San José, Costa Rica, since 1956

China and Ticos make a deal, so what’s it mean for Costa Rica?

With a vote of 32-13 and 12 absent or abstaining, lawmakers on Tuesday passed a final version of Costa Rica’s Free Trade Agreement with China (CFTA). It will become law once signed by President Laura Chinchilla – possibly as early as next week – and published by the official La Gaceta newspaper.

Costa Rican officials have been negotiating the deal with their Chinese counterparts for two years. Lawmakers were required to conduct two rounds of separate voting. They first approved CFTA on March 3 by a vote of 42 to 11.  

“This vote shows the importance we attach to improving the lives of Costa Ricans, generating more jobs, consolidating access for products exported to China and expanding options for consumers,” Foreign Trade Minister Anabel González said in a press release.

This week’s passage of the trade deal was timely, as China only reviews new trade agreements twice a year. If lawmakers had failed to pass it this week, Chinese officials would have waited at least six months to discuss it again. President Chinchilla last week urged lawmakers to speed up discussions.

The CFTA will allow Tico exporters to sell more than 4,000 products to Chinese consumers, including electronic components, leather, fruit juices and decorative plants and flowers. The agreement also opens the door to future exports of goods not yet produced in the country.

In exchange, China will be able to place a similar amount of manufactured goods in Costa Rican markets.

Between 2000 and 2010, Costa Rican exports to the Chinese market grew by an annual average of 37 percent and imports from that country increased by 29 percent (see box on Page 10).

Costa Rican negotiators introduced a special protective clause in the agreement that grants Costa Rican officials the ability to levy tariffs on imported Chinese goods that directly affect demand for locally manufactured products. This protective clause will be valid until 2018. The trade pact also excludes beans and sugar from the agreement, two important Costa Rican commodities.

According to trade officials, Costa Rican exporters won’t start benefitting from the deal for at least six months, as health and safety regulations on food and agricultural products are still being negotiated.

A Fast-Track Friendship

CFTA negotiations began in February 2009, two years after former Costa Rican President Oscar Arias (2006-2010) established diplomatic ties with China (TT, June 8, 2007).

As has been the pattern with free trade deals here lately, negotiations were marked by lukewarm opposition from small-business sectors, the labor movement and environmental groups, who questioned the agreement’s impact on the local economy.

Some critics see a quid pro quo for the new $100 million National Stadium donated and built by China and inaugurated March 26 (TT, March 25).

Most of Costa Rica’s industry and trade chambers, however, support the agreement. “We need to take into consideration that even without the CFTA we are already invaded by Chinese products,” said Arnoldo André, president of the Costa Rican Chamber of Commerce. “Once the agreement is fully implemented, at least we’ll have tools to control the incoming flow of goods.”

Luis Fernando Monge, executive director of the Chamber of Foreign Commerce and Representatives of Foreign Companies, said the CFTA will benefit Costa Rica’s economy by attracting more investment.

“We are glad the agreement will finally be implemented,” Monge said, adding that, “Our chamber has already started negotiations with Chinese business leaders, who were anxiously waiting… to start investing in our country.”

China is Costa Rica’s second trading partner in importance behind the United States. According to the Foreign Trade Promotion Office, from 2006 to 2010 Costa Rica sold more than $3 billion in goods to China. Of that, multinational microprocessor manufacturer Intel accounted for 76 percent.

Spare computer parts represent 16 percent of total exported goods to the Asian country ($507,939), followed by copper scraps at 1 percent. Collectively, television parts, leather, plants and fruit juices account for the remaining seven percent of exports.

Despite optimism by many industry leaders here, critics point to complaints about China’s trade behavior, including charges of unfair trade practices brought before the World Trade Organization.

“China is not a partner of trust in trade matters,” said Luis Obando, a trade advisor at Costa Rica’s Chamber of Industries. “[China] has been fined by the World Trade Organization countless times.”

From January 1995 to June 2010, the WTO received 563 complaints against China for dumping, or selling goods to other countries at unfairly low prices, according to the WTO.

Product safety of goods manufactured in China is another concern. Costa Rican health officials have in the past removed Chinese products from the shelf following international advisories. In May 2007, Health Ministry inspectors pulled more than 300 samples of Chinese-manufactured toothpaste branded “Mr. Cool,” because it contained traces of diethylene glycol, a toxic chemical found in automobile brake fluid.

Also, in October 2008, the Health Ministry banned the sale of “White Rabbit” candies, because samples had high concentrations of melamine, a toxic compound used to make plastic and the same one that poisoned thousands of consumers of Chinese milk in 2007.

To prevent contaminated products from reaching Costa Rican consumers, officials are hammering out the details of health and safety guidelines for each Chinese product included in the CFTA. Officials have already set guidelines for meat. Others are still pending, said Federico Valerio, general director of the Foreign Trade Ministry.

Trade Imbalance?

Whether the trade agreement will hurt or harm Costa Rican producers has been the center of recent debate. “Perhaps [Costa Rican] agricultural products might have a potential for exportation,” Obando said. “But China specializes in cheap manufactured products and it’s impossible for Costa Rica to compete in the pricing arena.”

“China will purchase raw materials from Latin America, and then Chinese workers will transform them into goods that we will buy back,” Obando said. “This will harm local industry, and many small companies that currently export their products will have to start importing Chinese products in order to survive.”

Dissenting lawmakers say the treaty has more to do with politics than boosting the Costa Rican economy.

“This agreement is just a façade,” said Walter Céspedes, lawmaker from the Social Christian Unity Party and a vocal opponent of the agreement. “It’s not true that the agreement will make things easier for our exporters. It’s not profitable for local producers and it lacks the required sanitary protocols.”

According to Céspedes, the agreement was unnecessary because only a few companies account for most exports to China.

The CFTA is Costa Rica’s 11th free trade agreement, following the May 26 signing of a free trade pact with Perú.

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