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Costa Rica : July 1995

“ 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.”

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First press release
Summary of Secretariat report
  > Summary of Government report

18 July 1995

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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).


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.