherelevant laws
andregulations andforsuspending orwithdrawing authorizations incaseofviolation.
Onlysecurities exchanges maycreate centres forthedeposit andcustody ofsecurities, operating
either within theiradministrative structure orthrough subsidiaries. There canonlybeonesuchcentre
foreachsecurities exchange. Thepurpose ofsecurities exchanges istofacilitate share transactions
andcontribute tothedevelopment ofthatmarket byproviding aregister ofcompanies andshares and
quoting theirprices.
Securities exchanges facilitate securities transactions andcontribute tothedevelopment ofthe
securities market through theestablishment ofoffices, facilities andmeans ofdissemination, organize
theservices necessary tofacilitate market operations, compile andmake available tothepublic
information onsecurities registered ontheexchange, onthecompanies ofissue andontherelevant
market operations while, atthesame time, providing widespread publicity inthatsphere.
Stock exchanges mustbeconstituted ascorporations withaminimum capital ofC/100million.
Nonatural orlegal person mayatanyonetimeownmore than5percentofthecapital ofastock
exchange, either directly orthrough another person.
Stockbrokers mustbeCosta Rican nationals orforeigners withatleast10years'legalresidence
inthecountry.Costa Rica WT/TPR/S/1
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Stockbrokers areprohibited fromcarrying outoperations ontheirownaccount involving stocks
andsecurities registered ortraded onthestock exchange.
Commodity exchanges mustbeconstituted ascorporations. Thefounders ofsuchexchanges
mayatnotimesubscribe for,ortakeownership of,more than40percentoftheauthorized capital.
Theremaining 60percentmust bepublicly offered through theCentral Bank.
Shares issued bycommercial companies must beentered intheMercantile Register.
Securities mustberegistered withtheNational Securities Commission before being publicly
offered.
Insurance
TheStatehasalegalmonopoly onallinsurance contracts covering anyriskwhatever, through
theNational Insurance Institute (INS). Currently existing co-operative ormutual national lifeinsurance
companies areexceptions tothatmonopoly.
TheNational Insurance Institute hasaneffective monopoly onlifeinsurance.
TheNational Insurance Institute appoints suchagents asitdeems necessary anddetermines
theirduties, salaries andremuneration. Thenumber ofinsurance agents isdetermined bytheBoard
ofDirectors oftheNational Insurance Institute onadvice fromthemanagement. Thismeans conducting
economicandsocialstudiesofthecountrytodeterminemarketfactorspointingtotheneedoradvisability
ofappointing newagents.
Aninsurance agent mustbeofage. Preference isgenerally given toCosta Rican nationals.
Representatives ofcommercial insurance companies mustbeCosta Rican nationals orforeigners with
atleast10years'residence inthecountry, whose country oforigin offers reciprocity inthatrespect,
andmust bepermanently domiciled within thecountry.
Application forandacquisition ofthestatus ofacommercial insurance company issubject
totheprior constitution ofacommercial company, whose shareholders mustbeinsurance agents with
atleast10years'experience.
Source: Ministry ofForeign Trade.