San José, Costa Rica, since 1956

U.S., China Drive Export Boom

Trade officials this week celebrated Costa Rica s growing commercial success as they announced a record $8.2 billion in exports in 2006.

News of the export boom came as Costa Rica prepares to begin trade negotiations with the European Union later this year and Asian countries in 2008 and beyond.

Costa Rica s golden child of trade last year was China, a country with which Costa Rica doesn t maintain diplomatic relations but traded $1.1 billion worth and emerged as its fastest-growing, second-biggest trade partner behind the United States. Costa Rica sent $3.4 billion worth of products to its northern trading partner last year.

The two economic powerhouses propelled trade growth in 2006, accounting for 54.3% of Costa Rica s total export market. Microprocessor parts, bananas, medical equipment, pineapples and medications all boomed last year, driving the country s 16.6% export growth.

The economy saw an important growth period with growth in all sectors, said Martín Zúñiga, general manager of the Foreign Trade Promotion Office (PROCOMER), in a press conference Tuesday.

The spurt puts Costa Rica a step closer to achieving President Oscar Arias dream of exporting $18 billion annually by the end of his administration in 2010. Trade officials this week maintained that more than doubling the country s exports in just a few years is a feasible goal, but to do so, pending trade deals are a must.

Arias is currently trying to push the controversial Central American Free-Trade Agreement with the United States (CAFTA) through the Legislative Assembly for approval along with massive accompanying reforms a must for exports to maintain strong growth, leaders say.

This week, the Foreign Trade Ministry prepared the negotiating table anew, this time for a free-trade agreement and increased political cooperation with the European Union.

Trade Minister Marco Vinicio Ruiz told reporters that though the government will have its hands full with European talks this year, 2008 will be the year Costa Rica looks to the East to promote trade with China and other Asian countries a region Ruiz says has more growth potential than any other for Costa Rica.

Asia is an extremely important market for us, Ruiz said.

Despite the overall increase in exports last year, exports in the ailing textile industry dropped 9.6%, while plant closures by Costa Rican textile companies have left hundreds jobless (TT, Jan. 12). Also, the coffee industry once the mainstay of the Costa Rican exports continued to stagnate, with a 1.4% loss in exports in 2006.

And though Costa Rica s trade expanded with Central American countries, Venezuela proved to be one of the biggest disappointments of the year for the export sector. Costa Rican exports to Venezuela dropped from $35 million in 2004 to less than $31 million last year, likely because the South American government has been making it increasingly difficult for Tico exporters to send products to that country, Ruiz said.

Venezuela has been making it harder for importers to have access to U.S. dollars in the South American country, complicating transactions with Costa Rican businesses, the weekly El Financiero reported.

Costa Rica s Foreign Trade Ministry (COMEX) plans to file a complaint with the World Trade Organization, Ruiz said.

Last week, Venezuela invited Nicaragua into the Bolivarian Alternative for the Americas (ALBA), Venezuela President Hugo Chávez s plan to promote trade and social development between Venezuela, Cuba and Bolivia. Ruiz said of the agreement, it doesn t matter.

Europe on the Horizon

By May, trade officials from Costa Rica and the rest of Central America expect to be at the negotiating table with their European counterparts discussing an association agreement.

Ruiz said Costa Rican Ambassador to Brussels Roberto Echandi will be the chief negotiator and Costa Rica will spend $3 million on the negotiations.

The European Union has nearly 500 million residents population-wise, that s about 110 Costa Ricas and a per-capita income 12 times Costa Rica s.

It s a big market with a lot of opportunities if we know how to take advantage ofit, Ruiz said.

To maximize the potential of an agreement with the commercial giant across the Atlantic, Ruiz said Costa Rica must study market niches and sell itself to Europe. Ruiz said the Trade Ministry expects to hire a work team to hammer out a very ambitious marketing strategy for the 27-country union.

The minister said he hopes the agreement can be used to attract dropping foreign direct investment from Europe.

Though trade is on the rise between Costa Rica and the union Costa Rica accounts for 59% of Central American exports sent there foreign direct investment coming from Europe to Costa Rica has dropped drastically from $244 million in 2002 to $21 million in 2005.

Why the big drop? Rene Diers, president of the German-Costa Rican Chamber of Commerce, told The Tico Times uncertainty over whether Costa Rica will approve CAFTA has prompted many European businesses that would invest here to export to the United States to put their investments on hold. Costa Rica s notorious red tape has also been a deterrent, he said. In addition, Dutch company Heineken s 2002 acquisition of part of the Cervecería Costa Rica, among other European acquisitions of Costa Rican companies, contributed to high investment that year.

As for the trade talks, the European Commission s business director, Tomás Abadía, said the union wants the Central American countries to work together to iron out any differences that could throw a wrench in the negotiation s gears.

Costa Rica s Trade Minister is optimistic about this.

“Many people thought that when Central America established free-trade agreements with the United States and Canada, (Central American countries) would stop trading among themselves,” Ruiz said.

To the contrary, he said, such trade agreements have encouraged Central American economic integration, helping increase regional trade by 16% in 2006.Among them, Panama and Guatemala saw the most trade growth with Costa Rica, growing 60.5% and 41.1%, respectively.

Eastern Markets

As Europe heads up to bat with Costa Rica, Asia is on deck.

Costa Rica has no free-trade agreement with any Asian country, and as it prepares to fix its commercial gaze upon the East, tense diplomatic relations between China and Taiwan promise to be a touchy subject.

Ruiz said he wants to seek trade deals with countries like Taiwan, Japan and South Korea, though the ministry likely won’t have the resources to do so until 2008.He stressed the need for Costa Rica to join the Asia-Pacific Economic Co-operation (APEC), a group of nations bordering the Pacific Ocean that seek to promote economic cooperation among themselves.

Also, the Trade Ministry plans to set up an Asian office similar to the European office it recently opened.

Last week, President Arias met with Taiwanese President Chen Shui-bian while in Nicaragua for President Daniel Ortega’s inauguration. The two heads of state expressed interest in negotiating a free-trade agreement, said Taiwan’s Ambassador to Costa Rica, Tzu-Dan Wu. Taiwan currently has trade pacts with four Central American countries.

When Arias met with Chinese Foreign Minister Li Zhaoxing while in the United States last September, rhetoric flared up about the two countries’ differences in Taiwan policy (TT, Sept. 29, 2006).

Taiwan, an island off the coast of China, has tense relations with the mainland, which doesn’t recognize Taiwan as a sovereign nation. Their relations are marked by the threat of military force.

Costa Rica is one of 25 countries in the world that recognizes both Taiwan and China, though Costa Rica has never had diplomatic relations with China.

During the visit with the Chinese minister, Arias said he has no immediate plans to resume diplomatic relations with China, even though Costa Rican exports to the Asian giant grew nearly 50% last year. Arias has said, however, that he wants to continue increasing trade with the country.

Wu told The Tico Times though Taiwan understands Costa Rica’s interest in seeking more trade with Asia, “we have to emphasize that communist China is authoritarian.”

China “exploits cheap labor” to export products at lower costs, which will affect local small businesses in Costa Rica, he added.

When Arias was elected last year, the Chinese Foreign Ministry expressed hope that the new leader would reconsider its relations with Taiwan.

Meanwhile, Taiwan hopes to begin trade negotiations with Costa Rica “as soon as possible,” Wu told The Tico Times.


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