Central America and the European Union (EU) are officially free-trade partners. On Tuesday, the six countries of Central America and the 27-member EU bloc signed a freetrade and cooperation agreement in Madrid, Spain that will slash tariffs on key items such as bananas, milk, automobiles, textiles, rice and sugar.
If the agreement is ratified by Costa Rica’s Legislative Assembly, it will be the country’s eighth free-trade deal, with number nine – the agreement with China – also awaiting the legislature’s approval.
“This is one of the first achievements of this government,” said Costa Rican President Laura Chinchilla via videoconference from Madrid on Tuesday. “Costa Rica now has access to the biggest markets in the world, including Europe, the U.S. and China.”
The final round of negotiations in Madrid centered on setting satisfactory trading quantities for sugar, cheese, powdered milk, textiles, beef and bananas, as well as assuring the geographic origin of specific products. During the previous round of talks in Guatemala during the first week of May, disagreements over quotas for these products stalled negotiations. The talks began in mid-2007.
On Tuesday, Foreign Trade Minister Anabel González said that the agreement offers a “very positive balance” for Costa Rica and Central America.
“We were able to strengthen and improve access offered for many products, which will bring growth to those markets under secure and foreseeable conditions,” González said. “National products will have preferential access to a market of 500 million consumers with strong purchasing power.”
On the top of Costa Rica’s priority list were bananas. The current tariff of ¢176/ metric ton applied to bananas will be reduced in increments over the next 10 years to a base tariff of ¢75/ton. The terms of the agreement will save European countries an estimated ¢50 million per year on banana imports.
According to COMEX, the Foreign Trade Ministry, 70 percent of the bananas exported to Europe from Central America come from Costa Rica.
In terms of quotas on milk, powdered milk and cheese, which were the most difficult points, Costa Rica agreed to accept 200 tons of powdered milk from Europe annually, while the Central American region as a whole will receive 1,900. In terms of cheese, Costa Rica will receive 317 tons a year initially, with an annual increase of 5 percent. Central America will receive an annual supply of 3,000 tons of European cheese. Costa Rican dairy producers have resisted increased imports of these products (TT, May 14).
“The amounts given to Costa Rica only represent around 10 percent of the total cheese given to Central America,” said Fernando Ocampo, the vice trade minister and one of the deal’s chief trade negotiators. “As far as dairy products, the Costa Rican share is significantly less than what is being sent to the other Central American countries.”
The ovation for the signing was shared across most of the national sectors affected by the deal. Within 24 hours of the announcement of the signing, the Agriculture Ministry (MAG), the Food Industry Chamber (CACIA), the Chamber of Industries (CICR) and the Dos Pinos dairy cooperative, the largest milk and dairy producer in the country, all voiced their support for the accord.
“We can declare that the Costa Rican agricultural sector is, without question, one of the biggest winners of the negotiation outcome,” said Gloria Abraham Peralta, the minister of agriculture. “We achieved, and actually improved on, the goals we set out to achieve with the agreement.”
If the Legislative Assembly ratifies the agreement, which is expected, the agricultural sector expects to see an immediate surge in the demand for bananas, pineapples, cut flowers and foliage, and fruit juices.
Together, these products make up a third of Costa Rican exports to Europe. Increased demand is also anticipated for sugar, rice and yucca.
According to the Foreign Trade Promotion Office (Procomer). During the first three months of 2010, 18 percent of all Costa Rican exports were shipped to the EU.
Supporters of the agreement point to the 2003 free-trade agreement between Chile and the EU as an indicator of the potential benefits for Costa Rica and other Central American countries. Since that agreement went into effect, exports from Chile to the EU have increased from $7.8 billion in 2004 to over $17 billion in 2008. During that same stretch, Chile’s imports from the EU increased at a slighter slower rate, going from $3.5 billion to $7.1 billion.
Representatives of a variety of Costa Rican economic sectors were also pleased with the rule of origin, sanitation, environmental impact and fair-trade clauses included in the agreement.
“The EU is a market with high standards for production, environmental and labor practices,” said Juan María González, president of the CICR. “Our participation and competition with them will raise the quality standards of our own producers and suppliers.”
In contrast to the intense debate over the Central American Free-Trade Agreement with the U.S. (CAFTA), which took effect on Jan. 1, 2009, there appears to be little opposition to the EU agreement in the Legislative Assembly or in the society at large.
“This agreement has been structured correctly and handled correctly,” said Tomás Pozuelo, president of CACIA. “Some of the other trade agreements were very lopsided initially, particularly for members of CACIA. This one was much more balanced from the beginning.”
Central American-EU Association Agreement Trade Terms
Bananas: Current tariff of ¢176/metric ton will be reduced in increments to a tariff of ¢75/ton over the next 10 years. Tariff guaranteed for up to 1.025 million tons, with a 5 percent annual increase.
Textiles: Immediate access to European clothing market free of tariffs. Costa Rica allowed to export up to 7 million garments such as baby clothes, t-shirts, bathrobes, wool suits and bras.
Sugar: EU receives 162,000 tons annually from Central America
Beef: EU receives 9,500 tons annually from Central America
Rice: EU receives 20,000 tons annually from Central America
Frozen shrimp and yucca: Immediate access for Costa Rica free of tariffs
Tariffs on EU imports into Costa Rica waived on: Wines, apples, cherry, grapes, raisins, olives, olive oil, pastas and perfumes. For the next five years, tariffs lifted on cosmetics, fabrics, thread, padlocks, locks and sports equipment.