Costa Rica :Costa Rica :44thth Trade Policy Trade Policy ReviewReview

24 September 2013

Costa Rica Trade Policy Review:Discussant’s

Remarks:What external sources say: WEF, World Bank, OECD, EIU, UNDP, Heritage

Foundation, IHS Global Insight, WIPO/Insead, Costa Rican agencies

State of Costa Rican economy Importance of trade to Costa Rica Costa Rica’s relative performance

Economic & other indicators Challenges faced

Issues identified and responsive measures Looking ahead

The policy choices & their relationship to trade

State of Costa Rican Economy: the importance of Trade to Costa Rica

Average Growth Rate 2007-12 : 3.2% World Bank LatAm 2012 growth rate: 2.7%

Average Applied MFN tariff: 6.9% World Bank developing country average: 13.6% Ag products high at 14% (other products: 5.5%) Bound rate is 44.1%

Trade was 79.5% of GDP in 2012 Was 102% in 2007

Source: WTO Secretariat Report & World Bank

State of Costa Rican Economy: Preferential Trade Agreements

Source: Secretariat Report & Costa Rican Investment Promotion Agency

•Central America – Dominican Republic & US

•Central America – Panama

•Costa Rica – CARICOM

•Central America – Chile

•Costa Rica – Canada

•Costa Rica – China

•Central America – Mexico

•Costa-Rica – Peru

•Costa Rica – Singapore

•Central America – EU

•Costa Rica – Colombia

•Costa Rica – EFTA

“In 2010, 90% of goods from Costa Rica were exported to world markets under Free Trade Agreements”

• Costa Rica also has Investment Promotion & Protection Agreements with 15 countries

State of Costa Rican Economy: the importance of Trade to Costa Rica Employment by Sectors:

Agriculture, forestry, fishing: 13.4% Govt protection/support affects productivity

Manufacturing: 11.3% State monopoly, high electricity tariffs have effect on

competitiveness Services: 67%

Services regime more open than GATS commitments Competition introduced but State still present in some

market segmentsSource: WTO Secretariat Report & IHS Global Insight

AgGoodsServicesOthers

State of Costa Rican Economy: Relative Global Rankings

Source: As cited, and IHS Global Insight

WEF Global Competitiveness Index: 54/148 World Bank Ease of Doing Business: 110/185 WIPO/Insead/Cornell Global Innovation Report:

39/142 Heritage Foundation Economic Freedom Index:

49/177 UNDP Human Development Index: 62/187

Steady improvements across indicators since 2005 EIU Democracy Index : 22/167

2nd in Latin America

State of Costa Rican Economy: Challenges from global rankings…

Sources: WEF Global Competitiveness Index 2013, World Bank Doing Business Report 2013

WEF Global Competitiveness Index: 54/148 Open economy, strong institutions, good

education, skilled workforce, high technological adoption

Poor transport infrastructure, concerns about government spending/bureaucracy, access to finance

World Bank Ease of Doing Business: 110/185 Registering property, trade across borders,

accessing electricity Protecting investors, starting businesses,

insolvency, construction permits

Challenges in the Economy: What the rankings highlight… Indicator Costa Rica LatAm &

CaribbeanOECD

STARTING A BUSINESS

Number of procedures 12 9 5

Time (in days) 60 53 12

C0st (% of income per capita) 11.4 33.7 4.5

Paid-in min. capital (% of income per capita) 0 3.7 13.3

GETTING ELECTRICITY

Number of procedures 5 5 5

Time (in days) 62 66 98

Cost (% of income per capita) 256 559 93

PROTECTING INVESTORS

Extent of disclosure index (0-10) 2 4 6

Extent of director liability index (0-10) 5 5 5

Ease of shareholder (law) suits index (0-10) 2 6 7

Strength of investor protection index (0-10) 3 5 6.1

Sources: WEF GCI 2013, WB Doing Business Report 2013, IHS Global Insight

Challenges in the Economy: Transport Infrastructure…

Sources: WEF GCI 2013, WB Doing Business Report 2013, IHS Global Insight

WEF rankings for various types of infrastructure (out of 144):

Overall infrastructure: 95 Roads: 131 Railroads:

106 Air transport 60 Quality of electricity 42

supply

Challenges in the Economy: Responses to mitigate… Integration into Global Value Chains

(GVC) Continuous and continued reform

External benchmarking against OECD for long term structural reform Short term enhancements like Trade

Facilitation to bolster competitiveness

Aggressive investment attraction Building on a proven track record

Sources: IHS Global Insight

Looking Ahead: A GVC response to challenges…

Source: Costa Rica Ministry of Foreign Trade

deepening deepening trade trade

liberalizationliberalizationquality skilled labor

science, engineering

& design

knowledge-knowledge-driven societydriven society

Innovation

Upgrading infrastructure

Diversifying FDI

updating FDI promotion

Increasing labour supply

reducing trade costs

Better understanding Costa Rica’s participation in the GVC

Looking Ahead: A GVC response to challenges…

Source: UNCTAD World Investment Report 2013

Looking Ahead: An OECD driven response…

Sources: Costa Rica Ministry of Foreign Trade, OECD Trade Facilitation Indicators

External benchmarks for long term structural benefits Adherence to the OECD

Declaration on International Investment and Multinational Enterprises

Compliance with OECD Guidelines Human Rights Employment and industrial

relations Combating bribery, bribe

solicitation and extortion Trade Facilitation

Fared well in OECD’s assessment

Looking Ahead: Promoting Investment as a response…

Sources: Costa Rica Ministry of Foreign Trade, UNCTAD World Investment Report

Investment Policy Framework:

Open and transparent legal regime for FDI, though no specific law in place

Foreigners and nationals are granted equal rights by constitutional mandate

Limited exceptions to national treatment are established by law

Access to information is guaranteed by the Political Constitution

Free transfer of funds 14 bilateral investment

treaties in force and 11 FTAs with investment provisions in force

FDI Inflows 1990 to 2012

Looking Ahead: Wishing Costa Rica well in continuing

tough reforms… Political stability is valuable asset

Policy coherence & continuity should be a good by- product of such stability

Bipartisan support for continued reforms… Including hard public finance decisions Continued privatisation of SOEs Enhancing competitiveness of the

economy

Sources: IHS Global Insight

Costa Rica :Costa Rica :44thth Trade Policy Trade Policy ReviewReview

24 September 2013