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China-Costa Rica trade treaty languishes

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Costa Rica-China trade treaty
awaits approval in legislature

By Dennis Rogers
Special to The CAFTA Report

(Aug. 20, 2010) The free trade treaty between China and Costa Rica, which took four sessions of negotiations over two years to put together, is languishing in the legislature waiting ratification. The treaty was signed by then-president Oscar Arias in April 2010.

Costa Rica has had diplomatic relations with the People’s Republic only since 2007 when Arias severed formal ties with Taiwan.

The balance of payments for 2009 officially stands positive for Costa Rica with $767 million in exports and $711 million of imports, according to statistics from Procomer, the foreign commerce ministry’s export-promotion arm. However, the activities of chipmaker Intel dwarf all other exports to China.

After microchips and computer parts, the next category is copper scrap, making China the most important destination for stolen electrical and communications wire. Other scrap is also important, though prices for aluminum and steel fell sharply between 2008 and 2009.

Imports from China are overwhelmingly consumer goods, footwear, and clothing.

In 2009, computer components and scrap made up 97 percent of exports to China. Removing those items leaves $23 million in exports versus about $708 million in imports, for a trade imbalance of $685 million.

Figures for Hong Kong are given separately, adding another $337 million in exports and $61 million of imports, but following the same pattern with computer parts the most important single category.

Overall, 2009 saw the Costa Rica’s trade deficit fall sharply due to the global financial crisis, to half of 2008’s record total. Exports in 2009 were $8.67 billion while imports were $11.72 billion, for a negative balance of $2.7 billion.

When the treaty with China finally comes into effect, the customs categories with import taxes will gradually have duties reduced. There are essentially five groups: those products that already/immediately have no duties, those whose duties are reduced to nothing in 5, 10, or 15 years, and those outside the treaty. Reductions are linear, so that in the case of the five-year category each year sees a 20 percent reduction of the original duty rate.

Relatively few items are protected by duties from import to China, mostly agricultural products. Most Costa Rican meat and fish will enter duty-free in five years, along with most vegetables.

Tropical fruits, including pineapple and banana, are not released for the full 15 years. China has its own banana production with essentially no exports but may find its system no match for U.S. multinationals operating in Costa Rica and elsewhere. It does import some bananas, mostly from the Phillippines.

China is also one of the world’s largest producers of pineapple, but Costa Rica is by far the largest exporter.

Rice, vegetable oils, sugar, tobacco, wood and paper and cotton, are not included in the treaty on China’s part.

Costa Rica has a much larger list of items excluded from the agreement with protection of domestic farmers a part of the treaty. Exclusions include all milk products except condensed milk, tomatoes, onions, and potatoes, coffee and tea, rice and white corn, wheat and corn flour, margarine and other edible oils, sausages in general, beer, sugar and chocolate and tobacco products.

Personal hygiene items like toothpaste are excluded, but “mixes for the oral and dental hygiene preparation industry” are already duty-free. Apparently Costa Rica is counting on quality control to avoid the entry of products like the contaminated glycerin that killed more than 50 people in Panamá in 2006. Chinese toothpaste regularly contains diethylene glycol, best known as a component of anti-freeze, though the government there claims to have prohibited the practice. It was this chemical the Panamanian health service unknowingly used to sweeten cough syrup. Rat poison is also not subject to the terms of the trade agreement.

Nuclear reactors, space vehicles, and ski boots are admitted duty-free to Costa Rica.

More detail about the treaty and its application in Spanish is HERE.

Contact us here: Editor@TheCaftaReport.com



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