PRESS
RELEASE
PRESS/TPRB/11
18 July 1995TRADE
POLICY REVIEW BODY: REVIEW OF COSTA RICA
TPRB'S EVALUATION Back
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The
Trade Policy Review Body of the World Trade Organization
(WTO) conducted its review on 12 and 13 July 1995 of
Costa Rica's trade policies. The text of the Chairman's
concluding remarks is attached as a summary of the
salient points which emerged during the two-day
discussion.
The
review enables the TPRB to conduct a collective
examination of the full range of trade policies and
practices of each WTO member country at regular periodic
intervals to monitor significant trends and developments
which may have an impact on the global trading system.
The
review is based on two reports which are prepared
respectively by the WTO Secretariat and the government
under review and which cover all aspects of the country's
trade policies, including: its domestic laws and
regulations; the institutional framework; bilateral,
regional and other preferential agreements; the wider
economic needs and the external environment.
A
record of the discussions and the Chairman's summing-up,
together with these two reports, will be published in due
course as the complete trade policy review of Costa Rica
and will be available from the WTO Secretariat, Centre
William Rappard, 154 rue de Lausanne, 1211 Geneva 21.
Since
December 1989, the following reports have been completed:
Argentina
(1992), Australia (1989 & 1994), Austria (1992),
Bangladesh (1992), Bolivia (1993), Brazil (1992),
Cameroon (1995), Canada (1990, 1992 & 1994), Chile
(1991), Colombia (1990), Costa Rica (1995), Côte
d'Ivoire (1995), Egypt (1992), the European Communities
(1991 & 1993), Finland (1992), Ghana (1992), Hong
Kong (1990 & 1994), Hungary (1991), Iceland (1994),
India (1993), Indonesia (1991 and 1994), Israel (1994),
Japan (1990, 1992 & 1995), Kenya (1993), Korea, Rep.
of (1992), Macau (1994), Malaysia (1993), Mexico (1993),
Morocco (1989), New Zealand (1990), Nigeria (1991),
Norway (1991), Pakistan (1995), Peru (1994), the
Philippines (1993), Poland (1993), Romania (1992),
Senegal (1994), Singapore (1992), South Africa (1993),
Sweden (1990 & 1994), Switzerland (1991), Thailand
(1991), Tunisia (1994), Turkey (1994), the United States
(1989, 1992 & 1994), Uruguay (1992) and Zimbabwe
(1994).
TRADE
POLICY REVIEW BODY: REVIEW OF COSTA RICA
CONCLUDING
REMARKS
BY THE CHAIRPERSON
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At
its second meeting, the Trade Policy Review Body of the
WTO completed the first review of the trade policies and
practices of Costa Rica. These remarks, made on my own
responsibility, summarize the salient points of the
discussion and are not intended to substitute the
collective evaluation and appreciation of Costa Rica's
trade policies and practices.
The
discussion developed under four main themes: the overall
economic situation, trade policy in the post-Uruguay
Round period, regional integration, and other, more
specific policy issues.
Overall
economic situation
Members
praised Costa Rica' s achievements in a number of areas
including economic, social and trade policy. However, it
was unfortunate that the imbalance in public finances,
mainly due to increases in Government spending, had led
the Government to increase tariffs earlier this year.
While this was said to be a temporary measure, it had
introduced an element of uncertainty in the trade
régime, despite the general stability that characterized
Costa Rica's legal framework. Members sought further
details on these increases, such as their coverage,
expected date of suppression, and whether they were being
applied on m.f.n. basis.
Members
requested further efforts towards simplifying the tax
system. Concern was expressed over the use of fiscal
incentives; and, the varying rates of the selective
consumption tax which appeared to be applied in
non-neutral manner. Information was sought on the product
coverage of indirect taxes as well as the portion of
domestic consumption of items subject to the selective
consumption tax that was supplied by imported items.
Clarification
was requested on the type of measures which were to be
adopted to reduce the fiscal expenditure to 2 per cent of
the GDP. A question was asked about the prospects for
approval by the Legislative Assembly of the legal texts
to implement the reforms (Ley de Reforma Financiera).
A
number of questions were asked about public sector
reforms, in particular institutional reforms and
reduction of the number of employees. Further explanation
was sought on the privatization programme as well as
government procurement procedures.
Market
access in services, particularly banking and insurance,
where there was extensive State involvement, was a matter
of concern for a number of participants. The question was
raised as to whether there were any plans for modifying
discriminatory legislation on construction services.
Questions on tourism incentives related to their status
(permanent or temporary) and their impact on other
sectors of economic activity. How had restrictions on the
share of foreign ownership of tourism firms affected
Foreign Direct Investment in this sector? A copy of the
New Competition Law was requested.
In
response, the representative of Costa Rica said that the
Government had been seeking a political consensus on a
drastic programme for the reduction of the fiscal deficit
to re-establish stability and promote growth. In the
meantime, the recent, temporary tariff increases - within
bound levels -to generate revenues were less problematic
than means such as monetary expansion. They had been
necessary to meet the State's obligations, including
foreign debt. He gave details of the strategy to resolve
these problems over the longer term, including reform of
the state. This required a legislative programme, but the
major political parties had now reached consensus on the
general reform programme. This programme would include,
inter alia, modernization in the areas of public
procurement procedures, telecommunications and insurance.
Financial sector reforms would increase the independence
of the Central Bank and allow a greater role for private
banks.
Post-Uruguay
Round Trade policy
Costa
Rica was widely commended for the trade liberalization
efforts undertaken since 1990, the improvement of its
binding commitments during the Uruguay Round and its
participation as a founder member of the WTO. One member
considered that "tariffication" had resulted in
high bound rates on certain items.
A
number of questions were raised on the status of
implementing legislation of the Uruguay Round results in
areas such as technical standards, certification
procedures and phytosanitary protection. A question was
asked on how the new Anti-dumping legislation would be
applied, particularly in the light of the requirements of
the relevant WTO Agreement? Information was requested on
whether all import licenses other than those required for
tariff quotas had been eliminated in conformity with the
Uruguay Round commitments.
Regarding
the new areas, clarifications were sought on the
compatibility of current legal provisions on intellectual
property with those of the WTO Agreement on TRIPS,
including the timetable for achieving such conformity.
Information was requested on exceptions to m.f.n. or
national treatment in this area, the coverage of
trademark protection and the enforcement of intellectual
property rights.
Market
access commitments by Costa Rica in the services sector,
including tourism, were considered modest and further
improvement would be welcome. As Costa Rica had not
manifested any interest in participating in negotiations
on basic telecommunications, financial services and
maritime transport services, participants wondered about
its intentions in the current negotiations in these
areas.
In
response, the representative of Costa Rica gave details
of the legislative programme to incorporate the results
of the Uruguay Round. Costa Rica had met notification
obligations under the agreements within the requisite
time-frame. Information was provided on the legal steps
which had been taken to implement the obligations on
elimination of import licences, tariffication and on
special safeguards. Extensive details were provided on
the draft law on intellectual property to bring it into
alignment with the TRIPS Agreement. This was before the
Congress. In services, Costa Rica had made commitments in
tourism, informatics, health and education. As consensus
developed, Costa Rica hoped to participate constructively
in discussion in other services sectors.
Regional
integration
Hopes
were expressed that efforts towards expanding regional
and preferential arrangements would not be to the
detriment of Costa Rica's multilateral commitments
including the possibility of making further m.f.n. tariff
reductions. Participants asked about problems in
achieving the harmonization of the common external tariff
of the CACM and when a greater integration move towards
an economic
union
within CACM could be expected. Others were interested in
the timetable for negotiations between the CACM, Colombia
and Venezuela for the establishment of a Free Trade Area.
Certain
participants invited Costa Rica to notify its Free Trade
Area agreement with Mexico and the Northern Triangle
Agreement (Mexico and CACM countries) under Article XXIV
of the GATT. Information was requested on the operation
of the Guaranteed Access Levels device in the context of
the Caribbean Basin Initiative, as well as preferential
market access conditions agreed with Panama.
In
response, the representative of Costa Rica said that
regional integration efforts were totally compatible with
the multilateral trading system and existing commitments.
In the CACM, Costa Rica was seeking harmonization of
tariff ceiling and floors for most items, but this was
being discussed with its partners in the region. No other
areas of economic integration were envisaged at present
within CACM. The CACM agreement had already been notified
by Nicaragua. Details were also provided on the agreement
with Mexico as well as the negotiations with Colombia and
Venezuela. Discussions would be held on notifying the
agreements with the Dominican Republic and Panama. It was
difficult to assess the effects of the preferences with
Panama.
Specific
policy issues
One
participant considered that import duties, internal taxes
and import procedures should be simplified. Information
was sought on the reasons for the discrepancy in rates
applied on port fees for imports and exports; these
should be adjusted to reflect the cost of services. The
question was asked whether maintaining compulsory customs
warehousing procedures for fiscal revenue purposes.
Questions were also asked about the present customs
valuation system and the purpose of the database to be
used under the new customs valuation regulations. Two
participants requested explanations on how sanitary
requirements for imports of poultry, meat and cheese were
operated.
Although
the State holding company, CODESA, had been liquidated,
remaining state firms constituted a potentially
distorting element (e.g., in areas such as oil refining
and imports, transportation, electricity,
telecommunications, banking, insurance). Several
participants requested additional information on state
trading activities. Costa Rica was asked to indicate
whether and when it planned to comply with the
notification requirements under Article XVII.
Free
Trade Zones were a well-recognized export promotion tool.
Nevertheless, fiscal incentives provided to companies in
these zones should conform to the relevant WTO provisions
on subsidies. Clarification was sought on whether state
subsidies were provided by the National Insurance
Institute, INS, through crop insurance services.
Export
promotion could be further improved by providing prompt
and accurate information on new measures. Transparency
was required to help exports and investment. Information
was requested on new export incentives under the "Plan
5000 de exportación" as well as whether the
CIEX export increment certificate legislation was to be
revoked.
In
response, the representative of Costa Rica said that the
incentives provided for Free Trade Zones were in
conformity with the Agreement of Subsidies and
Countervailing Duties, and as such did not constitute a
subsidy in the GATT sense. The measures applied to any
domestic or foreign
firm
operating in the zones. Income tax exoneration for such
firms was being eliminated. Details were given of the
Plan 5000 for export promotion, which were also GATT
consistent. He also explained that new customs valuation
procedures, designed to increase transparency, were yet
to be discussed at the CACM level. He also explained the
system for making available quotas on items which were
now subject to tariff quotas.
The
representative explained the criteria used for setting
the varying rates of the selective consumption tax and
ensured that the tax was neutral as far as foreign trade
was concerned. Information was also provided on the
operation of Costa Rica's legislation on technical
standards. Sanitary regulations, which were in place
since March 1993, met international standards, and were
very similar to those of the United States. WTO
notification obligations on state-trading had been met
recently.
He
clarified aspects of the banking legislation relating to
the establishment of subsidiaries of foreign banks and
explained that during the current revisions of this
legislation consensus had been achieved over the
utilization of legal rather than arbitrary criteria for
the access of foreign banks. Regarding tourism, he
explained that several fiscal incentives remained in
force and there were no plans for a phase-out. No
evidence was available over the impact of the incentives
to other sectors and the lack of a Foreign Direct
Investment registry impeded any appraisal in this area.
Finally,
the representative of Costa Rica made the full text of
his replies available to all interested delegations. This
was to be reflected in extenso in the records of the
meeting prepared by the WTO Secretariat.
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In
conclusion, the TPRB greatly appreciated Costa Rica's
considerable efforts to liberalize its trade policy, and
its active participation in the GATT/WTO system since its
accession in 1990. We are sure that the Costa Rican
authorities will give due consideration to the concerns
raised during the review. We wish the Costa Rican
authorities well in the ongoing process of restructuring
the economy, and hope that Costa Rica will continue with
both the pursuit of integrating its trade policies and
practices into the global economy in the spirit of
multilateralism, and the reshaping and modernization of
the public sector.
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