WORLD TRADE
ORGANIZATIONWT/REG136/4
31 October 2003
(03-5799)
Committee on Regional Trade Agreements Original:  Spanish
FREE TRADE AGREEMENT BETWEEN CHILE AND COSTA RICA
SERVICES ASPECTS
Communication from the Parties
I. BACKGROUND INFORMATION ON THE AGREEMENT
1. Membership and dates of signature, ratification and entry into force
During the Second Summit of the Americas held in Santiago de Chile in April 1998, the
Presidents of Costa Rica, El Salvador, Guatemal a, Honduras, Nicaragua and Chile agreed on the need
to strengthen trade relations among their countries inter alia  through a trade agreement.
The government representatives of the Central American countries and Chile accordingly
decided on a work programme for the negotiation of a free trade agreement.  The programme
provided that the legal aspects of the agreement would be jointly negotiated between the Central
American countries and Chile but that its provisions would apply, on a bilateral basis, between Chile
and each individual Central American country.  As regards market access, it was decided that both thetariff elimination programme and the specific rules of origin would be negotiated bilaterally between
each Central American country and Chile.
The Free Trade Agreement between Central America and Chile and its Bilateral Protocol
signed between the Republics of Costa Rica and Chile form an accord that applies bilaterally between
Costa Rica and Chile.  Both the Agreement and its Protocol were signed on 18 October 1999.
In Costa Rica, the Agreement is contained in Law No. 8055 of 7 December 2000, published
in the Official Journal La Gaceta  No. 42 of Wednesday, 28 February 2001.
In Chile, the Agreement was enacted by Supreme Decree No. 14, published in the Official
Journal of 14 February 2002.
On 15 January 2002, the Parties exchanged their instruments of ratification certifying the
completion of legal procedures and formalities.  In accordance with its Article 21.03, the Agreement
officially entered into force on 15 February 2002, i.e. 30 days after the exchange of instruments.
2. Type of agreement
Article 1.01 of the Free Trade Agreement between Central America and Chile lays the
groundwork for establishing and implementing a free trade area in conformity with Article XXIV of
the GATT 1994 and Article V of the GATS.
The Agreement is divided into seven parts, sub-divided into 21 chapters.  The seven parts are
as follows:  General Part;  Trade in Goods;  Technical Barriers to Trade;  Investment, Services and
Related Matters;  Competition Policy;  Government Procurement;  and Administrative and
Institutional Provisions.WT/REG136/4
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The Bilateral Protocol to the Agreement between the Republics of Costa Rica and Chile
contains Annexes pertaining to the tariff elimination programme;  export subsidies on agricultural
goods;  specific rules of origin;  and matters relating to cross-border trade in services.
3. Scope
The Agreement covers the four modes of service delivery established in Article I.2 of the
GATS.  The Chapter on Cross-Border Trade in Services (Chapter 11) deals with cross-border supply,
consumption abroad and presence of natural persons (modes 1, 2 and 4) and the Chapter on
Investment (Chapter 10) with commercial presence (mode 3).
The Chapter on Cross-Border Trade in Services establishes a framework of principles and
rules for regulating trade in services, applicable to  all measures concerning trade in services adopted
by a Party, with the exception of air services, subsidies or grants provided by the State and
government services or functions;  financial services;  and procurement by a Party or a State
enterprise.
Under Article 11.03 on national treatment, each Party is required to accord to cross-border
services and service providers of the other Party treatment no less favourable than that it accords to its
own like services and like service providers.  Formally identical or formally different treatment is
considered to be less favourable if it modifies the conditions of competition between like cross-border
services.
The principles of national treatment, most-favoured-nation treatment and local presence
apply, subject to the limitations and conditions specified in the legislation of each Party.  The Parties
may not increase the non-conformity of their existing measures, and no amendment to any such
measure may decrease the conformity of the measure.
Each of the Parties maintains in its Schedules in Annex I and Annex II the non-conforming
measures to which the provisions on national treatment (Article 11.03), most-favoured-nation
treatment (Article 11.04) and local presence (Artic le 11.06) do not apply.  Annex I provides for non-
conforming measures maintained by the Parties at any level of government and the continuation or
prompt renewal of or amendment to any non-conforming measure to the extent that it does not
become more restrictive than at the time of entry into force of the Agreement.  The Schedule inAnnex II sets out the sectors, subsectors or specific economic activities with respect to which a Party
may adopt or maintain measures not subject to certain provisions of the Chapter on Services.  Both
Chile and Costa Rica have made reservations under Annex II on matters pertaining to minorities, and:
(a) In the case of Costa Rica, sources of petroleum deposits and other hydrocarbons;
alcohol production;  telegraph and telephone services;  electricity, railway, berth and
airport services;  wireless services;  water supply, collection and disposal services and
sewage services;  and the utilization and exploitation of natural resources;
(b) in the case of Chile, matters relating to indigenous populations, communications,
education and fishing, and environmental and construction services.
The Parties have listed their respective non-discriminatory quantitative restrictions and are
required periodically, but in any event at least every two years, to endeavour to negotiate the
liberalization or removal thereof.  Restrictions of this type are non-discriminatory measures imposing
limitations on the number of service providers (whether in the form of a quota, a monopoly or an
economic needs test, or by any other quantitative means), or the operations of any service provider(whether in the form of a quota or an economic needs test, or by any other quantitative means).WT/REG136/4
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The Chapter on Investment incorporates the Agreements on the Promotion and Reciprocal
Protection of Investments which each Central Amer ican country has signed with Chile and which
form an integral part of the Agreement.  In the specific case of Costa Rica and Chile, this bilateral
agreement on investment was signed on 11 July 1996.  It lays down a series of provisions that the
Parties undertake to apply in respect of investments and investors of the other Party.  The Parties thusundertake to provide national and most-favoured-nation treatment to the investments of investors of
the other Party.  The Agreement also establishes rules governing transfers and expropriation, as well
as an arbitration mechanism for the settlement of  any dispute that may arise between a Party and an
investor of the other Party.
II. PROVISIONS AFFECTING TRADE IN SERVICES
1. Provisions in the Agreement which a re relevant to the scope of the GATS
Chapter 1 Initial Provisions
Chapter  2 General Definitions
Chapter  10 Investment
Chapter  11 Cross-Border Trade in Services
Chapter  12 Air Transportation ServicesChapter  14 Temporary Entry for Business Persons
Chapter  17 Transparency
Chapter  18 Administration of the Agreement
Chapter  19 Dispute Settlement
Chapter  20 ExceptionsChapter  21 Final Provisions
The above provisions form an Agreement liberalizing trade in services between the Republic
of Chile and Costa Rica, within the meaning of Article V.1 of the GATS, given that:
• It provides for substantial sectoral coverage of all services activities, subject to the
exceptions under paragraph 3 of Articles 11.02 and 11.08 of the Chapter oncross-border trade, and the general exceptions in Chapter 20.  These exclusions are
fully consistent with the exceptions provided for under GATS Articles II, V, XIV and
XIVbis and with the GATS Annex on Air Transport Services, Article I.3 of the
GATS and the GATS Annex on Telecommunications, paragraph 2;
• it incorporates all modes of supply: (i) cross-border; (ii) consumption abroad;
(iii) commercial presence;  and (iv) presence of natural persons;
• it provides for the absence or elimination of substantially all existing discriminatory
measures and prohibits new or more discriminatory measures;
• each Party is required to set out in its Schedule to Annex III any quantitative
restrictions that it maintains and to endeavour periodically to negotiate theliberalization of such restrictions;
• through future negotiations to be arranged by the Commission, the Parties are
required to seek further liberalization in the different services sectors.
The Republic of Chile and Costa Rica negotiated their respective Schedules of Specific
Commitments and their Lists of MFN Exemptions during the Uruguay Round.  The entry into force ofthe Agreement did not involve any modification of or amendment to these Schedules/Lists.  TheWT/REG136/4
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purpose of the Agreement is to facilitate trade betw een the Parties.  None of its provisions aims to
raise the level of restrictions on trade in services in respect of any other WTO Member.
2. Rules of origin
Chapter 2 of the Agreement sets out the following definitions:
• Enterprise means any entity constituted or organized under the applicable law of a
Party, whether or not for profit, and whether privately- or government-owned,
including other economic organizations or units constituted or organized under the
applicable law of a Party, such as a trust, partnership, sole proprietorship, joint
venture or other association, but not  corporations with bearer stock;
• State enterprise means an enterprise that is owne d or controlled through ownership
interests by a Party;
• national  means a natural person of a Party as established in Annex 2.01;
• person  means a natural person or an enterprise;
• person of a Party  means a national or an enterprise of a Party;
• territory  means the land, maritime, and air space of each Party and its exclusive
economic zone under international law.
A Party may deny the benefits of this Chapter to a service provider of another Party where it
is established that the service is being provided by an enterprise that has no substantial business
activities in the territory of the other Party and is owned or controlled by persons of a non-Party.  In
accordance with Article 11.10 of the Chapter, a Party's entitlement to deny such benefits is subject toprior notification and consultation.  The criteria for determining whether an enterprise is owned or
controlled by persons of a non-Party are those stipulated in the legislation of that Party.
3. Standards/recognition
As regards requisites and procedures for the recognition of qualifications, technical standards
and licensing requirements, the Parties must seek to ensure that their respective measures for the
granting of permits, authorizations and licences to nationals of another Party do not constitute
unnecessary barriers to trade.
The Agreement provides for the recognition of qualifications, including for the provision of
professional services, through:  (a) mutual recognition of professional qualifications and academic
degrees accompanied by supporting evidence;  or (b) licensing to exercise a profession.
The Parties recognize that the process of mutual recognition or re-certification of
qualifications and licensing to exercise a profession in their respective territories aims to improve thequality of professional services by establishing standards and criteria for the recognition or re-
certification of qualifications and licensing, while simultaneously protecting consumers and
safeguarding the public interest.  To that end, the Parties undertake to encourage the relevant bodies,
including government authorities and professional associations and colleges, to prepare such
standards and criteria and to make recommendations in that regard.  If the recommendations are
consistent with the Agreement and the GATS, the Parties must encourage the competent authorities to
adopt them.  They are also required to exchange information in this respect.WT/REG136/4
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The Agreement further specifies that nothing may be construed to compel the Parties to grant
recognition or re-certification of qualifications obtained in the territory of the other Party.  However,
if a Party – whether unilaterally or by agreement with another country – does grant recognition or
re-certification of qualifications obtained in the territory of a non-Party, then it must afford the other
Party the opportunity to conclude an equivalent agreement.
4. Safeguards
The Agreement contains no special disciplines on safeguards in services.
It includes general provisions with regard to balance-of-payments difficulties experienced by
either Party (Article 20.06, paragraph 1).  Measures adopted or maintained as a result of balance-of-
payments difficulties or the threat thereof must avoid unnecessary damage to the commercial interestsof the other Party, not be more burdensome than necessary, be of a temporary nature and be phased
out as the balance-of-payments situation improves (paragraph 3).
A Party may adopt or maintain a measure under this Article that gives priority to services that
are essential to its economic programme, provided that the measure is not imposed for the purpose ofprotecting a specific industry or sector (Article 20.06, paragraph 4).
5. Subsidies and State aid
The Chapter on Services does not apply to subsidies or grants provided by a Party or a State
enterprise, including government-supported loans, guarantees and insurance.
6. Government procurement
The Chapter on Government Procurement establishes a framework of general rules and
disciplines guaranteeing access to government procurement for producers and service providers of the
other Party under conditions of non-discrimination, tr ansparency and equal opportunity, as a means of
promoting further trade in this field.
The Chapter basically lays down a series of rules defining its terms of implementation.  The
rules are as follows:
• The Chapter applies to government procurement carried out by entities of the Parties,
subject to the exceptions established in the Annexes;
• there are no thresholds in respect of scope and coverage;
• each Party must immediately and unconditionally accord to the goods, services and
suppliers of the other Party that offers goods or services originating in its territorytreatment no less favourable than it accords to its own goods, services and suppliers.
This does not include measures relating to customs duties and any other type ofmeasure relating to importation;
• the Parties are required to ensure effective circulation and proper understanding of
their respective procurement procedures and of business opportunities generated by,and the outcome of, any government procurement process.  They must respond
promptly to questions pertaining to any existing measure;
• reference is made to the provisions on denial of benefits of the Chapter on
cross-border services;WT/REG136/4
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• the Parties may privatize any entity covered in this Chapter.  Once the entity has been
privatized, it should be withdrawn from the scope of the Chapter, without any
possibility of establishing compensatory measures.
Each Party applies its national legislation, having regard to the following conditions:
(a) non-discrimination, timeliness, transparency and efficiency;  and (b) guarantee of due process.
The Parties are required to hold consultations, at the request of any Party, in order to include
within the scope of this Chapter any entity listed in the Annex on excluded entities.
Any difference that may arise between the Parties regarding this Chapter is settled in
accordance with the Chapter on Dispute Settlement.
There are two Annexes:(a) Excluded entities:  each Party lists the entities excluded from the scope of this
Chapter;
(b) excluded contractual activities:  each Party lists the contractual activities excluded
from the scope of this Chapter, i.e. government defence contracts of a strategic nature
and other types of procurement related to national security, government procurement
of personnel assigned to perform duties inherent to the entities, and government
procurement carried out with funds from the State, regional or multilateralorganizations or individuals that impose conditions inconsistent with the provisions
of this Chapter.
7. Sector-specific provisions
The Agreement contains a Chapter regulating the measures that a Party adopts or maintains
with regard to air transportation services, which therefore incorporates the Convention on AirTransportation between the Republic of Chile and the Republic of Costa Rica, and any other
conventions of this type signed between Chile and other Central American countries.
The Chapter states that no modification consistent with the rights and duties established in the
Convention on Air Transportation concluded between the Parties may restrict the rights existing priorto such modification.
Disputes between the Parties regarding the Chapter on Air Transportation are settled in
accordance with the Agreement's Chapter on Dispute Settlement, with the exception of the specific
provisions regarding the composition of the panel established in the Chapter on Air Transportation.
The Agreement also contains a Chapter on Telecommunications.  This Chapter does not apply
between Costa Rica and Chile;  it applies only between Chile and the rest of the Central American
countries.
Lastly, the Chapter on Temporary Entry for Business Persons aims to facilitate temporary
entry for business visitors, traders and investors, and intra-company personnel, while ensuring bordersecurity and protecting the domestic labour force and permanent employment in the Parties' respective
territories.
This Chapter contains seven articles, which set out the obligations entered into by the Parties
in order to facilitate temporary entry for certain categories of person, two Annexes and twoAppendices.  The first Annex specifies the categories of business person covered and the respectiveWT/REG136/4
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entry requisites;  the second Annex establishes the specific requirements regarding Chile and
Costa Rica.  The first Appendix lists the various activities conferring eligibility for entry as a business
visitor;  the second Appendix lists each Party's existing immigration measures.
In conformity with this Chapter, each Party undertakes to grant temporary entry to business
persons eligible for entry under applicable measures relating to public health and safety and national
security.  Temporary entry of a business person does not confer the right to exercise a profession.
The three categories of business person eligible  for the treatment provided under this Chapter
are business visitors, traders and investors, and intra-company personnel.
None of the three categories is subject to prior approval procedures, petitions, labour
certification tests or other procedures of similar effect, or numerical restriction.  The Parties may
require a visa or its equivalent as a condition for granting temporary entry.
The Parties may modify their immigration measures, provided that such modifications do not
alter the commitments made under this Chapter.  Th e Parties also undertake to exchange information
in this area.
A Party may refuse to issue an immigration document authorizing employment to a business
person where the temporary entry of that person might adversely affect the settlement of any labour
dispute or the employment of a person involved in such a dispute.
Proceedings may not be instituted in this sphere under the Agreement's dispute settlement
mechanism unless the matter involves a pattern of practice and the available administrative remedies
have been exhausted.
III. GENERAL PROVISIONS OF THE AGREEMENT
1. Exceptions and reservations
Chapter 20 (Exceptions) contains the rules relating to exceptions.  Their purpose is to identify
specific situations in which the provisions of the Agreement would not apply for any the following
reasons:  public interest, national security, balance-of-payments difficulties or tax measures.
General exceptions
As regards general exceptions, Article XX of the GATT 1994 and its interpretative notes are
incorporated into and made part of the Agreement for the purposes of Part Two (Trade in Goods) and
Part Three (Technical Barriers to Trade), except to the extent that any provision of those Parts applies
to services or investment;  Chapter 15 (Competition Policy) and Chapter 16 (GovernmentProcurement), to the extent that any provision of those Chapters applies to goods.
Article XIV (a), (b) and (c) of the GATS is also incorporated into and made part of the
Agreement for the purposes of Part Two (Trade in G oods), to the extent that any provision of that Part
applies to services;  Part Three (Technical Barriers to Trade);  the Chapters on Cross-Border Trade inServices, Air Transportation Services, and Temporary Entry for Business Persons;  and the Chapters
on Competition Policy and Government Procurement,  to the extent that any provision of those
Chapters applies to services.WT/REG136/4
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National security
As far as national security is concerned, the Parties may provide for exceptions in order to
protect their essential security interests or take action in pursuance of their obligations under the
United Nations Charter for the maintenance of international peace and security.
Balance of payments
The Parties may establish exceptions in order to adopt or maintain measures that restrict
transfers where a Party faces serious balance-of-payments difficulties or the threat thereof, provided
that such restrictions are consistent with certain Article 20.04 requirements.  As soon as practicable
after a Party imposes a measure restricting transfers, in pursuance of its international obligations theParty is required to submit all restrictions on current account operations for review by the
International Monetary Fund (IMF) under Article VII of the IMF Articles of Agreement;  to enter into
good faith consultations with the IMF on economic adjustment measures to address the underlying
economic problems;  and to adopt or maintain economic policies consistent with such consultations.
The measures applied or maintained must also avoid unnecessary damage to the commercial,
economic or financial interests of the other Party, not be more burdensome than necessary to deal with
the balance-of-payments difficulties, be of a temporary nature and be progressively phased out as the
situation improves.
A Party may adopt or maintain a measure that gives priority to services that are essential to its
economic programme, provided that the measure is not imposed for the purpose of protecting a
specific industry or sector, unless the measure is consistent with the provisions of the IMF Articles of
Agreement.
Article 20 further stipulates that restrictions on transfers imposed on payments for current
international transactions must be consistent with Article VIII(3) of the IMF Articles of Agreement;
must be consistent with Article VI of the IMF Articles of Agreement and be applied only in
conjunction with measures imposed on payments fo r current international transactions;  and may not
take the form of tariff surcharges, quotas, licences or similar measures.
Disclosure of information
Concerning disclosure of information, the Parties may establish exceptions as regards the
supply or access to information the disclosure of  which could impede compliance with or would be
contrary to their respective Constitutions or laws.
Taxation
None of the provisions of the Agreement applies to tax measures or affects the rights and
obligations of the Parties under tax conventions.  In the event of inconsistency between the
Agreement and any such convention, that convention prevails to the extent of the inconsistency.
Notwithstanding the above, the national treatment provisions apply to tax measures to the
same extent as does Article III of the GATT 1994 and the export tax provisions to tax measures.
Reservations
The Parties made no reservations to the Agreement, since Article 21.02 (Reservations) states
that the Agreement may not be subject to reservatio ns or interpretative statements on the occasion of
its ratification.WT/REG136/4
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2. Accession
There is no specific provision for other countries to accede to the Agreement.
3. Dispute settlement procedures
The dispute settlement mechanism is established in Chapter 19 of the Agreement. This
Chapter applies to the settlement of any disput e that arises between the Parties regarding the
application or interpretation of the Agreement or wherever a Party considers that an existing or
proposed measure of the other Party is liable to prove inconsistent with the obligations of the
Agreement or cause nullification or impairment (Annex to Article 19.03).
The Agreement stipulates that the complaining Party may opt for the procedure provided by
the WTO or that established by the Agreement.  Once a forum has been selected, it must be used tothe exclusion of the other (Article 19.04).
If the mechanism established by the Agreement is chosen, it first provides for consultations
between the Parties. If this fails to resolve the dispute in a mutually satisfactory manner, either Party
may refer the matter to the Free Trade Commission, which then initiates a conciliation or mediationphase.
If, within a specified period of time, the Parties still fail to agree, either Party may request in
writing the establishment of an arbitral panel made up of three members, acting in conformity with
rules of procedure to be laid down by the Commission .  Panellists are normally selected from a roster,
drawn up by the Parties, of persons with international expertise and experience.  Each Party selects
one panellist who is a citizen of the other Party.  The chair is designated jointly by the Parties;  should
they prove unable to reach consensus, one of the Parties, chosen by lot, selects as chair an individual
from the roster who is not a citizen of either Party.
The Agreement provides for the right of third Parties to attend the hearings, to be heard by the
arbitral panel, and to make and receive written communications to and from the panel.  Third-party
communications must be reflected in the final report of the arbitral panel.
Within a period of 90 days after the arbitral panel has been established, the panel issues its
initial report containing findings of fact, a determination as to whether the measure imposed by the
respondent Party is inconsistent with the Agreement, and a recommendation.  Once the Parties havesubmitted their comments on the initial report, the panel issues its final report, which is binding on the
Parties.  The measure found to be inconsistent should be repealed wherever possible.  If the Parties
fail to reach a mutually satisfactory settlement, the complaining Party may suspend the application of
benefits of equivalent effect to the respondent Party, as far as possible in the sector affected by the
measure.  Where the respondent Party deems the benefits suspended by the complaining Party to beexcessive, it may request the establishment of an arbitral panel to rule on the matter.
Moreover, Chapter 10 refers to the Agreement between Chile and Costa Rica on the
Promotion and Reciprocal Protection of Investments, which provides for arbitration allowing
investors of a Party to bring action against a foreign State for breaches of investment obligationswhich result in financial loss.  The purpose of this  mechanism is to award restitution of the investment
to the investor or monetary damages for the financial loss caused by the breach and, where applicable,
procedural costs.  The panel may not, however, order payment of punitive damages.
This mechanism assures equal treatment among investors of the Parties, in accordance with
the principle of international reciprocity and due process before an impartial tribunal.WT/REG136/4
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4. Relation with other trade agreements
The provisions of the Agreement prevail in the event of any inconsistency with other
international agreements.  Nevertheless, it should be emphasized that obligations deriving from the
Convention on International Trade in Endangered Species of Wild Fauna and Flora, the Montreal
Protocol on Substances that Deplete the Ozone Layer and the Basel Convention on the Control ofTransboundary Movements of Hazardous Wastes and Their Disposal prevail in the event of any
inconsistency with the Agreement.
5. Institutional framework
The Agreement establishes a series of rules for its administration and for the settlement of
disputes stemming from its implementation.
Administrative bodies :
The Free Trade Commission (at ministerial level) supervises the proper implementation of
the Agreement;  evaluates the results of such implem entation;  settles disputes regarding interpretation
or implementation of the Agreement;  and considers any other matter that may affect the operation ofthe Agreement.
The Commission may also seek the advice of individuals or groups;  amend the specific rules
of origin, the Tariff Elimination Programme and the Uniform Regulations;  prepare and approve the
regulations needed for implementation of the Agreement;  and take any other action within its sphereof competence.
Although the Commission comprises Chile and th e five Central American countries, the
Commission may meet with a smaller quorum, that is , when Chile and one or more Central American
countries meet to deal with matters of exclusive interest to those Parties (e.g. to accelerate tariffelimination, dispute settlement).
The Free Trade Sub-Commission  provides the Commission with technical advice;  follows
up on the decisions of the Commission;  and, at the request of any Party, examines any other matter
that could affect the operation of the Agreement.
The Secretariat  carries out administrative functions and provides support for the
Commission.
The Committees, Sub-Committees or Groups of Experts  deal with matters relating to trade in
goods, sanitary and phytosanitary measures, standards-related, metrology and approval procedures,
investment, cross-border trade in services, and the Advisory Committee on Private CommercialDisputes.
IV. OTHER
1. Final Provisions
Chapter 21 (Final Provisions) contains the final provisions of the Agreement.  These rules
regulate procedures ranging from amendments to withdrawal.  It is important to note that the
Agreement has an indefinite duration.WT/REG136/4
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The full text of the Agreement is available on the following websites:
In Chile:  www.direcon.cl
In Costa Rica:  www.comex.go.cr
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