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### Viewing cable 09SANJOSE1140, Costa Rica: National Trade Estimate

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
09SANJOSE1140 | 2009-12-15 20:03 | 2011-03-21 16:30 | UNCLASSIFIED | Embassy San Jose

`

    VZCZCXYZ0002
    RR RUEHWEB

    DE RUEHSJ #1140/01 3492004
    ZNR UUUUU ZZH
    R 152003Z DEC 09
    FM AMEMBASSY SAN JOSE
    TO RUEHC/SECSTATE WASHDC 0119
    INFO RUEHSJ/AMEMBASSY SAN JOSE

` `

    UNCLAS SAN JOSE 001140

    SIPDIS
    STATE PASS TO OPIC
    STATE PASS TO USTR FOR DOLIVER AND AMALITO
    STATE PASS TO EXIMBANK FOR XCREQUE
    DEPT FOR WHA/CEN,WHA/EPSC:SGARRO, EEB/TTP/BT:RMANOGUE AND DGROUT

    E.O. 12958: N/A
    TAGS: ECON ETRD EINV PREL PGOV CS
    SUBJECT: Costa Rica: National Trade Estimate

    REF: 09 STATE 105978; 09 SANJOSE 954

    -------------

    TRADE SUMMARY

    -------------

    ¶1. U.S. goods trade surplus with Costa Rica was $1.7 billion in
    2008, an increase of $1.1 billion from $639 million in 2007. U.S.
    goods exports in 2008 were $5.7 billion, up 24.0 percent.
    Corresponding U.S. imports from Costa Rica were $3.9 billion, down
    0.1 percent. Costa Rica is currently the 38th largest export market
    for U.S. goods.

    ¶2. The stock of U.S. foreign direct investment (FDI) in Costa Rica
    was $3.5 billion in 2007 (latest data available), up from $3.3
    billion in 2006. U.S. FDI in Costa Rica is concentrated largely in
    the manufacturing and wholesale trade sectors.

    ---------------

    IMPORT POLICIES

    --------------------

    Free Trade Agreement

    --------------------

    ¶3. On August 5, 2004, the United States signed the United States
    -Central America-Dominican Republic Free Trade Agreement (CAFTA-DR
    or Agreement) with five Central American countries (Costa Rica, El
    Salvador, Guatemala, Honduras, and Nicaragua) and the Dominican
    Republic (the Parties).  Under the Agreement, the Parties are
    significantly liberalizing trade in goods and services. The
    CAFTA-DR also includes important disciplines relating to:  customs
    administration and trade facilitation, technical barriers to trade,
    government procurement, investment, telecommunications, electronic
    commerce, intellectual property rights, transparency, and labor and
    environmental protection.

    ¶4. The Agreement entered into force for the United States, El
    Salvador, Guatemala, Honduras, and Nicaragua in 2006.  The CAFTA-DR
    entered into force for the Dominican Republic on March 1, 2007, and
    for Costa Rica on January 1, 2009.

    ¶5. In 2008, the Parties implemented amendments to several
    textile-related provisions of the CAFTA-DR, including, in
    particular, changing the rules of origin to require the use of U.S.
    or regional pocket bag fabric in originating apparel.  The Parties
    also implemented a reciprocal textile inputs sourcing rule with
    Mexico.  Under this rule, Mexico provides duty-free treatment on
    certain apparel goods produced in a Central American country or the
    Dominican Republic with U.S. inputs, and the United States will
    provide reciprocal duty-free treatment under the CAFTA-DR on
    certain apparel goods produced in a Central American country or the
    Dominican Republic with Mexican inputs.  These changes will further
    strengthen and integrate regional textile and apparel manufacturing
    and create new economic opportunities in the United States and the
    region.

    -------

    Tariffs

    -------

    ¶6. As a member of the Central American Common Market, Costa Rica

    agreed in 1995 to harmonize its external tariff on most items at a
    maximum of 15 percent with some exceptions.

    ¶7. Under the CAFTA-DR, about 80 percent of U.S. industrial and
    consumer goods now enter Costa Rica duty free, with the remaining
    tariffs on these goods phased out by 2015.  Nearly all textile and
    apparel goods that meet the Agreement's rules of origin now enter
    Costa Rica duty-free and quota-free, creating economic
    opportunities for U.S. and regional fiber, yarn, fabric, and
    apparel manufacturing companies.

    ¶8. Under the CAFTA-DR, more than half of U.S. agricultural exports
    now enter Costa Rica duty free.  Costa Rica will eliminate its
    remaining tariffs on virtually all agricultural products by 2020
    (2022 for chicken leg quarters and 2025 for rice and dairy
    products).  For certain agricultural products, tariff-rate quotas
    (TRQs) will permit some immediate duty-free access for specified
    quantities during the tariff phase out period, with the duty-free
    amount expanding during that period.  Costa Rica will liberalize
    trade in fresh potatoes and onions through expansion of a TRQ,
    rather than by tariff reductions.

    ------------------

    Nontariff Measures

    ------------------

    ¶9. Under the CAFTA-DR, Costa Rica committed to improve transparency
    and efficiency in administering customs procedures, including the
    CAFTA-DR rules of origin.  Costa Rica also committed to ensuring
    greater procedural certainty and fairness in the administration of
    these procedures, and all the CAFTA-DR countries agreed to share
    information to combat illegal transshipment of goods.

    ¶10. The establishment of the Information Technology Customs Control
    (TICA) system has significantly improved a traditionally complex
    and bureaucratic import process.  Under the TICA system, the Costa
    Rican customs authority has changed its focus from the verification
    of goods to the verification of processes and data.  Customs
    officials now have up to four years to review the accuracy of
    import declarations, which allows customs to facilitate the free
    flow of goods while gathering necessary documentation.  Costa Rica
    launched the TICA system in mid 2007 for imported goods in all
    ports of entry.  For exported goods, Costa Rica initiated TICA in
    early 2009 in all ports.  The Free Trade Zone and "perfection of
    goods" regimes are the only import/export categories that are not
    yet covered under TICA and they are scheduled to be included during
    the first half of 2010.

    --------------------------------------------- --

    STANDARDS, TESTING, LABELING, AND CERTIFICATION

    --------------------------------------------- --

    ¶11. Please see San Jose 954 for our submission on Standards,
    Testing, Labeling, and Certification and Sanitary and Phytosanitary
    Measures.

    ----------------------

    GOVERNMENT PROCUREMENT

    ----------------------

    ¶12. The CAFTA-DR requires that procuring entities use fair and
    transparent procurement procedures, including advance notice of
    purchases and timely and effective bid review procedures, for
    procurement covered by the Agreement.  Under the CAFTA-DR, U.S.

    suppliers are permitted to bid on procurements of most Costa Rican
    government entities, including key ministries and state-owned
    enterprises, on the same basis as Costa Rican suppliers.  The
    anticorruption provisions in the Agreement require each government
    to ensure under its domestic law that bribery in matters affecting
    trade and investment, including in government procurement, is
    treated as a criminal offense or is subject to comparable
    penalties.  Costa Rica is not a signatory to the WTO Agreement on
    Government Procurement.

    ----------------

    EXPORT SUBSIDIES

    ----------------

    ¶13. Tax holidays are available for investors in free trade zones,
    unless tax credits are available in an investor's home country for
    taxes paid in Costa Rica.

    ¶14. Under the CAFTA-DR, Costa Rica may not adopt new duty waivers
    or expand existing duty waivers that are conditioned on the
    fulfillment of a performance requirement (e.g., the export of a
    given level or percentage of goods).

    ---------------------------------------------

    INTELLECTUAL PROPERTY RIGHTS (IPR) PROTECTION

    ---------------------------------------------

    ¶15. The country's record of protecting IPR is mixed primarily due
    to varying levels of commitment by different institutions and
    branches of the government.  The Attorney General of Costa Rica (a
    semi-autonomous member of the Judicial Branch) generally does not
    prosecute IPR violations.  He asserts that he cannot allocate
    scarce resources to IPR issues and places higher priority on
    prosecuting other types of criminal behavior such as organized
    crime.  The Executive Branch has generally been strongly supportive
    of IPR enforcement. Yet neither that focus nor the training of
    judges and prosecutors on IPR laws has produced significant
    improvements in the prosecution of IPR crimes.  The Executive
    Branch has failed to obtain the Legislative Assembly's approval of
    the final IPR-related CAFTA-DR law that it committed to have in
    place by the end of 2009.

    ¶16. In terms of process, Costa Rica has taken significant steps in
    recent years to improve the protection and enforcement of IPR.
    Costa Rica strengthened its legal framework for the protection of
    IPR by substantially modifying its IPR laws and regulations in
    preparation for the entry into force of the CAFTA-DR.  The CAFTA-DR
    provides for improved standards for the protection and enforcement
    of a broad range of IPR, which are consistent with U.S. and
    international standards, as well as with emerging international
    standards, of protection and enforcement of IPR.  Such improvements
    include state-of-the-art protections for patents, trademarks,
    undisclosed test, and other data submitted to obtain marketing
    approval for pharmaceuticals and agricultural chemicals, and
    digital copyrighted products such as software, music, text, and
    videos and further deterrence of piracy and counterfeiting.

    ¶17. The government increased the budgets of the patent and
    trademark office and the copyright office and is currently building
    a new Intellectual Property building for those offices on the
    grounds of the National Registry.  The copyright office tripled in
    personnel from 2006 and upgraded equipment.  Patent registration
    continues to experience a considerable backlog of applications
    waiting for a patent examiner, although the number of patents
    examined increased through the use of contracted examiners.  The
    patent office plans to continue and expand the use of contracted
    examiners while also contracting five in-house patent examiners
    with industry-competitive salaries.  These positions were posted

    for hiring in 2008, but the National Registry has not filled the
    positions due to pending confirmations for the position salary
    levels.  The number of patents registered annually during the last
    several years significantly increased:

    ¶18. Attribute                   2006      2009

    Industrial Registry Payroll      26        60

    Registered Patents                9        84 (through Nov 30)

    Registered Trademarks         9,191    10,282 (through Nov 30)

    ¶19. As part of the CAFTA-DR entry into force, Costa Rica agreed to
    institute a special prosecutor's office in the Office of the
    Attorney General.  The Attorney General designated a person  to
    specialize in IPR crimes.  However, the position has not evolved to
    function as a separate entity or office outside of the
    Miscellaneous Crimes office.  The government restarted the
    previously dormant IP Interdisciplinary Commission which the
    Ministry of Justice leads and consists of representatives from the
    Ministries of Foreign Trade, Public Security, and Science and
    Technology, National Registry of Copyrights and Trademarks,
    Industrial Property Registry, Customs, Office of the Attorney
    General, and the Judicial School.  The Commission operated
    informally until December 1, when the president issued a decree
    formally establishing it.

    -----------------

    SERVICES BARRIERS

    -----------------

    ¶20. Under the CAFTA-DR, Costa Rica granted U.S. services suppliers
    substantial access to its services market, including financial
    services. Costa Rica committed to provide improved access in
    sectors like express delivery and to grant new access in certain
    professional services that previously had been reserved exclusively
    to Costa Rican nationals.  Costa Rica also agreed that portfolio
    managers in the United States would be able to provide portfolio
    management services to both mutual funds and pension funds in Costa
    Rica.  Mutual funds originating in the U.S. are reportedly
    available now in Costa Rica but are receiving little investment
    capital; tax issues and unfavorable perceptions of U.S. markets
    appear to have made such mutual funds an unattractive investment.

    ¶21. In 2008 and 2009 Costa Rica made significant changes in its
    legal and regulatory framework intended to implement its CAFTA-DR
    commitments on insurance and telecommunications.

    The newly-established insurance regulator SUGESE (still operating
    under the wing of the Pensions Superintendent SUPEN), authorized
    six insurance companies to compete with the former monopoly state
    insurance provider and will accept applications from other
    interested insurers.  These new competitors are expected to start
    operating in the market in January 2010.  U.S. insurance suppliers
    are now permitted to provide most forms of insurance, with the
    remainder of the market to be opened by 2011.  U.S. insurance
    suppliers are able to operate as a branch or a subsidiary.

    ¶22. Under the CAFTA-DR, Costa Rica agreed to open three important
    segments of its telecommunications market:   private network
    services, Internet services, and mobile wireless services.
    Previously, Costa Rica's entire telecommunications market also was
    reserved for the state monopoly, the Costa Rican Electricity
    Institute (ICE).  The telecommunications regulator SUTEL and the
    telecommunications vice-ministry within the Ministry of
    Environment, Energy and Telecommunications (MINAET) are
    progressively opening the markets in private network and Internet
    services.  Both organizations are struggling with the challenges of
    starting anew in an emerging wireless market.  The mobile wireless
    market has the necessary regulatory framework in place but is
    dependent upon a successful auction of frequencies that is expected

    to take place mid-2010, which would then set the stage for the
    first new cell phone market entrants in early 2011.

    -------------------

    INVESTMENT BARRIERS

    -------------------

    ¶23. The CAFTA-DR establishes a more secure and predictable legal
    framework for U.S. investors operating in Costa Rica. Under the
    CAFTA-DR, all forms of investment are protected including
    enterprises, debt, concessions, contracts, and intellectual
    property.  U.S. investors enjoy, in almost all circumstances, the
    right to establish, acquire, and operate investments in Costa Rica
    on an equal footing with local investors.  Among the rights
    afforded to U.S. investors are due process protection and the right
    to receive fair market value for property in the event of an
    expropriation.  Investor rights are protected under the CAFTA-DR
    through an impartial procedure for dispute settlement that is fully
    transparent and open to the public. Submissions to dispute panels
    and dispute panel hearings will be open to the public, and
    interested parties will have the opportunity to submit their views.

    ¶24. The Costa Rican regulatory environment can pose significant
    barriers to successful investment in Costa Rica.  One common
    problem is that municipal government and central government
    institutions at times disagree in their treatment of specific
    projects, leaving the investor in limbo.  Even when dealing only
    with central government institutions, an investor may follow the
    technical advice of one institution only to find himself accused of
    illegal behavior by another institution.  Several large investors
    have faced the related problem that the central government's
    approach towards a specific project has changed significantly over
    the years, stranding the investor.  Though the law protects land
    owners against squatters, in practice illegal occupancy of property
    looms as a threat to investors through coercion and/or illegal
    changes of ownership on property titles.

    ¶25. Many U.S. investors cite the slow pace of Costa Rica's judicial
    system as a barrier.  A related concern is the frequent recourse to
    legal challenges before Costa Rica's constitutional court to review
    whether government authorities have acted illegally or to review
    the constitutionality of legislation or regulations.  Some U.S.
    investors believe that such challenges have been used at times to
    thwart investments or hinder the quick resolution of disputes.

    -------------------

    ELECTRONIC COMMERCE

    -------------------

    ¶26. The CAFTA-DR includes provisions on electronic commerce that
    reflect its importance to global trade.  Under the CAFTA-DR, Costa
    Rica has committed to provide nondiscriminatory treatment of
    digital products, and not to impose customs duties on digital
    products transmitted electronically.

    --------------

    OTHER BARRIERS

    --------------

    ¶27. Under the CAFTA-DR, Costa Rica agreed to modify its dealer
    protection regime to provide more freedom to negotiate the terms of
    commercial relations and to encourage the use of arbitration to

    resolve disputes between parties to dealer contracts.  In December
    2007, Costa Rica enacted legislation intended to implement this
    commitment.

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    DISTRIBUTION

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    ¶28. We will send a Word document with paragraphs 1 through 27 above
    via e-mail to the Office of the United States Trade Representative
    (USTR) as specified in reftel.
    BRENNAN

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