Costa Rica WT/TPR/S/1
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III. FOREIGN INVESTMENT AND TRADE
(1) Framework forForeign Direct Investment
1. Ingeneral, Costa Rican legislation onforeign direct investment (FDI) contains neither restrictive
provisions norincentives exclusively available toforeign investors. Article 45oftheConstitution
stipulates thatnoproperty canbeexpropriated without previous compensation.1Restrictions oncapital
movements wereabolished in1991. However, theaccess ofallprivate investors (domestic andforeign)
tocertaineconomicactivitiesiseitherprohibitedorrestrictedundertheConstitution(ChapterII(para5)).
Inaddition totheexamples below, these restrictions cover, interalia,major branches oftheservices
sectors (e.g.banking, insurance, telecommunications) andarediscussed inChapters IVandV.
2. Foreign investment innational electricity generating enterprises maynotexceed 35percent
oftheircapital. Inaddition, noprivately-owned power project maygenerate more than15percent
ofthecapacity oftheNational Electrical System, andnogenerating plantowned byaprivate business
maygenerate more than20MW.2
3. Under a1978 law,thepurchase ofshares innewspapers andadvertising agencies byforeign
investors wasprohibited; moreover, a30percentscreen quota applied toforeign-made commercials
shown ontelevision orincinemas. However, inOctober 1994, upon appeal byaCanadian firm
(Hollinger Inc.),thislawwasfound unconstitutional bytheSupreme Court.3Accordingly, atpresent
there isnolimitontheexhibition offoreign commercials incinemas orontelevision.
4. Legislation allowing forprivate investment intheoilandcoalsectors waspassed in1994.4
Todate(March 1995), therehavebeennoapplications toexplore orexploit petroleum orcoaldeposits.
5. Toobtain anoperating licence onequal terms fortheground transport oftourists, orindeed
other collective ground transport (other thanpublic transport), preference isgiven toexisting holders
ofconcessionswhohavefulfilledthetermsoftheirconcessions,andtouserco-operatives,andtonational
orlegalCosta Ricans before foreigners. Indomestic airtransport, aminimum of51percentofthe
capital andcontrol ofthecompany mustbeheldbyCosta Ricans. Aminimum 50percentdomestic
ownership limitapplies tofirms developing tourist projects incoastal areas(within 200metres ofnormal
hightide). Nosuchrestriction applies intherestofthecountry (Chapter V).
6. Inthegranting ofpublic transport franchises (busandtaxi)andpublic workcontracts, preference
isgiven toCosta Rican citizens (Chapters IVandV).Commercial ships canberegistered onlyby
citizens.
1Dunn &Bradstreet Information Services (1992).
2Details arecontained intherelevant legislation, Law7200, 28September 1990.
3EIU(1994d), p.24.
4Law7399, 3May 1994..WT/TPR/S/1
Page 34Trade Policy Review Mechanism
7. TheNational Council forInvestment andExport Promotion (Consejo Nacional deInversiones
yComercio Exterior ,CNICE), operated bytheCentre forExport andInvestment Promotion (Centro
paralaPromoción delasExportaciones ydelasInversiones ,CENPRO) ofCOMEX, isresponsible
foridentifying andpromoting investment opportunities intheagricultural andindustrial sectors
(Chapter IV).5TheCoalition forDevelopment Initiatives (CINDE) undertakes efforts toattract foreign
investment forproduction andexport ofnewproducts. CINDE, which co-operates withnational and
international institutions fortheoperation ofprojects, maintains twooffices intheUnited States and
counts onthesupport oftheCosta Rican embassies inWashington, Canada andGermany forcarrying
outitsinvestment promotion activities.6
8. Toimprove theframework ofguarantees covering foreign investors, Costa Ricahassigned
regional andinternational agreements suchastheInternational Convention fortheSettlement of
Investment Disputes (ICSID), theInter-American Convention onInternational Commercial Arbitration
(Convención Interamericana sobre Arbitraje Internacional Commercial )andtheNewYorkConvention
onRecognition andEnforcement ofForeign Arbitral Awards (Convención sobre elReconocimiento
yEjecución delasSentencias Arbitrales Extranjeras ).
9. CostaRicahasmadeeffortstonegotiatebilateraltreatiesforreciprocalpromotionandprotection
ofinvestment (tratados bilaterales depromoción yprotección recíprocos delainversión )withseveral
countries. Anagreement withSwitzerland (Tratado deFomento yProtección Recíproca delas
Inversiones )wassigned in1965. However, inthe1980s, similar agreements negotiated withFrance
andtheUnited Kingdom failed toobtain theapproval oftheLegislative Assembly. Anagreement
with Germany wassigned inSeptember 1993. Negotiations arecurrently being heldwith the
United States. There areplans tonegotiate similar treaties withother countries, including Chile, Spain
andDenmark.
10. Asdiscussed inChapter II,under theFreeTrade Agreement signed withMexico, investors
ofbothcountries areguaranteed national treatment status.
11. Costa Rica'smembership oftheConvention establishing theInter-American Investment
Corporation (Convenio Constitutivo delaCorporación Interamericana deInversiones )oftheInter-
American Development BankandtheMultilateral Investment Guarantee Agency (MIGA) oftheWorld
Bank wasratified in1991and1992.7However, neither ofthese institutions hassofarbeenassociated
withanyforeign investment project inCosta Rica.
12. Under theNational Development Programme 1994-1998 (PlanNacional deDesarrollo )the
current policy istointensify theuseofbilateral agreements toattract foreign investment, particularly
intheareaoftechnology. Priority istobegiven toobtaining theapproval oftheLegislative Assembly
forbilateral investment agreements already concluded withmajor trading partners, aswellastothe
completion ofagreements which arestillatthenegotiating stage. Itisalsobelieved thattheadoption
ofimproved standards fortheprotection ofintellectual property rights willencourage technology-related
investment (Chapter IV).
5Law4081, 27February 1968.
6CINDE (1994) Memoria 1993; Europa Publications Limited (1993).
7Laws 7318/92 and7217/91.Costa Rica WT/TPR/S/1
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(2) Trends andPatterns inForeign Direct Investment
13. FDIinflows inCosta Ricaareclosely linked totrade policy developments. Forexample, as
discussed elsewhere inthisreport (Chapters IIandIV),foreign investment incertain areas hasbeen
made more attractive because ofpreferential trade arrangements (e.g., theCBI), aswellastheexport
andtourismincentiveschemes(sectionsondutyandtaxconcessions,andfree-tradezones,inChapterIV)
which areavailable tobothdomestic andforeign investors. Ontheother hand, NAFTA hasbeenseen
asdetrimental toFDIinCosta Rica, byincreasing therelative attractiveness ofMexico.
14. Theconclusion ofthefree-trade agreement between Costa RicaandMexico hasalready had
apositive influence oninvestment inactivities withpotential exports toMexico. In1994, Mexican
investment occurred inbanking, bakeries anddairy products.
15. Inrecent years, environmental protection hashadtobetaken intoaccount inforeign investment
projects relating towood processing andtourism activities. Forexample, in1993 there wassome
controversy overaUS$1 billion tourism project bytheMexican group, Situr.8In1994, aproject for
building anewportandawood-chipping plantclosetoanational parkbytheU.S,firmStone Container,
hadtobemodified forenvironmental protection reasons before obtaining approval.9
16. Inthepastfewyears Costa Ricahasenjoyed asubstantial riseinforeign investment inflows;
these stood atUS$220 million in1992(Chart III.1).10Theoverall stock ofFDIincreased fromsome
US$201 million in1970 tooverUS$1.4 billion in1990 (Table III.1). However, thedistribution of
thestock between theprimary, secondary andtertiary sectors shows littlechange, despite recent shifts
inannual inflows. In1990, 19ofthe21largest foreign affiliates inCosta Rica were from the
United States; oneFrench andoneSwiss affiliate were involved infinancial activities andthe
manufacturing ofnon-metallic mineral products. Eight industrial companies were involved inthe
manufacture ofbeverages, chemicals, paper, textiles, rubber products andelectrical andmechanical
equipment; totalsalesattained US$65 million thatyear. Theremaining firms weremostly engaged
indistribution.11
17. Thelackofmore detailed statistical orother official dataonforeign investment isexplained
bythelackofanyregistration orcompulsory administrative requirements other thanthose relating
totheincentives régimes. These data,providing apartial picture ofthepatterns inforeign investment,
arediscussed inChapter IV.
8EIU(1994b), p.20.
9Latin American Weekly Report, 29September 1994.
10Central Bank databased onitssurvey oftheprivate sector.
11UN(1994), p.232.WT/TPR/S/1
Page 36Trade Policy Review Mechanism
Table III.1
Sectoral distribution offoreign direct investment stock, 1970-1990
(US$ million)
Inward investment
Year Primary Secondary Tertiary Total
1970 107.4 65.0 28.8 201.2
1980 306.2 289.5 76.2 671.9
1985 510.7 349.4 96.7 956.8
1986 564.8 355.4 97.5 1,017.7
1987 601.8 392.5 117.4 1,111.7
1988 642.5 443.9 148.5 1,234.9
1989 684.0 500.6 151.5 1,336.1
1990 ... ... ... 1,447.1
... Notavailable
Note: Datawere calculated onthebasis ofcumulative flows ofFDIsince 1960. Dataontheprimary sector include theagriculture
andlivestockindustries,butbasicallyrefertotwobananacompanies,StandardFruitCompanyandBananaDevelopmentCorporation.
Dataonthetertiary sector refer mainly tobusiness conducted byimport companies andhotels.
Source: Balance ofPayments Section, Monetary Department, Central Bank ofCosta Rica; andUN(1994).