WORLD TRADE  
ORGANIZATION  WT/REG147/4 
3 February 2005 
 
 (05-0442) 
Committee on Regional Trade Agreements Original:   English 
  
 
FREE TRADE AGREEMENT BETWEEN CANADA AND COSTA RICA 
 
Questions and Replies
 
 
 The following communication, dated 28 January 2 005, is being circulated at the request of the 
Delegations of Canada and Costa Rica. 
  This document reproduces the questions addressed  to the Parties and the responses submitted. 
The questions and replies set out below are or ganized in accordance with document WT/REG147/3. 
 
_______________ 
 
 
I. BACKGROUND INFORMATION ON THE AGREEMENT  
4. Trade Data 
1. According to the figure on second page of the report by the Parties, around USD 104 
million (2001 figures) of bilateral trade will be  liberalized, not including tariff-rate quotas. 
However, in the figure on page four in the repor t, total bilateral trade is claimed to amount to 
USD 161.3 million in 2001. The EC would thus appreciate if the Parties could clarify the trade data provided in the figures, not least from th e perspective of the overall scope of the Free 
Trade Agreement.  
 The data of Canada source in the document w as likely correct at the time of drafting (before 
subsequent data revisions) but woul d now be subject to revision.  Ho wever, it is important to first 
clarify the terminology that is used. The reason fo r the difference between th e data reported on page 
two and page four is that, for the calculation of bilateral trade according to market access under the 
Costa Rica – Canada Free Trade Agreement, offici al Costa Rican data was used.  The Costa Rican 
information is detailed enough to permit the analysis of imports and exports by staging category.   
However, for the review of global trade flows between Costa Rica and Canada, data of Canadian 
source (Strategis) was used.  For example, on page 4 (the table), it says that Strategis reports that 
Costa Rican exports to Canada were $US 121.8 milli on.  However, Strategis only reports on Canadian 
trade data so, in fact, the data is not Costa Rican exports to Canada but rather, Canadian imports from 
Costa Rica.  At first glance, the di fference seems subtle (and likely to be very minor), but it is a very 
key difference that helps to unwind the puzzle in th e difference in the statistics as noted by the EC. 
   Although in theory the merchandise trade sta tistics published in one country should be the 
mirror image of the statistics published by its trading pa rtner, this is rarely the case in practice.  Thus 
it is not surprising that Costa Rica says that it e xports about $US 31 million to Canada while Canada 
says that it imports almost $US 122 million from Cost a Rica, or that Costa Rica reports imports of 
$US 73.5 million from Canada while Ca nada   reports that it only expor ts about $US 40 million.  This 
is because some of those exports from Canada were  either reported as exports to other country or 
simply weren't reported to the statistical author ities and because some Costa Rican exports may have 
been registered as exports to the United States, a lthough its final destination may have been Canada.  
 WT/REG147/4 
Page 2  
 
 Please see the attached spreadsheet showing the Canada-Costa Rica merchandise trade flows as reported in the Costa Rican Statistical Year book of 1999-2001, from Strategis, and from the 
document itself.  It shows that Costa Rican e xports to Canada are unde r-reported by over $US 90 
million while Canadian exports to Costa Rica unders tated by some $US 31 million to $US 34 million. 
 
 
II. TRADE-RELATED PROVISIONS 
1. Import Restrictions 
2. According to the Schedules of the Free Trade Agreement, Costa Rica have been granted 
15 years transition periods for the products listed in Category C of its schedule, representing 
14.6 percent of its tariff lines. The EC would be  interested in hearing from the Parties the 
rational behind invoking the possibility in “exceptional circumstances” for transition periods longer than 10 years. Also, the EC would appreciate if the Parties could provide their rational for the long transition periods on product-by-pro duct basis, in so far that the rational differ 
between various groups of products.  
 Canada recognized that Costa Rica was a smaller economy and for this reason, offered 
asymmetry by according a phase-out exceeding 10 years to a requested list of Costa Rican products. 
 
3. Rules Of Origin 
3. The Free Trade Agreement between  Canada and Costa Rica contains detailed rules of 
origin for preferential trade. Annex IV.1 on  specific rules of origin, section 1 (Fungible 
Materials), set out the rules related to the so-c alled FIPO- and LIPO-methods. Also, the concept 
"tariff preference level" is introduced in the sp ecial rules of origin for textiles which would seem 
to imply that each Party of the agreement grants preferential treatment to goods non-
originating in the other Party but meeting other requirements (see Appendix III.1.6.1). The EC would appreciate if the Parties could clarif y these concepts, explain their role for the 
functioning of the Agreement and describe how they operate in practice.  
Fungible Materials
 
  In the Canada-Costa Rica Free Trade Agreemen t fungible materials are defined as materials 
that are interchangeable for commercial purposes a nd whose properties are essentially identical.  The 
concept of fungible materials exists in other free trad e agreements to which Cana da is a Party and also 
in other free trade agreements to which Costa Rica is  a Party. It was introduced in recognition of the 
fact that, while manufacturers may use identical or iginating and non-originating materials, these 
materials may be mixed in inventory.  Consequently , the originating status of the individual materials 
cannot always be readily determined and it woul d be impossible to identify the non-originating 
materials that may be present in a particular produc t that do not meet the tariff change requirement set 
out in the applicable rule of origin.  Without allo wing for the use of inventory control methods such as 
LIFO (last in first out) and FIFO (first in first out ) to deal with such fungible material, the good would 
then need to be deemed non-originating.   LIFO and FIFO provide the records e.g. pu rchase orders, sales invoices etc., necessary for an 
exporter to determine which goods contain originating materials and, as such, could be considered to 
originate as required by the rules of origin.  Th ese records also permit a customs administration to 
verify claims for preferential treatment.   WT/REG147/4 
 Page 3 
 
 
Tariff Preference Levels  
  Under the terms of Canada-Costa Rica Free Trade Agreement (CCRFTA), the Parties agreed to grant preferential tariff treatment to specified quantities of certain yarns, fabrics, apparel, and 
textile articles, traded among the Parties, that do no t meet the rules of origin  of the Agreement. These 
provisions constitute a trade mechanism known as a "tariff preference level" (TPL).   
  For further information, please refer to th e following published re gulation and documents 
which explains the purpose and operations of Tariff Preference Level in the Canada Costa Rica Free 
Trade Agreement: 
 
• Notice Number 636 - Administration of the Canada-Costa Rica Free Trade Agreement 
relating to Imports of Apparel, Textiles and Made-up Goods from Costa Rica and the 
application of the Tariff Preference Levels (see http://www.dfait-
maeci.gc.ca/trade/eicb/notices/ser636-en.asp ) 
 
• The Imports of Certain Textile and Apparel G oods from Costa Rica Customs Duty Remission 
Order (see http://laws.justice.gc.ca/en/C -54.011/SOR-2002-399/index.html ) 
 
• Canada Border Services Agency’s Memorandum D11-4-22 - Tariff Preference Levels. (see 
http://www.cbsa-asfc.gc.ca/E/pub/cm/d11-4-22/README.html ). This memorandum reflects 
the introduction of the Order-in-Council to implem ent the tariff preference level provisions of 
the Canada Costa-Rica Free Trade Agreement. It also contains administrative guidelines and 
other general information concerning TPL. 
 
9. Other Provisions 
Trade Facilitation  
 
4. The FTA between Canada and Co sta Rica contains a number of provisions in the area 
of trade facilitation that aim to simplify and im prove the management of trade procedures. The 
EC would like to know if these simplifications and improvements – following the implementation of the section on trade facilitat ion of the Agreement – apply equally to trade 
with the other Party and trade with non-Parti es. If not, how are the different procedures 
applied in practice?  
 The simplifications and improvements follo wing the implementation of the provisions on 
trade facilitation apply equally to trade betw een the Parties and with all non-Parties. 
 
Services
 
 
5. The EC notes that Free Trade Agreement be tween Canada and Costa Rica includes a 
commitment to review developments in invest ments and services within a certain time frame 
from the entry into force of the Agreement. In light of this up-coming review, which are the intentions of the parties with regard to trade in services? 
 Canada and Costa Rica Parties agreed that with in 3 years of the date of entry into force 
(November 1, 2002), they will review developments  related to trade in services and investment, and 
consider the need for further disci plines with respect to trade in ser vices and investment. As agreed by 
the Parties, they will review and discuss the need for potential disciplines with respect to trade in 
services and investments.   WT/REG147/4 
Page 4  
 
ATTACHMENT 
 
($US) ($US) ($US) ($US) ($US) ($US)
31,903,963 72,092,054 -40,188,091
30,962,356 73,507,488 -42,545,132
39,500,000 121,800,000 -82,300,000
40,600,242 121,936,521 -81,336,279
-90,032,558 31,491,812
-90,837,644 34,007,488 The documentCANADA AND COSTA RICA TRADE FLOWS FOR 2001, VARIOUS SOURCES
Costa Rican Statistics Canadian Statistics
Exports to 
CanadaImports from 
CanadaExports to 
Costa RicaImports from 
Costa Rica
Statistical Yearbook: 1999-2001
Page 2 of documentBalance Balance
discrepencies
Official statisticsPage 4 of document
Strategis (Nov 29, 2004)
 
 
 
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