RESTRICTEDWORLD  TRADE
ORGANIZATIONWT/TPR/S/83
9 April 2001
(01-1787)
Trade Policy Review Body
TRADE POLICY REVIEW
COSTA RICA
Report by the Secretariat
This report, prepared for the Second Trade Policy Review of Costa Rica, has
been drawn up by the WTO Secretariat on its own responsibility.  The
Secretariat has, as required by the Agreement establishing the Trade Policy
Review Mechanism (Annex 3 of the Marrakesh Agreement Establishing the
World Trade Organization), sought clarification from the Government of
Costa Rica on its trade policies and practices.
Any technical questions arising from this report may be addressed to
Mr. J. Suárez (tel. 739 5453) and Mr. R. Valdés (tel. 739 5346).
Document WT/TPR/G/83 contains the policy statement submitted by the
Government of Costa Rica.
Note: This report is subject to restricted circulation and press embargo until the end of the meeting
of the Trade Policy Review Body on Costa Rica.Costa Rica WT/TPR/S/83
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CONTENTS
Page
I. ECONOMIC ENVI RONMENT.................................................................................................1
(1) I NTRODUCTION ............................................................................................................................1
(2) E CONOMIC POLICY AND ECONOMIC DEVELOPMENTS ................................................................1
(i) Performance and stru cture of th e economy....................................................................1
(ii) Public finances............................................................................................................ ...3
(iii) Monetary and ex change policy ......................................................................................6
(iv) Balance of  payments......................................................................................................7
(3) D EVELOPMENTS IN TRADE ..........................................................................................................8
(i) Trade in goods .............................................................................................................. .8
(ii) Trade in  serv ices .......................................................................................................... ..9
(4) I NVESTMENT PATTERNS ............................................................................................................10
(5) OUTLOOK ............................................................................................................................... ....13
II. TRADE POLICY REGIME: FR AMEWORK AND OB JECTIVES .......................................14
(1) I NTRODUCTION ..........................................................................................................................14
(2) F ORMULATION AND APPLICATION OF TRADE POLICY ..............................................................14
(i) General legal and in stitutional fr amework...................................................................14
(ii) Trade policy objectiv es and form ulatio n .....................................................................15
(iii) Principal trade la ws and regulations ............................................................................16
(3) F OREIGN INVESTMENT REGIME ................................................................................................17
(4) I NTERNATIONAL RELATIONS ....................................................................................................18
(i) World Trade Organization ...........................................................................................18
(ii) Preferential  agreements................................................................................................19
(iii) Other ag reemen ts .........................................................................................................2 3
III. TRADE POLICIES AND PR ACTICES BY MEASURE........................................................26
(1) I NTRODUCTION ..........................................................................................................................26
(2) M EASURES AFFECTING IMPORTS ..............................................................................................27
(i) Proced ures.................................................................................................................. ..27
(ii) Customs valuation a nd rules of origin .........................................................................29
(iii) Tariffs ................................................................................................................... .......30
(iv) Tari ff quotas.............................................................................................................. ...37
(v) Other charges af fecting im ports...................................................................................39
(vi) Import licensing ........................................................................................................... 42
(vii) Prohibitions and ot her restri ctions ...............................................................................42
(viii) Anti-dumping, countervailin g and safeguard measures...............................................43
(ix) Special safegu ard measures .........................................................................................45
(x) Regulations, standards and other requ irements ...........................................................46
(xi) State trading .............................................................................................................. ...52
(xii) Government procurement ............................................................................................52WT/TPR/S/83 Trade Policy Review
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(3) M EASURES DIRECTLY AFFECTING EXPORTS ............................................................................55
(i) Proced ures.................................................................................................................. ..55
(ii) Export taxes and charges .............................................................................................56
(iii) Minimum  prices...........................................................................................................5 6
(iv) Export prohibiti ons and licences..................................................................................57
(v) Export ca rtels .............................................................................................................. .57
(vi) Duty and tax concessions.............................................................................................59
(vii) Export finance, insu rance and gu arantees....................................................................60
(viii) Export promotion, ma rketing assi stance......................................................................60
(ix) Free zones ................................................................................................................. ...61
(x) Measures applied in  foreign market.............................................................................62
(4) O THER MEASURES AFFECTING TRADE .....................................................................................63
(i) Competition policy ......................................................................................................63
(ii) Price controls ............................................................................................................. ..66
(iii) Marketing and restri ctions on production....................................................................67
(iv) Incen tives ................................................................................................................. ....68
(v) Structural adjust ment assistance ..................................................................................73
(vi) Measures concerning trade-related investment and domestic content
requirem ents ................................................................................................................73
(vii) Regional as sistance......................................................................................................7 3
(viii) Assistance for resear ch and development....................................................................74
(ix) Intellectual pr operty ri ghts...........................................................................................75
IV. TRADE POLICIES  BY SE CTOR............................................................................................81
(1) I NTRODUCTION ..........................................................................................................................81
(2) A GRICULTURE ...........................................................................................................................82
(i) Market structure and performance...............................................................................82
(ii) Policy objectives  and instruments................................................................................84
(iii) Assistance indicators....................................................................................................8 9
(3) E LECTRIC POWER ......................................................................................................................90
(4) M ANUFACTURING SECTOR .......................................................................................................91
(5) S ERVICES ............................................................................................................................... ....95
(i) Principal char acteristics ...............................................................................................95
(ii) Financia l serv ices......................................................................................................... 98
(iii) Communicatio ns services ..........................................................................................104
(iv) Transport.................................................................................................................. ..106
(v) Professiona l servic es..................................................................................................110Costa Rica WT/TPR/S/83
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Annex IV.1The Banana I ndustry in Costa Rica.................................................................................. 11 2
BIBLIOGR APHY................................................................................................................... ............ 115
APPENDIX TABLES................................................................................................................ ......... 117WT/TPR/S/83 Trade Policy Review
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CHARTS
Page
I. ECONOMIC ENVIRONMENT
I.1 Trade in goods, by product, 1995 and 1999............................................................................. 10
I.2 Trade in goods, by partner, 1995 and 1999 ............................................................................. 12
III. TRADE POLICIES AND PRACTICES BY MEASURE
III.1 Distribution of MFN ta riff rates, March 2000 ..........................................................................32
III.2 Tariff escalation for manufactured pr oducts, average tari ff for March 2000 ...........................34
III.3 In-quota and out-of-quota ta riffs and fill rates, 2000................................................................38
IV. TRADE POLICIES BY SECTORIV.1 Tariff protection in  industrial sector ..................................................................................... ....94Costa Rica WT/TPR/S/83
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TABLES
Page
I. ECONOMIC ENVIRONMENT
I.1 Economic performance ........................................................................................................ ...... 2
I.2 Gross domestic product by sector, 1995-00............................................................................... 4
I.3 Balance of public  sector operations ......................................................................................... .. 5
I.4 Balance-o f-payments ......................................................................................................... ........ 8
I.5 Trade in services, 1995-2000................................................................................................ ... 11
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVES
II.1 Exports under specia l regimes, 1995-1999.............................................................................. 24
III. TRADE POLICIES AND PRACTICES BY MEASUREIII.1 Trend of the averag e MFN tariff, 1995-2000 ...........................................................................31
III.2 Summary analysis of the Costa Rica n tari ff .............................................................................33
III.3 Costa Rican preferential tariff rates for the Central American Common Market,
Panama and Mexico.............................................................................................................. ....35
III.4 Imports subject to selective c onsumption tax (ISC), August 2000...........................................41
III.5 Structure of the charges affectin g imports of various products, 2000 ......................................43
III.6 Documents necessary for co mpleting import formalit ies .........................................................44
III.7 Products subject to sanitary  and phytosanita ry measures .........................................................50
III.8 Public sector procur ement statis tics, 1998................................................................................ 53
III.9 Limits on administ rative proc urement ...................................................................................... 54
III.10 Products subject to export prohibitions and restrictions ...........................................................58
III.11 Fines imposed by the Commission for the Promotion of Competition, 1995-1999 .................65
III.12 Intellectual property right legi slation in force in Costa Rica ....................................................77
IV. TRADE POLICIES BY SECTOR
IV.1 Main indicators for the agriculture,  livetock and agro -industrial sector...................................82
IV.2 Area of cultivation of the main  agricultural crops , 1995 and 1999 ..........................................83
IV.3 Agricultural and livestock productive restructuring programmes implemented
between 1999 and 2000 .......................................................................................................... ..86
IV.4 Domestic assistance meas ures notified, 1995-1998..................................................................89
IV.5 Contribution of the industrial sector to gross added value at base prices and
breakdown of gross added value...............................................................................................93
IV.6 Added value and employment  in service activities...................................................................96
IV.7 Summary of Costa Rica's commitments under the GATS........................................................97
IV.8 Structure of the financial system regulated by the SUGEF, June 2000....................................99
IV.9 Principal laws governing the fina ncial sector, includ ing insurance........................................100
IV.10 Real lending and borrowing inte rest rates by s ector, 1995-1999............................................103
IV.11 Maritime Conventions signed by Costa Rica..........................................................................109WT/TPR/S/83 Trade Policy Review
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APPENDIX TABLES
Page
I. ECONOMIC ENVIRONMENT
AI.1 Costa Rica:  Exports and re-exports, by ma jor products........................................................ 119
AI.2 Costa Rica:  Imports  by major products ................................................................................ 120
AI.3 Costa Rica:  Exports and re -exports, by trading partners ...................................................... 121
AI.4 Costa Rica:  Imports, by trading partners .............................................................................. 122
II. TRADE POLICY REGIME:  FRAMEWORK AND OBJECTIVESAII.1 Main laws and regulations relating to foreign trade, in forc e at December 2000.................. 123
AII.2 Notifications by Costa Rica under WT O Agreements (as at 5 January 2001)....................... 125Costa Rica WT/TPR/S/83
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SUMMARY OBSERVATIONS
(1) INTRODUCTION
1. Since its first Trade Policy Review in
1995, Costa Rica has improved access to itsalready generally open market, particularly
for goods;  however, restrictions remain on a
few service sectors.  Since 1995, the average
tariff has fallen five percentage points, to 7%,
and the use of non-tariff trade barriers hasbeen limited.  Costa Rica has followed a two-
pronged liberalization strategy leading to both
new multilateral and regional commitments.
Over the period under review, an export-
oriented strategy, based on tariff and otherfiscal concessions, underpinned a swift shift
towards manufacturing and sharp export
expansion, which in turn has contributed to
rapid but variable economic growth.
2. Since 1995, however, growth in Costa
Rican per capita disposable income has only
been moderate, reflecting in part the weaklinkages so far established between domestic-
and export-oriented activities.  These and
certain other activities are favoured by the
existing incentives structure at the expense of
other areas, including the production oftraditional agricultural export-goods.
Moreover, the State maintains a dominant
position in a number of key services, in some
of which inefficiencies have arisen over time
as regulations have failed to keep pace withtechnological and market changes.  Further
improvements in resource allocation would
thus be aided by a more uniform treatment of
all activities, enhanced internal competition,
and addressing existing shortcomings in theservices sector.  The considerable
achievements of the last six years bode well
for Costa Rica's ability to meet these
challenges and, ultimately, reach and sustain
faster gains in living standards.
(ii) ECONOMIC DEVELOPMENTS
3. Between 1995 and 2000, real GDP grew
at an annual average rate of 4.7%.  Growth
was particularly strong in 1998 and 1999,when GDP rose at an annual average rate of
just over 8%.  This resulted in good part from
major construction projects undertaken in free
zones and, subsequently, sharp export
increases from the new facilities.  Economicgrowth fell sharply in 2000 as construction
ended and exports contracted, but was
expected to rebound somewhat in 2001.  Per
capita GDP stood at close to US$4,100 in
1999.  In per capita terms, real GDP grew atan annual average rate of 2.2% over
1995-2000, while disposable national income
grew at only 0.5%, the difference being mainly
explained by profit remittances associated
with free zone activities.
4. Since Costa Rica's previous Review,
persistent deficits in Central Government and
Central Bank operations have kept the public
fiscal deficit consistently high.  In part as a
result, total public debt is high, having
reached the equivalent of 54% of GDP at the
end of 2000.  The public deficit hastraditionally been financed through the
issuance of domestic debt, putting pressure on
domestic interest rates and contributing to the
relatively high cost of credit.  The authorities
have succeeded in reducing the inflation rate,which fell from 23% in 1995 to 10% in 2000.
5. Exchange rate policy has sought to
maintain the external competitiveness of
domestic goods through daily adjustments of
the exchange rate on the basis of thedifferential between inflation in Costa Rica
and its main trading partners.  Since 1995, the
current account balance has registered
important deficits, over 1995-97 due mainly to
the trade deficit and from 1998 to thewidening of the factor services deficit:  the
latter resulted from the sharp increase in
profit remittances associated with the
expansion of free zones activities.  Deficits
were partly covered by foreign direct
investment inflows.  The balance of trade in
non-factor services has traditionally beenpositive mainly due to tourism exports.  The
structure of merchandise exports has changed
substantially due to the expansion of
electronic components and the stagnation ofWT/TPR/S/83 Trade Policy Review
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agricultural exports.  The share of agricultural
products in total exports dropped from 68% in
1995 to some 30% in 1999.
(iii) TRADE POLICY FRAMEWORK
6. Since Costa Rica's previous Review, no
major changes have been introduced to thetrade and investment regimes.  Main
responsibility for trade policy implementation
remains with the Ministry of External Trade.
Trade policy has sought to promote and
consolidate Costa Rica's integration into theworld economy.  Between 1995 and 2000, as a
proportion of GDP, trade in goods and
services rose from some 78% to 97%.
7. Since its accession to the GATT in 1990,
Costa Rica has participated actively in themultilateral trading system.  Costa Rica is a
founding member of the WTO, the Marrakesh
Agreement Establishing the WTO having
become an integral part of its legislation.  It
subsequently signed the Ministerial
Declaration on Trade in Information
Technology Products (ITA), and ratified thefinancial services protocol to the GATS;  it
also participated, but did not make an offer, in
the basic telecommunications negotiations.
On the other hand, Costa Rica's commitments
under the GATS are relatively limited;  ingeneral, for the sectors included in its
Schedule, only market access and national
treatment for consumption abroad were
bound.
8. Costa Rica has used the multilateral
dispute settlement mechanism to protect its
trade interests.  In part due to the ensuing
benefits, both the authorities and the public at
large hold a positive perception of the
multilateral trading system and its impact onsmall countries.  Multilateral commitments
have proved a key catalyst for domestic reform
in the past.
9. Costa Rica has also increasingly
participated in preferential trade
arrangements.  It is part of the Central
American Common Market, has subscribedbilateral free trade agreements with Chile,Mexico, Panama and the Dominican Republic,
and is negotiating another with Canada.  It
also participates in the Free Trade Area of the
Americas process.  Costa Rica benefits from
various GSP schemes and the U.S. Caribbean
Basin Initiative.  Its major trading partnersare, in decreasing order of importance, the
United States, the European Union, Mexico
and Central American countries, Costa Rican
exports entering those markets mostly under
preferential conditions.  Costa Rica joined theCairns Group in 1999.
(iv) MARKET ACCESS FOR GOODS
10. Access for imported goods into Costa
Rica's market has improved since its previous
Review.  Between 1995 and 2000, the averageMFN tariff decreased from almost 12% to 7%.
At 15% and 6%, average tariffs are
considerably higher for agricultural than
industrial products.  As part of its market
access commitments under the WTO
Agreement on Agriculture, Costa Rica
established tariff quotas for variousagricultural products, (e.g. certain dairy and
poultry products), although in almost all cases
the filling levels have been low.  Tariff
reductions under preferential agreements have
also contributed to greater access to CostaRica's market.
11. Costa Rica bound all but five tariff lines at
the WTO, most at a maximum ad-valorem rate
of 45%;  exceptions include mostly
agricultural products, for which bound ratesare in some cases as high as 233%.  Closing
the wide margin between applied and bound
rates would further increase the predictability
of market access conditions.
12. Imports are subject to domestic taxes
applied uniformly with respect to their origin
and in accordance with the national treatment
principle, except for a few beverages.  In
addition, the domestic commercialization
regime for alcoholic beverages discriminates
between most imported and domestic products.
13. The use of non-tariff trade barriers
appears limited.  Costa Rica maintains variousCosta Rica WT/TPR/S/83
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import restrictions and prohibition, generally
for health, security or environmental reasons.
No anti-dumping or countervailing duties were
applied between 1995 and 2000, although four
anti-dumping investigations were initiated.
Likewise, with the exception of specialsafeguard measures applied to rice and beans
under the WTO Agreement on Agriculture, no
safeguard measures were taken.
(v) OTHER MEASURES AFFECTING
TRADE IN GOODS
14. There are no estimates of the global
impact of programmes to promote production
and exports, although their number and
diversity raise questions about their
effectiveness and the economic distortions theymight induce.  To promote exports, Costa Rica
maintains various special import regimes,
notably the free zone regime.  Export subsidies
granted through a tax credit mechanism
(Certificados de Abono Tributarios) were
eliminated in late 1999 although some benefits
are still being paid.  In addition, production,particularly by small and medium size firms, is
supported through a plethora of relatively
minor programs, including fiscal incentives
and concessional credit schemes.
15. As at early 2001, Costa Rica maintained a
tax on banana exports;  taxes on coffee and
meat exports were eliminated in 1999.  From
May 2000, Costa Rica has applied quantitative
restrictions to coffee exports, retaining 20% of
its export supply.  The European Union grantsCosta Rica's banana exports preferential
market access through tariff quotas.  Canada
and the United States apply import quotas to
its textile and apparel exports under the WTO
Agreement on Textiles and Clothing.
16. Competition legislation adopted in the mid
1990s has resulted in an increasing number of
actions by the competition authorities.
However, competition remains restricted in a
few but important areas.  For instance, in
practice the external and internal
commercialization of domestically producedsugar is controlled by a cartel.  Likewise, the
State holds a monopoly on the importation,refining and wholesale distribution of crude
oil, fuels derived from oil, asphalt and
naphtha.  The State also regulates the price of
several goods and services, including public
services and the marketing of various
agricultural products such as bananas, coffeeand sugar.
17. The Agreement on Trade-related Aspects
of Intellectual Property Rights (TRIPS
Agreement) became part of Costa Rica's
legislation through its ratification of theMarrakesh Agreement.  Subsequently, Costa
Rica has enacted or amended related domestic
regulations to harmonize them with its
international obligations and thus facilitate
their application.  Those changes were notifiedto the Council for Trade-Related Aspects of
Intellectual Property Rights in late 2000.
(vi) SECTORAL POLICIES
18. Since its previous Review, Costa Rica has
promoted the expansion of export-oriented
manufactures through special fiscal regimes,
notably of electronics under the free zoneregime.  However, despite efforts to generate
linkages between export-oriented activities
and the rest of the domestic industry,
spillovers have so far been limited.  Moreover,
fostering those activities disadvantages otherindustries not enjoying the same privileges.
Apart from the special fiscal regimes,
measures to promote industrial production
have focused on small and medium size
enterprises.
19. In spite of its decreasing share in GDP,
agriculture remains an important sector
because of its contribution to employment and
export earnings.  A small number of
agricultural products for domesticconsumption are protected through higher
than average tariffs and safeguard measures.
Agricultural production in general benefits
from other support measures, including fiscal
incentives and specific financing programmes.
Notwithstanding such support, and in spite of
the traditionally high productivity ofCosta Rica's producers, its two major
agricultural exports, banana and coffee, haveWT/TPR/S/83 Trade Policy Review
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come under considerable pressure in recent
years.  This reflects both adverse international
market conditions as well as competition for
factors of production, particularly land and
labour, from other sectors.
20. No major changes affected the services
sector between 1995 and 2000.  Tourism
remains a main magnet for foreign exchange
and investment, but long-standing
inefficiencies in some other service areas
impose unnecessary costs on other activities.The State retains monopoly rights on
insurance, telecommunications and energy
distribution.  Notwithstanding growing private
participation in the banking industry,
state-owned banks, favoured by currentregulations, still dominate the industry.  Faced
with vocal opposition from interest groups, the
Government was unable to pass legislation it
considered of prime importance to modernize
key service activities, notably
telecommunications.  Pressure for reformarises from the widening gap between
decades-old legislation, changing technology
and new market imperatives.  WTO services
negotiations could give new impetus to the
reform process but this would require buildingup wider public awareness of the need to
improve the quality and reduce the cost of
bank, insurance, telecommunications and
energy distribution services.