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. 
 
 
 
------------ 
 
DISTRIBUTION 
 
------------ 
 
 
 
¶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