WORLD TRADE WT/TPR/M/1
19October 1995
ORGANIZATION(95-3168)
Trade Policy Review Body
TRADE POLICY REVIEW MECHANISM
COSTA RICA
MINUTES OFMEETING
Chairman: H.E. Mr.Nestor Osorio Londoño (Colombia)
Page
I. INTRODUCTORY REMARKS BYTHE CHAIRMAN 2
II. OPENING STATEMENT BYTHE REPRESENTATIVE OFCOSTA RICA 3
III. STATEMENT BYTHE FIRST DISCUSSANT 4
IV. STATEMENT BYTHE SECOND DISCUSSANT 5
V. STATEMENTS BYMEMBERS OFTHE TPRB 6
VI. REPLIES BYTHE REPRESENTATIVE OFCOSTA RICA
AND ADDITIONAL COMMENTS 9
VII. CONCLUDING REMARKS BYTHE CHAIRMAN 15WT/TPR/M/1
Page 2Trade Policy Review Mechanism
I. INTRODUCTORY REMARKS BYTHE CHAIRMAN
1. TheChairman welcomed delegations tothesecond meeting oftheTrade Policy Review
Body (TPRB), heldtoconduct theTrade Policy Review ofCosta Rica. Thereview would beheld
under theprocedures oftheTrade Policy Review Mechanism (TPRM), ascontained inAnnex IIIof
theMarrakesh Agreement Establishing theWorld Trade Organization.
2. TheChairmanwelcomedCostaRica'sdelegationheadedbyMr.FranciscoChacón,Vice-Minister
ofForeign Trade, Ministry ofForeign Trade. Healso welcomed thediscussants,
Ambassador Gunnar Snorri Gunnarsson andMr.LuisP.Niscovolos, andmembers oftheTPRB.
Asusual, thediscussants would speak intheirpersonal capacities.
3. TheChairman recalled thatthemeeting wastobaseitswork ontworeports, onebythe
Government ofCosta Rica(WT/TPR/G/1) andtheother bytheSecretariat (WT/TPR/S/1 andCorr.1).
Herecalledtheproceduresforconductingreviews,introducedinMay1993(GATTdocumentL/7208).
4. Australia, Canada andtheUnited States hadgiven advance notice inwriting ofpoints they
wished toraiseduring themeeting.Costa Rica WT/TPR/M/1
Page 3
II. OPENING STATEMENT BYTHE REPRESENTATIVE OFCOSTA RICA
5. Therepresentative ofCosta Ricastated that,sincehiscountry 'saccession totheGATT in1990,
theadoption offurther tradeliberalization measures would assist export-oriented producers tooperate
more efficiently. Trade ingoods andservices nowrepresented more than90percentoftheGDP.
Costa Rica'sunilateral tradeliberalization included reduction oftariffpeaks andelimination ofmeasures
suchastariff surcharges, prior import deposits, import licences andproduction subsidies. Tofoster
reformsandstrengthenitslinkswiththeworldeconomy,CostaRicasupportedoutward-orientedregional
integration initiatives withitsCentral American partners; ithadconcluded abilateral tradeagreement
withMexico andintroduced legalchanges toimplement theresults oftheUruguay Round.
6. In1994, theGovernment decided todealwiththelong-standing problem offiscal imbalance,
thathadbeenignored byitspredecessors andcould threaten thetrade reforms. Itwasimportant to
tackle thisproblem onabasisofpolitical consensus andwithout prejudice tosocial welfare programmes,
inparticular those relating tohealth andeducation. Abillintroducing significant reforms tothetax
system andaimed atimproving taxcollection wasawaiting theapproval oftheLegislative Assembly.
Other matters where similar approval wasexpected included privatization oftheNational Liquors
Company(FANAL);bankingandpensionreform;deregulationofrentsforhouseholds,andcommercial
premises; andthede-linking ofpublic service tariffs frompolitical considerations. Aconstitutional
amendment would prohibit fiscal deficits exceeding 1percentofGDP. Therecent increase inimport
duties would beeliminated ontheentry intoforce ofthese measures.
7. Reforms related tothereduction ofpublic sector employment, comprising avoluntary labour
mobility programme andtheclosing down orrestructuring ofcertain ministries andother government
agencies (including theState-owned railway company) were inprogress.
8. Costa Rica'stradepolicy wasbased ontheprinciples ofnon-discrimination andtransparency;
trade measures were inconformity withmultilateral rules. HisGovernment firmly believed inthe
multilateral trading system andCongress hadunanimously ratified theWTO Agreement. Itwashoped
thattherecent changes intheeconomy would helptheintegration ofCosta Ricaintothemultilateral
trading system.WT/TPR/M/1
Page 4Trade Policy Review Mechanism
III. STATEMENT BYTHE FIRST DISCUSSANT
9. Thefirstdiscussant (Ambassador Gunnar Snorri Gunnarsson) commended Costa Rica's
achievementsinanumberofareasincludingeconomicandtradepolicy,employment,socialresponsibility
andpolitical stability. Hewasconcerned, however, withgovernment spending, particularly inelection
years. Hebelieved thatgreater independence oftheCentral Bank could beuseful.
10. Inviewoftheunexpected increase intariffrates, recently adopted without legislative approval,
heexpressedconcernoverthestabilityandpredictabilityoftheCostaRicanpolicyframework.Although
Costa Ricahadmade significant taxreforms, further information wasneeded ontheapplication and
effects oftheselective consumption tax.Healsorequested thetotalfigure forfiscal exemptions granted
under thevarious concession régimes. Export contracts andfree-zone régimes could beincorporated
intothegeneral taxsystem; inthisrespect, hewondered whether thechange would result inaloss
offiscal revenue. Heasked whether theincreased number ofenterprises under thefree-zone régimes
reflected thecreation ofnewfirms oramove byfirms from other areas.
11. Herequested details ontheimpact oninvestment flows toother sectors offiscal incentives
inforcefortourism, andwhether theywereregarded astemporary measures; theproportion offoreign
direct investment (FDI) intourism; andwhether foreign ownership-restrictions intourism development
projects hindered FDI. Regarding Stateinvolvement intheeconomy, heasked whether theprivatization
ofanyStatebanks hadbeenenvisaged, andsought information onthepossibilities forforeign financial
institutions inCosta Rica. Hesought clarification ontheexistence ofanysubsidization incropinsurance
services provided bytheState monopoly National Insurance Institute (INS). Additional information
wasrequested onthemethod fordetermining thecomposition ofthebasket ofconsumer items (canasta
básica) .
12. Asprogress inregional integration hadfrequently beenaprelude tomoregeneral liberalization,
hewondered whether thishadbeenthecaseforCosta Rica. Regarding developments within theCentral
American Common Market (CACM), heasked forinformation onnon-tariff measures such as
harmonization oftechnical barriers totrade, surveillance anddispute settlement.Costa Rica WT/TPR/M/1
Page 5
IV. STATEMENT BYTHE SECOND DISCUSSANT
13. Thesecond discussant (Mr.LuisP.Niscovolos) praised Costa Ricaforitsremarkably high
social indicators andtheefforts thathadbeenmade toreduce macroeconomic imbalances, including
public sector deficits. Heconsidered thateconomic stability wasoneofthemostimportant reasons
forhaving achieved thatperformance. Heasked about theState reforms thatwere tohavebeen
introduced under thesuspended Structural Adjustment PlanIII(PAE III),andtheguidelines forthe
fiscal reform under way, aswellastheactivities andtaxes thatwould beaffected. Theelimination
ofthestructural origin ofthepublic expenditure should beanimportant aspect where theGovernment
should emphasize itsactions.
14. Costa Rica'srecent efforts toadjust andintegrate itseconomy totheworld trading system
hadbeenreflected intheincreasing share offoreign trade inGDP. Since 1990, competitiveness had
improved andanti-export biashadbeen reduced. Hesought information ontheoperation ofthe
single-window system (Ventanilla Unica )andontechnical assistance received onexport promotion
matters frominternational organizations. Healsoremarked thefactthatallmeasures related totrade
wereimplemented through lawsandregulations which implied animportant instrument ofsocial accord.
15. Heasked when Costa Ricaexpected toapprove theProtocol Modifying theGeneral Treaty
onCentral American Integration. Healsosought information ontheareasintended forfaster progress.
ForCosta Rica, theCACM free-trade areaprovided asource ofregional supplies inrawmaterials
andcertain manufactures aswellasamarket foritsexports.
16. With respect toservices, heconsidered thatinspite ofthesignificant liberalization effort
implementedbytheCostaRicanauthorities,thereweresomeareasthatwerestilloutsidetheinternational
competitive environment.WT/TPR/M/1
Page 6Trade Policy Review Mechanism
V. STATEMENTS BYMEMBERS OFTHE TRADE POLICY REVIEW BODY
17. Members oftheTPRB commended Costa Ricaforitsefforts tomodernize andliberalize its
economy aswellastointegrate itintheworld market. They praised itsactive participation inGATT
anditsstatus asaWTO founder member. Nevertheless, delegations expressed concern overthe
April 1995 increase intheapplied tariff levels by8percentage points onanadhocbasis.
18. TherepresentativeofArgentinanotedthatrecentreforms,including"tariffication"commitments
hadledtosubstantial increases inapplied ratesinparticular ondairy products andpoultry. Hehoped
thatrecent tariff increases were temporary. Wharfage rates differed between imports andexports;
hewas,therefore, interested intheirrelation tothecostofservices rendered. Hequestioned thepurpose
ofcompulsory customs warehouse storage ofimports. Ongovernment procurement, hesought
information ontheintention behind thebillofadministrative contracts. Healsoasked howthefiscal
deficit would bereduced.
19. With reference totherecent increase inapplied tariff levels, therepresentative ofVenezuela
asked ifprompt approval waslikely forthelegislation tointroduce reforms and,hence, thereturn of
import tariffs totheirprevious level. Shesaidthatbefore engaging inlarger regional integration projects
suchastheFreeTrade Area fortheAmericas, CACM countries should resume negotiations with
Colombia andVenezuela; sheasked whether Costa Ricacould giveadatefortheirresumption and
conclusion. Shewasinterested toknow whether modification ofthelegislation onconstruction works
wasenvisaged toprovide equal treatment todomestic andforeign firms andengineers.
20. Therepresentative ofCanada tookparticular noteofthesteady increase ingrowth oftrade
ingoods andtourism between Costa Ricaandhiscountry. Herequested details ontherecent tariff
increases, including theirWTO justification, andinformation onwhether anyofthese changes would
warrant renegotiation ofconcessions pursuant toArticle XXVIII.
21. Heenquired about thestatus oflegislation inpreparation toimplement theUruguay Round
agreements, including inareas suchastechnical standards, certification procedures andphytosanitary
protection. Clarification wassought onproducts subject tocompulsory registration; whether there
would beacomment period before thefinalization ofstandards; andwhether theforthcoming
anti-dumping legislation would provide fordifferent treatment fortrade under preferential regional
arrangements. Healsoasked foracopyofthenewCompetition Law.
22. Heregretted Costa Rica'smodest binding commitments intheUruguay Round intheservices
sector, including thegrowing tourism industry. Further liberalization andimprovement ofmultilateral
commitments inthissector would bewelcomed.
23. Although Costa Rican trade policy relied onmultilateral orregional agreements, herecalled
theobligation tonotify andsupply relevant information onthelatter, inparticular thebilateral agreement
withMexico which hadalready entered inforce.
24. Therepresentative ofJapan hoped thattheincrease oftarifflevels wastemporary, noting that
ithadintroduced anelement ofinstability intradeconditions. Heasked about theprospects foradoption
ofthebillonfinancialreform.AlthoughhiscountryhadnoaccessdifficultiestotheCostaRicanmarket,
simplifying export formalities could promote imports. Improvements inthedisclosure andaccuracy
ofinformation ontrade measures would behelpful toJapanese firms andpotential investors.Costa Rica WT/TPR/M/1
Page 7
25. Therepresentative ofHong Kong commended Costa RicaforitsGDP growth inrecent years
andstrong commitment tothemultilateral system. Hehoped thatefforts would bemade tostreamline
thecomplex import dutystructure (containing various levies andfees) andtedious documentation
requirements. Inviewoftheimportance attached toregional andother preferential agreements, he
wondered whether theerosion ofpreferential margins bym.f.n. concessions hadanyeffect onthe
priorities oftheCosta Rican trade policy.
26. TherepresentativeoftheUnitedStatescomplimentedCostaRica'sconstructivestepstoimplement
theresults oftheUruguay Round, openmarkets andattract foreign capital. However, hisauthorities
remained concerned withtherecent tariff increases andCosta Rica'sparticipation intheFramework
Banana Agreement withtheEU. Heasked foracomprehensive listoftariff increases aswellas
information ontheircurrent status, implementation (m.f.n. orpreferential), observance ofbinding levels
anddateofrepeal.
27. Onnon-tariff measures, heasked theauthorities toexplain therequirement forconsular
authentication andtherelationship offeestothecostofservices provided. HisGovernment was
concerned about thetrade effects ofcertain internal taxes, andherequested detailed information on
thenature, product coverage (including theshare ofdomestic consumption supplied byimports) and
ratesoftheselective consumption, IFAM andIDAtaxes. Hesought anexplanation oftheoperation
andstatus (domestic orCACM-wide) ofthecurrent customs valuation system, andasked when all
provisions ofGATT Article VIIwould beapplied. Herequested information ontheoperation of
State-trading enterprises andtheGovernment 'sintention tomeet notification obligations, including
those under Article XVII.
28. Referringtomeasuresaffectingtradeinagriculturalproducts,heaskedaboutthestatusofchanges
indomestic legislation onimport licensing, "tariffication", safeguards andunfair trade practices.
Although alldiscretionary licensing hadreportedly beenremoved asofJanuary 1995, noexports of
U.S.poultry hadentered Costa Ricainthefirstthreemonths of1995. Heasked whether alllicensing
requirements, other thanthose relating totariff quotas, hadbeeneliminated, including atthelevelof
customs offices attheports. Hesought clarification onthenature ofcurrent sanitary restrictions and
requirements onimports ofpoultry andasked whether these differed from those affecting domestic
orregional poultry.
29. Hequeried thedateofentry intoforceandthenature ofexport incentives under the"Plan5000
deExportación ";whether theCIEX export increment certificate legislation would beformally revoked
inaccordance withWTO obligations intheareaofsubsidies; andthequalifications needed forafirm
toobtain fiscal concessions under thefree-trade zonerégime.
30. Henoted Costa Rica'sinvolvement inmany regional tradeagreements andsought clarification
ontheirimplementation andnotification inthelightofArticle XXIV. Heasked whether Costa Rica
planed toharmonize tariffs withtherestoftheCACM andwhatshare ofCosta Rican exports enjoyed
unrestricted access toPanama 'smarket.
31. Onintellectual property rights, heinvited theGovernment toexamine thecompatibility ofthe
existing legalframework withtheprovisions oftheAgreement onTRIPS, particularly withrespect
tocompulsory licensing. Furthermore, heasked foralistoflegaltextscontaining exceptions tothe
m.f.n. andnational treatment principles; anyplans forexpanding thecoverage ofpatent protection;
therange ofrights granted topatent holders asoutlined inArticle 28oftheAgreement onTRIPS;
thescope oftrademark protection; thejudicial andadministrative system fortheenforcement ofIPRs;
andtheaverage timeoflitigation ofcopyright suits.WT/TPR/M/1
Page 8Trade Policy Review Mechanism
32. Therepresentative oftheEuropean Union noted thatCosta RicawasCentral America 'sleading
trader,withincreasinglydiversifiedexportmarketsandproductsaswellasahighdependenceontourism.
Hisdelegation believed thatthesignificant GDP growth inrecent years wastoalarge extent dueto
thetrade liberalization which followed Costa Rica'saccession totheGATT.
33. Therecent increase inapplied tarifflevels, which hadnotbeennotified totheSecretariat, had
introduced adegree ofuncertainty which could affect business confidence. Insome casesphytosanitary
measures hadbeentaken without anyjustification, inparticular withrespect toimports offreshcheese
andmeat. Henoted thatStatemonopolies remained inoilimporting andrefining aswellasincertain
banking andtelecommunication operations. Costa Ricahadnotindicated anyintention toparticipate
inthenegotiations onbasic telecommunications, financial services andmaritime transport services.
Intheareaofgovernment procurement, henoted thepreference given todomestic suppliers and
considered prohibitive legalism asanimpediment toaccess forforeign companies. Hisdelegation
wassatisfied withtherecent riseinprotection ofintellectual property rights andhoped thatdomestic
legislation would bebrought inconformity withtheprovisions oftheAgreement onTRIPS within
thegiven timeperiod.
34. Trade liberalization wasnotaneasytaskforadeveloping country, particularly inthenewareas
covered bytheWTO. Inthiscontext, despite thefavourable picture onCosta Rica'strade policy,
heurged theauthorities toavoid resorting toadhocmeasures.
35. Therepresentative ofIndia recognized theimportance ofcoffee, bananas andtourism forthe
Costa Rican economy. Heexpressed thehope thatregional integration efforts would notbetothe
detriment ofthemultilateralism.
36. Therepresentative ofNewZealand commended Costa Ricaforitstrade liberalization efforts,
particularly those related tobinding commitments, since itsaccession totheGATT andinthe
Uruguay Round. While noting Costa Rica'sinterest inparticipating inregional orbilateral agreements,
heexpressed thehopethatundertakings inthisareawould notbetothedisadvantage ofthirdcountries.
These agreements should benotified totheWTO. Hisdelegation looked forward toseeing a
consolidation ofCosta Rica'sefforts.
37. Therepresentative ofAustralia observed thattrade policy reforms hadledtoamore neutral
régime. Hehoped thatthetariffincrease would bereversed andregional orbilateral agreements would
betrade liberalizing.Costa Rica WT/TPR/M/1
Page 9
VI. REPLIES BYTHE REPRESENTATIVE OFCOSTA RICA
AND ADDITIONAL COMMENTS
38. TheChairman invited therepresentative ofCosta Rica, ingiving hisresponses1,tofocus on
fourmajor themes: theoverall economic situation; trade policy inthepost-Uruguay Round period;
regional integration; andother more specific policy issues.
(1) Theoverall economic situation
39. Therepresentative ofCosta Ricanoted thathiscountry 'smacroeconomic stability hadbeen
seriously affected inrecent years mainly duetoincreased fiscal andcentral government deficits. A
decision hadbeentaken todrastically reduce thefiscal deficit intwostages. Inaccordance with
Costa Rica'slegislative procedures andtradition, theGovernment hadsought thenecessary political
consensus toallow theimplementation ofalong-term, politically andsocially viable solution.
40. Thecoreelementsoftheproposeddeficitreductionstrategyincludedtheintroductionofatwo-tier
fiscal package (legislation onfiscal obligations, taxreforms) tobeapproved inJulyandAugust 1995;
modernization ofthetaxandcustoms administration; institutional reforms ofthepublic sector (including
theelimination of8,000 jobsin1995); elaboration ofaprogramme forcurtailing public expenditure;
andpromotion ofstructural reforms byincluding intheconstitution anumber of"economic guarantees"
andadopting oramending legislation onfinancial administration (revenue andexpenditure), thepension
schemes paidoutoftheState'sBudget, theending oftheliquor monopoly andthetransformation
oftheNational Electricity Service intoaregulatory authority.
41. Since 29March 1995, duetoshort-term financial obligations anduntiltheentire legislative
package wasadopted, theGovernment hadraised thelevelofimport duties onmostitems inthecustoms
tariff byeight percentage points, inamanner consistent withitsbinding andnotification obligations
totheWTO; itdidnot,therefore, intend tousetheprovisions ofArticle XXVIII. Thismeasure was
expected togenerate about US$90 million ofadditional fiscal revenue eachyear. Thefloorandceiling
levelsofappliedtariffratesweretobereducedwhenpublicfinancereturnedtonormal.Tariffreductions
onhigh-tariff items subject tocommitments under theAgreement onAgriculture weretobeimplemented
asagreed.
42. Other legislative reforms were under wayoralready accomplished inpriority areas suchas
standardization, government contracts, radio-communications, generation ofelectric power, banking,
insurance andintellectual property rights, withtheobjective ofintroducing adjustments orchanges
inlinewiththerecent andplanned liberalization.
43. InthecontextofCentralAmerica,CostaRicahadparticipatedindiscussionsonthemodification
oftheexisting legalinstruments onunfair tradepractices andsafeguards tobring themintoconformity
withtheUruguay Round texts. Costa Ricahadreserved theright toimplement theAgreement on
Customs Valuation overafive-year period.
44. ThefirstdiscussantrecognizedthatthestatementandresponseoftherepresentativeofCostaRica
hadclarified thescaleofreforms. Theresults thathadbeenobtained sofarwereimpressive; tariffs
1The response oftherepresentative ofCosta Rica isreproduced inextenso inWTO document
WT/TPR/M/1 Add.1, asagreed attheTPRB meeting.WT/TPR/M/1
Page 10Trade Policy Review Mechanism
were tofallsoon. Thefiscal deficit wasamajor problem butreform ofthepension schemes could
contribute toitsreduction. Anumber ofwell-prepared reforms were stillinthepipeline.
45. Thesecond discussant thanked theCosta Rican delegation forthecomprehensive response,
inparticular onthemechanisms forcutting thefiscal deficit. Heunderstood thatexchange andmonetary
policies were nottobeaffected inthecontext ofthese reforms andasked whether thefiscal reform
included asignificant increase inthetaxonhydrocarbons. Itwasalsoapparent thatreform ofthe
public sector would imply staffreductions. Hewasinterested intheparticipation oftheservices sector
inreducing public expenditure.
46. TheChairman underlined thedisparity between fiscal revenue andpublic expenditure aswell
astheneedforacomprehensive strategy covering allrelevant aspects ofthisproblem. Notonlyfiscal
measures wererequired toimprove thepublic revenue butalsoStatemodernization. Heappreciated
theclearexplanation ofCosta Rican policies andactions tobetaken. Heobserved thatthedebtburden
constituted anadditional problem which needed toberesolved through increases infiscal revenue.
47. Therepresentative oftheUnited States sought clarification onthenotification procedure for
therecent tariff increase.
48. TherepresentativeofCostaRicastatedthatthenotification,shortlytobecirculatedasdocument
WT/L/74, would bemade under the1979Understanding Regarding Notification, Consultation, Dispute
Settlement andSurveillance.
(2) Trade policy inthepost-Uruguay Round period
49. Therepresentative ofCosta Ricarecalled thattheWTO Agreements andtheirimplementing
legislation, which covered mostofhiscountry 'scommitments, hadbeeninforcesince1January 1995.
Heconsidered thatCosta Ricahadmetallitsnotification obligations ontimeandhadsupplied afull
listofsuchnotifications. While theagreement onbananas wascontained intheEU'sschedule ofspecific
commitments intheUruguay Round, heregretted thattheUnited States hadsought recourse tounilateral
action rather thanusing thereinforced multilateral dispute settlement system.
50. Tariffchangeshadbeenintroducedtoimplementthe"tariffication"andtariffquotacommitments.
Heexplained thestock exchange procedure usedtoallocate tariffquotas andsupplied atablecontaining
information onitems subject tothesequotas. Replies tothequestionnaire onimport licensing procedures
would bedelivered byhisauthorities within theagreed time-limit.
51. Oncustoms valuation, heexplained thatalthough Costa Ricawasusing theexisting Central
American regulations, newprovisions werebeing elaborated atCACM level; these should enter into
forcewithin fiveyears. Heconfirmed thatuntilthenhisGovernment would fullyimplement Article VII
ofGATT 1994; thiswasexpected tohaveapositive effect onimports. Thedatabase which wasrequired
inthisareawasnotintended toimplement asystem ofminimum import prices buttofight
under-invoicing andtoexercise greater control overports andcustoms agencies.
52. Costa Ricahadsubmitted anotification ontheoperation ofState-trading enterprises. He
confirmed thatthetrading activities oftheNational Production Council (CNP) hadbeenprogressively
phased-out. AtthetimeofCosta Rica'saccession totheGATT, ithadbeenstated thatnoState
monopolies existed inthesectors ofenergy, fertilizers andcement. Thesoleenterprise withexclusive
import rights, theState-owned oilcompany, RECOPE SA,wasoperating inconformity withthe
non-discrimination principles established under Article XVII.Costa Rica WT/TPR/M/1
Page 11
53. Concerning theprotection ofintellectual property rights, Costa Ricahadmeticulously revised
domesticlegislationinordertodetermineitscompatibilitywiththeAgreementonTRIPSandhaddecided
touseofthetransition period forimplementation. Action hadbeentaken through amendments to
domestic andCACM legislation aswellasaccelerated ratification oftheParis Convention forthe
Protection ofIndustrial Property. Herecognized thattherewasground forimprovement inareas such
asborder measures andthereversal oftheburden ofproof. Healsoprovided detailed information
andexplained Costa Rica'sposition ongeneral andspecific provisions ofdomestic orCACM legislation
inthisarea, including patents, semi-conductors, copyright andtrademarks.
54. Onservices, heconsidered thathiscountry 'scommitments under theGATS wereconsistent
withbothitslevelofdevelopment anddomestic consensus onthismatter. Hiscountry wastopursue
itsconstructive participation indiscussions inareas ofinterest toit.
55. Thefirstdiscussant requested thelegal texts ontheimplementation ofthe"tariffication"
commitments andthetariff quotas régime. Herecalled hisquestions ontourism incentives andasked
foradescription ofthepolicy inthisarea.
56. Therepresentative ofCosta Ricagaveassurances thatthelegal texts inquestion would be
supplied. Policies affecting tourism would becovered byhisresponse under thefinaltheme ofthe
debate.
57. Thesecond discussant sought information ontheobservance ofobligations under theAgreement
onTRIPS; asked whatenforcement andborder measures were tobeadopted.
58. TherepresentativeofCostaRicaexplainedtheenforcementprocedures,measuresandmechanisms
aswellasthelegalbasis fortheprotection ofintellectual property rights. These included preventive
measures, seizure andconfiscation ofgoods infringing rights. Although thepossibility forreversal
oftheburden ofproof didnotexistinhiscountry, thepractice when atrademark hadbeeninfringed
wastoorder theremoval ofthetrademark fromtheoffending goods andthedonation orsalebyauction
oftheproducts. Border measures wereyettobeintroduced intocustoms legislation; atpresent, judges
could order thecustoms toadopt certain measures.
59. Therepresentative ofCanada recalled thattheresponse withrespect tonotification obligations
referredtooneState-tradingenterpriseinthepetroleumindustry.HesoughtinformationonState-trading
operations inagricultural products suchaswheat, maize anddrybeans aswellasontheirnotification
under Article XVII.
60. Therepresentative ofCosta Ricareplied thatinMarch 1995 theCNP hadceased itstrading
activities.
61. Therepresentative oftheEuropean Union noted thatrecent legislative action covered areas
where problems had been encountered (e.g., intellectual property, public procurement,
telecommunications) andhewaslooking forward toseeing whether thesewould beresolved inpractice.
Henoted thelackofinformation onmaritime transport services aswellasonthereasons forabstaining
from thenegotiations.
62. Therepresentative ofCosta Ricareplied thathiscountry could notparticipate innegotiations
inanumber ofareas, including maritime transport services, atpresent.WT/TPR/M/1
Page 12Trade Policy Review Mechanism
(3) Regional integration
63. Therepresentative ofCosta Ricaemphasized thathiscountry 'sobjective inparticipating in
regionalintegrationschemeswastoachievetherapiddevelopmentofreciprocaltraderelationscompatible
withitscommitments inthemultilateral trading system. Costa Rica'sunilateral trade liberalization
efforts atmultilateral levelhadbeensupported byregional initiatives.
64. Hereferred totheCACM 'simportance forCosta Rica'sforeign trade anddescribed itsrôle
inthedevelopment ofcertain regional legal instruments. With reference totheharmonization of
individual customs tariffs inlinewiththecommon external tariff, hesaidthatthematter wasstillunder
discussion. Costa Ricadidnotusetariffescalation toprotect domestic manufacturers andrawmaterials
ofCACM origin. Hecommented oninstitutional andprocedural aspects oftheCACM integration
scheme; theestablishment ofaregional dispute settlement mechanism wasunder way. Costa Rica
considered thatobligations forthenotification oftheCACM integration scheme hadbeensatisfied
much earlier byNicaragua.
65. TheFreeTrade Agreement withMexico would cover virtually alltariff items within fifteen
years. Thepreferential sugar quota granted tohiscountry, wasanoption based onthepurchasing
needs ofMexico. Hestated thatadecision wastobemade onthemostappropriate WTO regulatory
framework forthenotification oftradeagreements withMexico, Panama andtheDominican Republic.
Costa Ricawasshortly tosubmit information onNAFTA 'seffects ondiversion oftradeandinvestment
toMexico.
66. Heexplainedthattheuseofdifferenttariffnomenclatures,therangeoftraderestrictivemeasures
andtherestrictions onaccess forpreferential imports tothePanamanian market made difficult any
assessment ofthepreferential scheme withthiscountry. Toimprove access tothismarket, Costa Rica
hadrequested bilateral consultations with Panama inthecontext ofitsaccession totheWTO.
Negotiations fortheconclusion ofafree-trade agreement among CACM countries, Colombia and
Venezuela were toresume shortly.
67. Thefirstdiscussant noted thatregional integration could helptheprocess ofliberalization.
HewonderedwhetherfisheriesproductswerecoveredbyregionaltradeagreementssignedbyCostaRica.
68. TherepresentativeofCostaRicaconfirmedthatsuchproductswerecoveredbytheseagreements.
Forexample, under theFreeTrade Agreement withMexico these were contained ina10-year plan
forthephase-out ofimport duties.
69. Thesecond discussant noted thattheCaribbean Basin Initiative (CBI) hadassisted Costa Rica's
agricultural andindustrial development. Itwasalsocoupled withinvestment andtrade opportunities.
Heasked whether Costa Rica'sadherence toregional agreements could erode CBIbenefits.
70. Therepresentative ofCosta Ricasaidthatinfuture greater emphasis would beplaced onthe
work leading toafree-trade agreement covering thehemisphere. Herecognized thattheCBIhad
benefited Costa Rica'sinvestment andtrade expansion; ithadfacilitated itsprocess oftrade
liberalization.Nevertheless,theCBIwasaunilateralmeasurewhichwassubjecttolimitationsinproduct
(e.g., textiles) andtrade barriers coverage. Thiswasthereason forthepriority being given tothe
planforaFreeTrade Area fortheAmericas.Costa Rica WT/TPR/M/1
Page 13
(4) Specific policy issues
71. Inviewofthetimelimitations andthewiderange ofissues todiscuss, therepresentative of
Costa Ricaproposed thathisoralresponses berestricted tomatters ofmajor interest tomostdelegations
andthediscussants, suchasthefreezones, theselective consumption tax,banking legislation and
tourism.
72. TheChairman agreed andstated thatthefulltextoftheresponses byCosta Ricawould be
circulated asaseparate document (WT/TPR/M/Add.1).
73. Despite thesignificant contribution ofthefreezones régime ininvestment, employment and
exports, therepresentative ofCosta Ricadisagreed withastatement made atthemeeting thatalarge
partoftheCosta Rican economy wasoperating under thisrégime. Ontheotherhand, itwasnotpossible
toincorporate thistypeofincentive inthegeneral taxsystem because ofpotential fiscal revenue losses.
Heconfirmed thatthegranting offree-zone status tocompanies outside thespecified zones waslimited
andwasintended toprovide employment inless-developed areas. Taxincentives inforceinthecontext
offreezones were fully compatible withtheprovisions oftheWTO Agreement onSubsidies and
Countervailing measures. Those thatwereprohibited (e.g., exemptions from theprofit tax)wereto
beeliminated within eight years.
74. While explaining thebackground forthecreation andoperation oftheselective consumption
tax,heclarified thatthiswasapplied inanon-discriminatory manner. Changes tothelistoftaxable
products andtaxlevels could beintroduced onlywithin strict limits. Afulllistofthese products was
tobedelivered shortly.
75. Heexplained aspects ofCosta Rican banking legislation which provided differential treatment
fortheestablishment andoperation offoreign (subsidiaries orbranches), private andState banks.
Thislegislation wasbeing revised andaccess requirements forforeign banks weretobebased onlegal
criteria rather thanadministrative discretion.
76. Tourism haddeveloped inCosta Ricaforanumber ofreasons. Although incentives hadbeen
rationalized in1992, nodatehadbeenfixed fortheirtermination. Noevidence existed onthetotal
amount offoreign direct investment inthissector oronitsimpact onother areas ofeconomic activity.
Therewasnoproofthatforeignownershiplimitationsconstitutedanobstacletoforeigndirectinvestment
inflows.
77. Thefirstdiscussant acknowledged thatallhisquestions under thistheme hadreceived a
satisfactory response.
78. Thesecond discussant wasoftheviewthat,although thetiming foropening themarket could
varyaccording tothesector, theareaofservices required greater liberalization efforts. These should
bemade progressively sothattheycould beconsolidated inthecountry.
79. Therepresentative oftheUnited States recalled thathehadrequested clarification onthenature
ofsanitary requirements andrestrictions affecting imports ofpoultry. Regarding consular fees,he
wondered whether consular authentication prior tosubmission attheportofentry wasstillrequired
andwhether these documents wereexamined atthetimeofentry. Regarding portservices, hesought
information onthetypeofservices provided. Healsoasked howconsular andportservice feeswere
justified.WT/TPR/M/1
Page 14Trade Policy Review Mechanism
80. Therepresentative ofCosta Rica explained thatcustoms procedures required consular
authentication ofcertain documents which weredrafted andagreed inforeign territory. Hecitedall
thedocuments subject tothisprocedure. Theleveloffeeswasdirectly related tothecostoftheservice.
81. Thesanitary regulations affecting poultry imports, inforce sinceMarch 1993, wereconsistent
withinternational rules andverysimilar tothose applied bytheUnited States. Allzoo-sanitary
regulations, including those affecting poultry, wereapplied onthebasisofnational treatment. Acopy
oftherelevant regulations wastobesubmitted.
82. TherepresentativeoftheEuropeanUnionwasoftheviewthatphytosanitarymeasuresonimports
ofcheese andfreshmeathadnoscientific justification andurged theauthorities torevise thesemeasures.
Referring tothedraftlawfortheadoption ofphytosanitary measures, heexpressed thehopethatthese
would bemore inconformity withinternational rules.
83. Therepresentative ofCosta Ricareplied thathiscountry 'spolicy onsanitary andphytosanitary
measures wasstrict andthese werenotusedasnon-tariff barriers. Tofurther elaborate onthecheese
andmeatcases heneeded more information.
84. Therepresentative oftheUnited States saidthathewould examine Costa Rica'swritten replies
regarding thespecifics ofsanitary andphytosanitary measures. Inrecent years thepractice ofconsular
formalities hadbeengreatly reduced inmany countries andheurged Costa Ricatoreview thismeasure.Costa Rica WT/TPR/M/1
Page 15
VII. CONCLUDING REMARKS BYTHE CHAIRMAN
85. Atitssecond meeting, theTrade Policy Review Body oftheWTO completed thefirstreview
ofthetrade policies andpractices ofCosta Rica. These remarks, made onmyownresponsibility,
summarize thesalient points ofthediscussion andarenotintended tosubstitute thecollective evaluation
andappreciation ofCosta Rica'strade policies andpractices.
86. Thediscussion developed under fourmainthemes: (i)theoverall economic situation, (ii)trade
policy inthepost-Uruguay Round period, (iii)regional integration, and(iv)other, more specific policy
issues.
(a) Overall economic situation
87. Members praised Costa Rica'sachievements inanumber ofareas including economic, social
andtrade policy. However, itwasunfortunate thattheimbalance inpublic finances, mainly dueto
increases ingovernment spending, hadledtheGovernment toincrease tariffs earlier thisyear. While
thiswassaidtobeatemporary measure, ithadintroduced anelement ofuncertainty inthetraderégime,
despite thegeneral stability thatcharacterized Costa Rica'slegalframework. Members sought further
details ontheseincreases, suchastheircoverage, expected dateofsuppression, andwhether theywere
being applied onanm.f.n. basis.
88. Members requested further efforts towards simplifying thetaxsystem. Concern wasexpressed
overtheuseoffiscal incentives; andthevarying ratesoftheselective consumption taxwhich appeared
tobeapplied innon-neutral manner. Information wassought ontheproduct coverage ofindirect
taxes aswellastheportion ofdomestic consumption ofitems subject totheselective consumption tax
thatwassupplied byimported items.
89. Clarification wasrequested onthetypeofmeasures tobeadopted toreduce fiscal expenditure
to2percentoftheGDP. Aquestion wasasked about theprospects forapproval bytheLegislative
Assembly ofthelegaltextstoimplement thereforms (LeydeReforma Financiera ).
90. Anumberofquestionswereaskedaboutpublicsectorreforms,inparticularinstitutionalreforms
andreduction ofthenumber ofemployees. Further explanation wassought ontheprivatization
programme aswellasgovernment procurement procedures.
91. Market access inservices, particularly banking andinsurance, where therewasextensive State
involvement, wasamatter ofconcern foranumber ofparticipants. Thequestion wasraised whether
there wereanyplans formodifying discriminatory legislation onconstruction services. Questions on
tourism incentives related totheirstatus (permanent ortemporary) andtheirimpact onother sectors
ofeconomic activity. Howhadrestrictions ontheshare offoreign ownership oftourism firms affected
Foreign Direct Investment inthissector?
92. AcopyoftheNewCompetition Lawwasrequested.
93. Inresponse, therepresentative ofCosta RicasaidthattheGovernment hadbeenseeking a
political consensus onadrastic programme forthereduction ofthefiscal deficit tore-establish stability
andpromote growth. Inthemeantime, therecent, temporary tariff increases -within bound levels -
togenerate revenues werelessproblematic thanmeans suchasmonetary expansion. They hadbeen
necessary tomeettheState'sobligations, including foreign debt. Hegavedetails ofthestrategy to
resolve these problems overthelonger term, including reform oftheState. Thisrequired alegislativeWT/TPR/M/1
Page 16Trade Policy Review Mechanism
programme,butthemajorpoliticalpartieshadnowreachedconsensusonthegeneralreformprogramme.
Thisprogramme would include, interalia,modernization intheareasofpublic procurement procedures,
telecommunications andinsurance. Financial sector reforms would increase theindependence ofthe
Central Bank andallow agreater rôleforprivate banks.
(b) Post-Uruguay Round trade policy
94. Costa Ricawaswidely commended forthetrade liberalization efforts undertaken since 1990,
theimprovementofitsbindingcommitmentsduringtheUruguayRoundanditsparticipationasafounder
member oftheWTO. Onemember considered that"tariffication" hadresulted inhighbound rates
oncertain items.
95. Anumber ofquestions were raised onthestatus ofimplementing legislation ofthe
Uruguay Round results inareas suchastechnical standards, certification procedures andphytosanitary
protection.Aquestionwasaskedonhowthenewanti-dumpinglegislationwouldbeapplied,particularly
inthelightoftherequirements oftherelevant WTO Agreement? Information wasrequested onwhether
allimport licences other thanthose required fortariff quotas hadbeeneliminated inconformity with
Uruguay Round commitments.
96. Regardingthenewareas,clarificationwassoughtonthecompatibilityofcurrentlegalprovisions
onintellectual property withthose oftheWTO Agreement onTRIPS, including thetimetable for
achieving suchconformity. Information wasrequested onexceptions tom.f.n. ornational treatment
inthisarea, thecoverage oftrademark protection andtheenforcement ofintellectual property rights.
97. Market access commitments byCosta Ricaintheservices sector, including tourism, were
considered modest andfurther improvement would bewelcome. AsCosta Ricahadnotmanifested
anyinterest inparticipating innegotiations onbasictelecommunications, financial services andmaritime
transport services, participants wondered about itsintentions inthecurrent negotiations intheseareas.
98. Inresponse, therepresentative ofCosta Ricagavedetails ofthelegislative programme to
incorporate theresults oftheUruguay Round. Costa Ricahadmetnotification obligations under the
agreements within therequisite timeframe. Information wasprovided onthelegalsteps which had
beentaken toimplement theobligations onelimination ofimport licences, tariffication andonspecial
safeguards. Extensive details wereprovided onthedraftlawonintellectual property tobring itinto
alignment withtheTRIPS Agreement. Thiswasbefore theCongress. Inservices, Costa Ricahad
made commitments intourism, informatics, health andeducation. Asconsensus developed, Costa Rica
hoped toparticipate constructively indiscussion inother services sectors.
(c) Regional integration
99. Hopes wereexpressed thatefforts towards expanding regional andpreferential arrangements
would notbetothedetriment ofCosta Rica'smultilateral commitments including thepossibility of
making further m.f.n. tariffreductions. Participants asked about problems inharmonizing thecommon
external tariff oftheCACM andwhen amove towards aneconomic union within CACM could be
expected. Others wereinterested inthetimetable fornegotiations between theCACM, Colombia and
Venezuela fortheestablishment ofaFreeTrade Area.
100. Certain participants invited Costa Ricatonotify itsFreeTrade Areaagreement withMexico
andtheNorthernTriangleAgreement(MexicoandCACMcountries)underArticleXXIVoftheGATT.Costa Rica WT/TPR/M/1
Page 17
Information wasrequested ontheoperation oftheGuaranteed Access Levels device inthecontext of
theCaribbean Basin Initiative, aswellaspreferential market access conditions agreed withPanama.
101. Inresponse, therepresentative ofCosta Ricasaidthatregional integration efforts weretotally
compatible withthemultilateral trading system andexisting commitments. IntheCACM, Costa Rica
wasseeking harmonization oftariff ceilings andfloors formostitems, butthiswasbeing discussed
withitspartners intheregion. Noother areasofeconomic integration wereenvisaged atpresent within
CACM. TheCACM agreement hadalready beennotified byNicaragua. Details werealsoprovided
ontheagreement withMexico aswellasthenegotiations withColombia andVenezuela .Discussions
would beheldonnotifying theagreements withtheDominican Republic andPanama. Itwasdifficult
toassess theeffects ofthepreferences withPanama.
(d) Specific policy issues
102. Oneparticipant considered thatimport duties, internal taxes andimport procedures should be
simplified. Information wassought onthereasons forthediscrepancy inratesapplied onportfees
forimports andexports; these should beadjusted toreflect thecostofservices. Therationale was
requested formaintaining compulsory customs warehousing procedures forfiscal revenue purposes.
Questions werealsoasked about thepresent customs valuation system andthepurpose ofthedatabase
tobeusedunder thenewcustoms valuation regulations. Twoparticipants requested explanations on
howsanitary requirements forimports ofpoultry, meatandcheese were operated.
103. Although theState holding company, CODESA, hadbeenliquidated, remaining State firms
constituted apotentially distorting element (e.g., inareassuchasoilrefining andimports, transportation,
electricity,telecommunications,banking,insurance).Severalparticipantsrequestedadditionalinformation
onState-trading activities. Costa Ricawasasked toindicate whether andwhen itplanned tocomply
withthenotification requirements under Article XVII.
104. Freetradezones wereawell-recognized export promotion tool.Nevertheless, fiscal incentives
provided tocompanies inthese zones should conform totherelevant WTO provisions onsubsidies.
Clarification wassought onwhether Statesubsidies wereprovided bytheNational Insurance Institute
(INS) through cropinsurance services.
105. Export promotion could befurther improved byproviding prompt andaccurate information
onnewmeasures.Transparencywasrequiredtohelpexportsandinvestment.Informationwasrequested
onnewexport incentives under the"Plan5000 deexportación "aswellaswhether theCIEX export
increment certificate legislation wastoberevoked.
106. Inresponse, therepresentative ofCosta Ricasaidthattheincentives provided forfreetrade
zones were inconformity withtheAgreement onSubsidies andCountervailing Duties, andassuch
didnotconstitute asubsidy intheGATT sense. Themeasures applied toanydomestic orforeign
firmoperating inthezones. Income taxexoneration forsuchfirms wasbeing eliminated. Details
weregiven ofthePlan5000forexport promotion, which werealsoGATT consistent. Healsoexplained
thatnewcustoms valuation procedures, designed toincrease transparency, wereyettobediscussed
attheCACM level. Healsoexplained thesystem formaking available quotas onitems which were
nowsubject totariff quotas.
107. Therepresentative explained thecriteria usedforsetting thevarying rates oftheselective
consumption taxandconfirmed thatthetaxwasneutral asfarasforeign trade wasconcerned.
Information wasalsoprovided ontheoperation ofCosta Rica'slegislation ontechnical standards.WT/TPR/M/1
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Sanitary regulations, inplace since March 1993, metinternational standards andwere verysimilar
tothose oftheUnited States. WTO notification obligations onSate-trading hadbeenmetrecently.
108. Heclarified aspects ofthebanking legislation relating totheestablishment ofsubsidiaries of
foreign banks andexplained thatduring thecurrent revisions ofthislegislation consensus hadbeen
peached ontheuseoflegalrather thanarbitrary criteria fortheaccess offoreign banks. Regarding
tourism, heexplained thatseveral fiscal incentives remained inforce andthere were noplans fora
phase-out. Noevidence wasavailable ontheimpact oftheincentives onother sectors andthelack
ofaForeign Direct Investment registry impeded anyappraisal inthisarea.
109. Finally,therepresentativeofCostaRicamadethefulltextofhisrepliesavailabletoallinterested
delegations. Thiswould bereflected inextenso intherecords ofthemeeting prepared bythe
WTO Secretariat.
110. Inconclusion, theTPRB greatly appreciated Costa Rica'sconsiderable efforts toliberalize
itstrade policy, anditsactive participation intheGATT/WTO system since itsaccession in1990.
WearesurethattheCosta Rican authorities willgivedueconsideration totheconcerns raised during
thereview. WewishtheCosta Rican authorities wellintheongoing process ofrestructuring the
economy, andhopethatCosta Ricawillcontinue withboththepursuit ofintegrating itstrade policies
andpracticesintotheglobaleconomyinthespiritofmultilateralism,andthereshapingandmodernization
ofthepublic sector.