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The Central America – US- DR Free Trade Agreement
Impact and relevance on Central American development and the CA-US relationship
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ContentsRole of trade in development
Instruments available to trade for a small, developing country
What is an FTA? What is in CAFTA?
Pros and cons…outlook
Looking further
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Why is trade important
For a small developing country, trade is an essential part of the strategy
Comparative advantageEconomies of scaleFDI attractionGrowth enginesTechnology, learningDiversification
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Costa Rica
4 million people, $4.750 per capita income ($9.200 PPP)Old democracy without armyRole of education, health, labor rights, environmentWe export half our value added
Electronics, textiles, medical equipment, fruits, tubers, processed foods, many services
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The last twenty years
Relative to our history and to others, in the last 20 years Costa Rica has achieved:
High levels and growth rates in exportsHigh FDI attractionDiversification and sophistication of exportsHigher foreign purchasing power
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Export growth
Notice: growth, sophistication and diversification
Costa Rican exports
0
2.000
4.000
6.000
8.000
10.000
12.000
Tradicionales
Otros agrícolas
Industriales
Regímenes
Servicios
Bienes
TOTAL
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Employment and growth
Real growth in the last two decades has come mostly from export growth
Domestic market growing at 1.5%; exports growing at 9%
50.000 jobs needed every year just to keep unemployment constant
And nearly 300.000 jobs in firms that export directly to the US at least 10% of their outputSeveral very sensitive industries
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-
2.000,0
4.000,0
6.000,0
8.000,0
1985
1987
1989
1991
1993
1995
1997
1999
2001
Expo
rtaci
ones
0
200
400
600
800
IED
Export IED
Fuente: Banco Central de Costa Rica
Foreign Direct Investment and Exports: Twin Endeavors
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Some samples of FDI in Costa Rica
1997: Intel 1998: Abbott Laboratories, Alcoa1999: Aetec International, Inamed, Procter & Gamble, Western Union, Baxter Labs2000: Narda Microwave, WestStar Medical2001: Laser Modules, Merrimac Industries, Arthrocare, Align Technologies, MBT2002: Maersk Inc., Alienware Corp., Copamex, Seton2003: Boston Scientific; Microtech; Hewlett-Packard, IBM International2004: General Electric, Hospira, Western Union
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Risk poolingExport diversification means the country is less sensitive to losses in terms of exchange
Pérdida términos de intercambio
0
50
100
150
200
250
300
350
400
450
500
1998 1999 2000 2001 2002 2003
Petróleo
Café, banano
Café y banano eranen 1982 el 53% de laexportación; ahora el 12%.La factura petroleraabsorbía el 21% delas exportacionesen 1982. Hoy, aúncon los precios actuales, el 5.5%.
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A more “tailor-made” economy
Less concentrated geographically, by activity, by scholarity levelMore sophisticated productionTaking better advantage of our historical strengths, and a better reflection of our choices
Not contradictory, although still falling short, of our distributional challenge
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Trade and investment tools
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Trade instrumentsExport promotion and incentivesInvestment attraction and incentivesCompetitiveness & SD measuresWTO and multilateral agreementsFTAA / Central American IntegrationFree Trade Agreements and BITsImplementation and followup actionsCompetition/consumer/industrial issues
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What is a Free Trade Agreement
1. An agreement by the parties to reciprocally reduce and eventually eliminate barriers to the trade of goods, services and investment between them
2. Terms to harmonize and coordinate rules and procedures affecting trade
3. Procedures to legally and orderly resolve disputes between the parties, and to manage the relationship
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Trade barriersTariffsQuotas and bansCostums proceduresSPSInappropriate use of anti-dumping and trade defense mechanismsTechnical obstacles to tradeBarriers to government purchasesRestrictions in the provision of services (investment, competition and cross-border)
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Relevant rules
Competition and consumer protectionInocuity, labelling, SPS, quality, etc.Unfair trade practices and subsidiesIPRLabor and environmentInvestment protectionService and financial supervision
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Relationship management
Committees, practices, communicationTransparency
Judicial, balanced mechanism for the resolution of the trade disputes between the parties
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The US-CR trade relationship
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ANTECEDENTES:Costa Rica- Intercambio comercial con Estados Unidos 1990-2003
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ANTECEDENTES:Costa Rica- Principales productos exportados a Estados Unidos, 2001
Los demás45.4%
Bananos12.5%
Semiconductores de óxido10.2%
Instrumentos médicos
8.6%Melones
2.3%Café2.8%
Art. calcetería, de algodón2.9%
Partes de computadoras
3.4%
Pantalones de algodón, de hombres
4.0%Bragas de algodón
3.0%
Piñas frescas5.1%
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ANTECEDENTES:Costa Rica- Principales productos exportados a Estados Unidos, 2001
Los demás49.4%
Plásticos1.1%
Trigo1.1%
Arroz1.2%
Soya1.4% Maíz
1.6%
Jeringas2.0%
Papel2.5%
Textiles9.6%
Aceites2.5%
Electrónica27.7%
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Formally
Both are members of WTOCosta Rica is party of several preferential access arrangements from the US
Caribean Basin InitiativeCBTPA (til 2007)SGP
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Why go further?
Preference are a concession and do not create rightsTransitory and fragile. Consequence of a different realityInsufficient
Not all productsNon-tariff barriersNo rulesNo dispute resolution
In disadvantage against competitors
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Why does the US care?
Trade and investment$20 billion each way
PoliticalDistance, drugs, terrorism, immigration, political stabilityLabor and environmental rights
StrategicFTAA
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Most sensitive topics: CR-US
Agriculture, on both sides; subsidiesTextilesTelecoms, insurance and other state monopolies in CRIPRLaborEnvironment
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Main results
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Index1. Initial arrangements2. General definitions3. Market access4. Rules of origin5. Costums management6. SPS7. Technical barriers to trade8. Commercial policy9. Government procurement10.Investment11.Trade in services
12.Financial services13.Telecoms14.Electronic trade15.Intelectual property16.Labor17.Environment18.Transparency19.Management20.Dispute resolution21.Exceptions22.Final arrangements
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Trade in goodsImmediate, permanent access to Central American products in the US marketGradual phase-out for the sensitive products in the Central American marketNTB elimination, including improvements in costums and in sanitary barriersAccess for Free Trade Zone productsElimination of export subsidies within CAFTAComprehensive agreement in textiles
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Investment, services and rulesCAFTA will act as the Bilateral Investment Treaty that the US does not have with most these nationsLiberalization in services
Notably, in Costa Rican insurance and telecommunications
Strenghtening of IPR law enforcementMultilaterality and other CACM issuesGovernment procurement, labor, environment and dispute resolution mechanisms
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Peculiarities
Phaseouts are gradual and careful, asymmetric in favor of the smallInnovative in many areasStandard in labor and environment is compliance of own lawRegional rather than bilateral structure
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The key decisions involved
True integration and market accessBreakdown of some public monopoliesBetter rules and practices in some areasCompliance and time stability of some elements of the status quoA formal relationship based on the lawArchitecture of Central American IntegrationConsolidation of a development strategy
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Where are we
CAFTA has entered into effect in El Salvador-US this week (door closes 2/29/08)
Nicaragua, Guatemala, Honduras and DR have congressional approval and are involved in the implementation processCosta Rica will face a very significant delay, if it enters the agreement at all • Not passed in Congress; nature of the
debate