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Costa Rica Business Sector Worried About Free Trade with Colombia

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Saturday 27 October 2012  | QNews Costa Rica | Source: Costa Rica North

The possible signing of a Free Trade Agreement between Costa Rica and Colombia worries businesses in the manufacturing sector, who argue that contrary to the governments proposes, exports to other nations with which they have such agreements have not increased, while imports have done so.

Added to this, the country has no real agenda that allows adequate performance, which encourages the creation of employment, competitiveness and relations.

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This approach is supported by experts who believe that the country has focused on signing trade agreements with other nations and divorced from a policy that encourages the growth and competitiveness of the sectors involved in the economy.

This was confirmed by the economist Luis Paulino Vargas, as part of a series of forums held at the University of Costa Rica on FTAs, where he discussed the approach made by governments in terms of trade, which does not exactly guarantee employment growth and improving living conditions.

These policies, over two or three decades, have not resulted in employment generation and the creation of mechanisms for relationships between large and small producers and entrepreneurs.

On the contrary, there has been a domino effect in which the concentrations of the country’s exports are in the hands of some 20 products developed by the 1.5 % of the country’s businesses.

Vargas warned about the conditions which led to the signing of NAFTA in the country, but especially in the economic model by which governments have wagered that it is for the promotion of treaties with anyone – a buying strategy promising to improve employment and opportunities.

However, in practice what is fulfilled is the policy of overspending and future debt, while unemployment rates increase, and the conditions and quality of work are detrimental.

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The press office of the Ministry of Foreign Trade (COMEX) assured the university that the objective of the FTA is not solving all the problems of the country, but rather to open more space for Costa Rica’s integration into the world economy.

The figures clearly show that trade grows after the entry into the force of the FTA. The new FTA negotiations have the objective of consolidating, expanding and streamlining the trade platform in the country, which will allow the diversification of exports and integration into global value chains.

Mario Montero, executive vice president of the Chamber of Food Industry (CACIA), is not convinced of this position and ensures that this area is directly affected by the massive influx of products from countries with which Costa Rica has agreements.

“In cases of existing treaties, what we have seen is a significant increase in imports from the effective date, but no growth in exports,” said Montero.

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This, based on today’s tariff reduction in an export market is not enough to create exports.

For that reason, the Vice President of CACIA advocates for a policy agenda more focused on developing internal capabilities in improving competitiveness and the local business climate.

The development of this agenda would provide a fundamental tool for existing might be able to take advantage of and make sense. Otherwise, the only thing seen is an opening of the local market without much sense.

This is the feeling that some business sectors have regarding the signing of a free trade agreement with Colombia, which beyond generating positive expectations, leaves a real concern about the conditions of competition in the country to be found.

The press office of COMEX argued that FTAs have helped to diversify the country’s export supply and have put Costa Rica at the forefront of exports per capita in Latin America and has placed in the top of the region and fourth in the world in terms of industrial exports, for high-tech products.

“The growth and export diversification positively affects economic growth and the creation of more and better sources of employment,” he said.

Costa Rica is currently in the third round of negotiations for a free trade agreement with Colombia, which must eventually be approved by the legislature.

To date, the country has nine free trade agreements with various countries and although they have been heavily promoted by the government, as drivers of the economy, the State of the Region has evidence that when approved each NAFTA, trade with the respective nation has declined.

Currently the FTA with Colombia awakens sensitivities between areas that are concerned about inequality in market conditions.

Luis Obando, adviser on foreign trade of the Chamber of Industries of Costa Rica (ICRC), is convinced that Costa Rican and Colombian economies are not complementary, but directly competing, which affects national manufacturers, as the South American nations firms compete with lower costs.

Its costs in raw materials, labor, energy and diversity of energy sources that count, such as coal, natural gas and electricity, give an advantage to the country.

“In addition, these companies enjoy a number of export incentives that do not have our domestic industries. The tariff that applies to Colombian products is a mechanism to protect its industry. This presents us with a difficult scenario to compete,” argued Obando.

In his words, the dismantling of such sensitive products would be a major threat to the development of national industry.

“Only for export to Colombia in 2011, $48.2 million and we import $455.6 million; in fact, many Colombian products entering the market are paying tariffs ranging between 9% and 15%. After adjustment for these taxes, imports from the South American nation will skyrocket,” warned Obando.

In his opinion, the factors affecting the competitiveness of Costa Rican companies regarding Colombian nationals will be key when they have to compete in the local market.

For the COMEX some of the opportunities presented by the Colombian market is having dimensions similar to those of Central America, increased purchasing power and is a net importer in many manufacturing areas.

In addition, imports are less concentrated than exports, which would allow preferential conditions to be exploited and distributed a wide range of products.

“It is an exporter of raw materials that could be of interest from the private sector, which would help to improve the competitiveness of the productive sector in Costa Rica. Costa Rica has a more traditional export vocation than Colombia, plus it exports more agricultural products,” claims the COMEX.

“An agreement with Colombia would enable trade, investment and strategic partnerships are governed by stable, clear and transparent rules,” he added.

But, for the Chamber of Industries, FTAs have served as sufficient mechanisms to diversify exports and considers new strategies should be sought in the international market.

“In 2011, 79.1% of exports were concentrated in the United States, Central America and the European Union, and less than 10% with other countries with which we have FTAs, such as Chile, Mexico, Canada, China, Dominican Republic, Trinidad and Tobago. No advantage to the FTAs, but it opens our market,” explained Obando.

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