Sunday, February 14, 2010

Costa Rica and China reach free trade agreement

Sources: Tico Times – C.R., Chinese Close to Cementing Accord / Bloomberg – Costa Rica, China Reach Preliminary Free-Trade Accord / Yahoo Finance – Costa Rica, China seal trade deal / Bloomberg – Costa Rica Exports to Drive Recovery, Gutierrez Says / Financial Times – Costa Rica elects first woman president

Costa Rica and China signed a free trade agreement on February 10, 2010 making it the first Central American country to reach a free trade agreement with China. The agreement will immediately open up trade by eliminating tariffs on 58% of products imported from China and 99.6% of products exported to China. Over the next ten years, the agreement will eliminate tariffs on approximately 90% of the goods imported from China. Costa Rican Foreign Trade Minister Marco Vinicio Ruiz stated that this agreement creates an “enormous opportunity” for the country to boost exports with its second largest trading partner. Mr. Ruiz added that the agreement would strengthen Costa Rica’s presence in Asia.

Negotiations for a free trade agreement with Costa Rica started in June 2007 when Costa Rica declared that it no longer recognized Taiwan and asserted its recognition of mainland China. Since 2007, China and Costa Rica strengthened their relationship through several rounds of negotiations and projects. China’s imprint in Costa Rica is already evident, as China is building an $80 million soccer stadium in Costa Rica as a gift. China gave Costa Rica $20 million of aid in 2007 and the China National Petroleum Corporation has agreed to assist Costa Rica in an expansion of Costa Rica’s National Oil Refinery that could potentially triple the refinery’s output by 2015. China also purchased $300 million in Costa Rican bonds during 2008. This year, the Costa Rican city, San Jose, will inaugurate an area of the city as “Chinatown.” In October 2009, the mayor of Beijing stood with the mayor of San Jose and laid the first brick in “Chinatown.” The area will have a Chinese architectural makeover and will include several symbols of the Chinese culture.

Costa Rican leaders hope that exports will drive economic growth in the coming years. Last year, Costa Rica’s economy contracted at a rate of 1.3%. This year, Costa Rican Central Bank President, Francisco de Paula Gutierrez, predicts that the Costa Rican economy will expand by 3.2%. Mr. Gutierrez stated that a decline in foreign trade drove most of the economic contraction last year. During 2009, exports to China rose 13% to $768 million whereas exports to the United States fell by 13% to $3.1 billion. Costa Rica has already experienced higher demand in dynamic exports in the past few months and Mr. Gutierrez expects this trend to continue to strengthen in 2010. The free-trade agreement with China should increase export demand for Costa Rican products. Experts predict that Costa Rican agricultural products will benefit the most from the free trade agreement in such products as fruit juice, decorative plants, leather, pork, beef, and coffee. Experts also expect that technology exports to China will surge.

Not everyone in Costa Rica supports the free trade agreement. Several Costa Rican leaders in the industrial and agricultural sectors openly oppose the agreement. Juan Maria Gonzales, President of the Chamber of Industries stated in a press release that the scope of agreement was too broad and that China has a reputation as an “untrustworthy” commercial society. Mr. Gonzales desired stronger protection for national industries and fears that the agreement will negatively affect investment in the industrial sector. Mario Montero, general manager of the Food Industry Chamber, expressed reservations about Chinese competition in the local market. Mr. Montero also thought that the agreement should have required China to increase its labor and sanitation standards to Costa Rican levels before opening up the markets. Foreign Trade Minister, Mr. Ruiz, acknowledged that free trade agreements do not please everyone; however, he insisted that in the end the free agreement with China “will provide extraordinary benefits to Costa Rica.”

Discussion Questions:
Will Costa Rica’s free trade agreement with China cause more Central American countries to liberalize trade relations with China?

What is the biggest risk that Costa Rica faces domestically in signing the free trade accord?

1 comment:

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