San José, Costa Rica, since 1956

Trade Winds Finally Kicking Up

The Arias administration this year pressed the gas on a free-trade agenda that will strengthen economic ties with Europe, Asia and the United States.

Costa Rica is expected to enter the Central American Free-Trade Agreement with the United States (CAFTA) this month, ending five years of vitriolic debate over the wisdom of opening borders to the U.S. and dismantling state monopolies.

The country also entered a free-trade deal with Panama and continued intense free-trade talks with the European Union. In early 2009, the Arias administration will begin negotiating a free-trade treaty with China, and a deal with Singapore may be in the works.

The president’s efforts come as a global financial crisis threatens to reduce world trade for the first time since 1982, according to the World Bank. The volume of world trade, which grew 9.8 percent in 2006 and an estimated 6.2 percent this year, will drop by 2.1 percent in 2009, the World Bank said in a report released this month.

Arias’ crowning achievement this year was CAFTA, whose members are the United States, Guatemala, El Salvador, Honduras, Nicaragua, Costa Rica and the Dominican Republic.

Arias spent more than half of his term campaigning for the pact, which was approved in a national referendum in October 2007. This year, the administration worked with allies in the Legislative Assembly to pass 13 bills required to comply with the treaty.

It was no easy task. Some 19 opposition legislators filibustered the bills, and the Constitutional Chamber of the Supreme Court (Sala IV) found one unconstitutional.

Lawmaker Andrea Morales broke from the Citizen Action Party (PAC) over her colleagues’ efforts to block the bills. She said lawmakers should respect the will of the referendum voters.

The bills enacted the most bitterly disputed parts of CAFTA. They removed state monopolies in the telecommunications and insurance sectors, forcing the Costa Rican Electricity Institute (ICE) and the National Insurance Institute (INS) to compete with private firms.

Slow progress in the Legislative Assembly forced Arias to ask his trading partners for a seven-month extension of the Feb. 29 deadline for entering the pact. As the new Oct. 1 deadline neared, the Sala IV found fault with a bill intended to strengthen intellectual property rights.

Arias sought understanding from his trading partners, who gave Costa Rica another three-month extension so lawmakers could rework the bill. By mid-December, Costa Rican authorities were finishing administrative steps to formally enter CAFTA by the Jan. 1 deadline.

Free-Trade Loyalists

Also this year, Costa Rica participated in an initiative by U.S. President George W. Bush to promote free trade in the Western Hemisphere. Heads of state and top officials from Canada, the U.S., Costa Rica and other Latin American countries met in New York City in September and in Panama this month to reaffirm their commitment to free trade and discuss ways to spread trade’s benefits to the poor.

The free-trade deal with Panama was less controversial than the U.S. pact. Lawmakers ratified the treaty in October, and it went into effect in November.

The Panama treaty eliminated tariffs for nearly 80 percent of agricultural goods and 93 percent of industrial goods that cross the border. With some exceptions, the remaining goods will lose their tariffs gradually over three to 17 years, according to a Foreign Trade Ministry (COMEX) report.

Costa Rica has run a trade surplus with Panama nearly every year since 1990. Exports to Panama in the first seven months of this year reached $293.3 million, up 35.6 percent from the same period last year.

Hands Across the Waters

In the works is a free-trade deal between Central America and the European Union, which will include chapters on trade, political cooperation and EU development aid to the region.

Six rounds of negotiations have taken place since talks started in October 2007. Sticking points have included market access for bananas, sugar and coffee.

The Arias administration is also looking to step up economic ties with Asia. On Jan. 19, teams from Costa Rica and China will hold the first round of negotiations on a free-trade deal. Foreign Trade Minister Marco Vinicio Ruiz said he expects to hold up to eight rounds of talks, finishing in May 2010 when Arias leaves office.

During a four-day trip to Singapore this month, Arias met with President Sellapan Rama Nathan and Prime Minister Lee Hsien Loong and announced that the two countries would soon start free-trade talks.


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