San José, Costa Rica, since 1956

China Free-Trade Talks Launched Amid Doubts

Relations between Costa Rica and China entered a new era last week when representatives from the two countries began negotiations on a free trade agreement.

On the table was a “road map” for the negotiations, which are expected to continue until 2010, including the topics of intellectual property, technical obstacles to trade, sanitary measures, services and investment.

“We have seen that we have common objectives, but this process is not easy,” Fernando Ocampo, chief negotiator for Costa Rica, told the daily La Republica last week after negotiations concluded. “Our principle aim is to improve access of Costa Rican products in China.”

The negotiations continued the whirlwind courtship between the two countries, which began with Costa Rican President Oscar Arias’ decision to recognize China and end a 63-year relationship with Taiwan in June 2007, and continuing with Chinese President Hu Jintao’s visit to Costa Rica in November.

Trade with China, which has risen dramatically over the last few years, is expected to grow further under a free trade agreement.

In 2007, 9 percent of Costa Rica’s exports were to China, compared with just 0.64 percent five years earlier.

Exports to China totaled $848.2 million in 2007, making the Asian giant Costa Rica’s second-largest trade partner, after the United States. Nearly three-quarters of those exports were electronic circuits, according to EFE.

Still, not all producers in the country are clamoring for further liberalization. While the position of Costa Rica’s National Rice Association (CONARROZ) has yet to be determined officially, CONARROZ President Eduardo Rojas said it was likely that the group would lobby for rice to be excluded from the agreement. Rice, Rojas noted, was excluded from China’s agreement with Peru, which was negotiated last year.

“In my opinion, it should be similar to Peru,” Rojas said. “China is such a large country with enormous potential, it would be difficult for us to compete.”

Further, Costa Rica’s Chamber of Industries opposed the negotiations, arguing in a letter to Trade Minister Marco Vinicio Ruiz that China “is far from being a market economy,” sets prices “artificially low” and that authorities there cannot strictly control the quality of products exported.

“Many Chinese products are fraudulent,” chamber President Juan González told The Tico Times after Hu’s visit in November, citing lack of respect for intellectual property rights. He also mentioned recent recalls of dangerous toys and contaminated milk produced in China. “These are signs that Chinese production is not controlled by Chinese authorities.”

Further, the prospect of an agreement with China has exposed a split in the coalition of industries that supported CAFTA. The Costa Rican Textile Chamber (CATECO), a staunch advocate of CAFTA, has expressed reservations regarding the effect imports from China could have on Costa Rican knit fabric and cotton producers.

“China could be a good source to obtain raw materials on one hand, but on the other hand we are seeking exclusion of products that we make here,” Maria Quirce, CATECO director, told The Tico Times in November.

The trade talks come at a time of particular economic difficulty for Costa Rica.

Last week, officials said they expect direct foreign investment in the country to fall by 30 percent in 2009 because of the global economic crisis. And GDP growth could slow to 1 percent this year from 3.3 percent last year, according to some economists.

Ticos hoping for more direct investment from China could be setting themselves up for “confusion and disappointment,” according to William Ratliff, a fellow at Stanford University’s Hoover Institution, a conservative think tank. While governments in Latin America share part of the blame for failing to propose viable investment projects, “disingenuous reports from Beijing” have compounded the problem, Ratliff wrote in a Nov. 26 op-ed in The Wall Street Journal Asia.

“One Chinese trade official claimed that $22.7 billion in FDI had been placed in Latin America by the end of 2006,” Ratliff wrote. “If so, the vast bulk was plunked in tax havens in the Caribbean from whence it can be sent back to China to take advantage of preferences given to foreign investment firms.”

For China, the objectives are strategic as well as economic. The free trade agreement with Costa Rica would be China’s third in Latin America, a region where the rising world power has been increasingly engaged in recent years.

Along with seeking more markets for its manufactured goods, China is interested in the region’s raw materials, such as copper from Chile, which signed a free trade agreement with the Asian giant in 2005.

China, experts say, also hopes to leverage its growing economic clout to make diplomatic inroads with the 12 countries in the region that still recognize Taiwan.

“Since half of the countries in the world that recognize Taiwan are in Central America and the Caribbean,” according to Ratliff, “China hopes its attention to Costa Rica, including the launch of FTA negotiations, will encourage others to follow suit.”

The second round of negotiations are set for early April.


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