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FREE TRADE AGREEMENT BETWEEN DOMINICAN REPUBLIC -

CENTRAL AMERICA – UNITED STATES OF AMERICA (CAFTA-D R).

EFFECTS ON COSTA RICA’S AGRICULTURAL SECTOR.

By

Joaquín Picado González*

Copyright © Joaquín Picado. Picado y León Abogados.

JUNE, 2008

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TABLE OF CONTENT

I. INTRODUCTION. .......................................................................................................... 3 II. OVERVIEW OF CUSTOM DUTIES ERADICATION BEFORE CAFTA-DR. ......... 5 III. CAFTA-DR’S TRADE COMMERCIAL LIBERALIZATION EFFECTS; COSTA RICA AND UNITED STATES. ....................................................................................... 12

A. General Information. ................................................................................................ 12 B. CAFTA-DR’s effects on Agricultural Free Entry. ................................................... 13 C. Special Treatment for some agricultural products: Exemption Rules; Costa Rica and United States’ view. ...................................................................................................... 14

C1. Sensitive Products. ............................................................................................. 15 C2. Tariff-Rate Quotas.............................................................................................. 16 C3. Special Agricultural Safeguard Measures. ......................................................... 18

D. Controlled product access to the United States market............................................ 19 IV. AGRICULTURAL PROTECTION EFFECTS IN THE CAFTA-DR COUNTRIES............................................................................................................................................ 20 V. OVERVIEW OF THE OPPORTUNITIES AND RISKS OF COSTA RICAN AGRICULTURAL PRODUCTS UNDER CAFTA-DR. ................................................. 26

A. CAFTA-DR’s Risks for Costa Rica. ........................................................................ 27 A1.- U.S.’s subsidies and support agricultural production policies .......................... 27 A2.- Favorable Production and Commercialization Treatment for Agricultural Sector in the U.S market. .......................................................................................... 28

B. CAFTA-DR’s Opportunities for Costa Rica. ........................................................... 29 B1. CAFTA-DR substitutes CBERA with greater benefits ...................................... 29 B2- Diversification production and exports. ............................................................. 29

C- Transition Policies for Agricultural Sector in Costa Rica. ...................................... 30 VI. CONCLUSIONS ........................................................................................................ 34

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I. INTRODUCTION. The Free Trade Agreement between Dominican Republic - Central America –

United States of America (CAFTA-DR) has been presented by many Central American

politicians as a means to resolve all the problems in their countries. In my view this

assertion is incorrect. CAFTA-DR, which is a commercial agreement between different

countries, is an instrument developed to promote free trade among countries; through the

interchange of goods, services, technology and investment. As Morley says; “The treaty

is an expression of the belief that removing barriers to trade and investment is the surest

way to raise income and enhance growth prospects in developing countries.”1 CAFTA-

DR’s success depends on the vision and internal policies that each government of the

signatory countries develops in relation to it; for this reason it could be beneficial or

harmful according to their vision.

First of all, the government must undertake in depth investigations to evaluate the

impact of the agreement on different sectors of the country and develop concrete actions

to prevent possible damages, modify laws, prepare its infrastructure and create economic

policies to minimize the negative impact of the agreement. * Picado & León Abogados, Founder Partner. Licentiate in Law and Notary Public Universidad Autónoma de Centro América (1990), LL.M Master in Comercial Law, Universidad de Costa Rica (1993), Professor of Comercial Law, Universidad de Costa Rica (1996-2004), Professor of Corporate Law, Universidad Escuela Libre de Derecho (2001-2005), Legal researcher in Securitization Process, National Law Center For Inter-American Free Trade (2006 to date), LL.M Master of Law in International Trade and Business Law, , James E. Rigers College of Law, University of Arizona (2007). 1 Samuel Morley, Liberalización Comercial en el Marco del CAFTA: Análisis del Tratado con Especial Referencia a la Agricultura y a los Pequeños Agricultores en Centroamérica, Documento de Trabajo No.19.[Trade Liberalization Under Cafta: Analysis of the Agreement with Special Reference to Agriculture and Smallholders in Central America Work document No.19] Instituto Internacional de Investigación sobre Políticas Alimentarias, IFPRI. Serie de publicaciones RUTA. 1, 7 (Mayo 2006) (Unofficial translation). Available at http://www.ruta.org/admin/biblioteca/documentos/Liberalizacion_co merci al_CAFTA.pdf.

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Without any doubt CAFTA-DR is not the solution to all the problems faced by the

region nor can it properly be seen – as its opponents especially in the populist2 sectors

assert – as an invasion by the United States of America of the Central America’s

countries. The Permanent Commission of International Themes and External Trade of

Costa Rica’s Congress stated the following:

“In this way, as with other Free Trade Agreements and of investments that the country has entered into and started implementing, CAFTA-DR is a commercial instrument that can facilitate our economic and social growth, taking advantage of opportunities that the commercial interchange of goods, capital and services brings. But it requires a solid commercial strategy and also a coherent articulation of internal policies so it can function properly and become a real growth opportunity for the country” 3

CAFTA-DR’s impact in Costa Rica has to be analyzed carefully in each of it

areas. One of the most important is the agricultural sector, because agriculture is a

particularly sensitive issue for Costa Rica’s economy. Many of the actual discussions that

are currently being held in Costa Rica are a result of non-objective criteria and they do

not have solid conceptual, technical or legal support. Carlos Arce and Carlos Felipe

Jaramillo mention:

“There is concern in the country of the possible effects that CAFTA-DR could have in Central America’s agriculture sector. Even though most of the countries have opened their agricultural trade since the 1980’s and 1990’s, some sensitive products have been receiving protection. In some cases, the region does not have comparative advantages. It is a pity that many of the discussions about the sensitivity of

2 The word “populism” for this author means a person who does not analyze in an objective way a subject and according to his interests, communicates partial or false information as a truth. In many Latin-American countries these groups have been growing because they say their objective is to protect the interests of population minorities. 3 Permanent Commission of International Themes and External Trade of Costa Rica’s Congress, Major Opinion of CAFTA file #16047, 3 (December 12, 2006) (Unofficial translation). Available at http://www.comex.go.cr/Portada/16047d-1-ama.pdf.

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these products and the possible effects of an agreement like CAFTA-DR, are based on debates without solid or factual basis.”4

This essay will attempt to objectively analyze the positive and negative effects

that CAFTA-DR could bring to the economy and to the development of Costa Rica’s

agricultural sector. First, however, it is important to provide a summary of the

background circumstances that preceded CAFTA-DR, emphasizing those that eliminated

tariff barriers. Next, I will analyze the commercial trade liberalization effects, focusing

on the rights obtained for the entrance of Central America’s products to United States

market. Also the analysis will include the policies related to sensitive products (e.g.

sugar, dairy products, corn), tariff-rate quotas, agricultural safeguard measures and

product limitations entrance applied by United States to Central America’s products.

II. OVERVIEW OF CUSTOM DUTIES ERADICATION BEFORE CA FTA-DR.

When we talk about CAFTA-DR for Central America it is almost obligatory to

make a reference to the Caribbean Basin Initiative (CBI)5 that is a United States’ broad

program to promote economic development through private sector initiative in Central

American and Caribbean countries.6 This program has a major goal to expand foreign and

4 Carlos Arce y Carlos Felipe Jaramillo, El CAFTA y la Agricultura Centroamericana [ CAFTA and Central American Agricultura] Conferencia Regional de Comercio Internacional y Desarrollo de la Econom[ia Rural, 1,1 ( Guatemala. February 21-22, 2005) ( Unofficial translation) Avalilable at http://www.ruta.org/downloads/Informacion_Consultoria_PARAC_informaci%F3n%20de%20Insumo/CAFTAArce-Jaramillo%20March.doc. 5 Caribbean Basin Initiative (CBI) is compose of The Caribbean Basin Economic Recovery Act of 1983 (CBERA) that was amended in 1990 and the Caribbean Basin Trade Partnership Act of 2000 (CBTPA). Guide to the Caribbean Basin Initiative. United States Department of Commerce, International Trade Administration, 1 (November 2000). Available at http://trade.gov/media/publications/pdf/cbi2000.pdf. 6 Id. Also, it is necessary to mention that the major elements of CBI programs are: (a) Duty-free entry to the United States for a wide range of products grown and manufactured in CBI countries as an initiative for

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domestic investment in non traditional sectors as a way to diversify CBI countries

beneficiaries’ economies and expanding their possibilities to export.7 Furthermore, for

the purpose of my research, I will concentrate in The Caribbean Basin Economic

Recovery Act of 1983 (CBERA) that was amended several times, because it has direct

relation with the agricultural sector.

According to Morley the CBERA gave to most of Central America’s and

Caribbean’s products “a unilateral preferential treatment” (duty free entry or lower

custom duty payments8)” for exports to the United States market. This initiative

represents a unilateral, non-reciprocal grant of benefits to U.S. trading partners in theses

region, as a consequence, United States Congress established eligibility criteria for the

receipt of theses trade preferences.9 Originally this unilateral concession was to expire in

September 30, 1995, but it has been modified several times, because, among others, this

program began in 1983 by the Caribbean Basin Economic Recovery Act (CBERA) and it

substantially expanded in 2000 with the U.S.- Caribbean Basin Trade Partnership Act

investment and expanded export production, and other special tariff statues. (b) CBI Textile Program under CBTPA, apparel manufactured in illegible CBI countries from U.S. yarns and fabric, as a well as non-textile products excluded from earlier CBI legislation, will be enter the United States free of quota and duty. (c) CBI Government Procurement: National treatment for producer in CBI countries in biding for certain types of U.S. Government procurement opportunities. (d) Exemption for CIB export to the United States from U.S. Import Merchandise Processing Fees, a fee based on a percent of value-based customs duty surcharge levied on incoming good to cover costs of U.S. Customs operations, and finally (e) A wide range of United States Government, state government, and private sector business development programs, including trade and investment financing, business missions, and technical assistance programs partially supported trough U.S. foreign economic assistance. Id. at 1-2. 7 Id. 8 Morley (2006), supra note 1, at 9. 9 Seventh Report to Congress on the Operation of the Caribbean Basin Economic Recovery Act, 17 (December 31, 2007). Related to this topic is important to know that CBI criteria for the CBI programs fall within three broad categories: (a) mandatory factors that were defined in CBERA e.g. criteria related with communist country, nationalization and expropriation issues, arbitral awards, reverse preference among others, (b) CBERA discretional factors e.g. desire to be designated, economic conditions, market access and WTO rules etc., and (c) CBTPA eligibility criteria that involve among other protection of intellectual property right, recognized of worker rights, eliminations of worst for of child labor etc. Id. at 17-20.

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(CBTPA). Also CBI was further expanded in the Trade Act of 2002, and in December

2006, the HOPE Act of 2006 enhanced benefits under CBERA for Haiti.10.

CBERA established the following requirements for the duties-free entry of

products:

• Products generally must be imported directly from CBI beneficiary country into

U.S. customs territory.

• Products be wholly the growth, product or manufacture of a CBI beneficiary

country or be substantially transformed into a new or different article in the CBI

beneficiary country and,

• Contain a minimum of 35 percent local content of one or more CBI beneficiary

countries (15 percent of the minimum content may be from the United States). 11

This law allowed the export free of customs’ duty for most of the products that

originated in Central America, excluding initially, canned tuna.12 It also established

quotas without customs duty on the meat, dairy products, sugar, peanuts, tobacco and

cotton. If the importation was higher than the assigned volume, the goods were subject to

the Most Favored Nation (MFN) clause.13 In addition, it is important to note that in 1990,

CBERA was made permanent and at the same time amended modestly to increase market

10 Id. at 1. 11 Id. at 3. 12 Tuna canned regulations changed with NAFTA parity; it applied the same tariff rate that Mexico has. For this reason the tariff rate will go from 18% in 2000 to 0% in 2008. 13Ricardo Monge-González, Claudo González-Vega and Francisco Monge-Ariño, Efectos potenciales de un Tratado de Libre Comercio entre USA y Centro América sobre el Sector Agropecuario y Agroindustrial de Costa Rica y El Salvador [Potential Effects of Free Trade Agreement Between USA and Central America in Agricultural and Agroindustrial Sector in Costa Rica and El Salvador], 7,7.(Private Document). Available at: http://wbln0018.worldbank.org/lac/lacinfoclient.nsf/1daa46103229123885256831005ce0eb /90ecf3fda27b5cb585256c95005e4fe0/$FILE/Monge%20efecto%20del%20tratado%20libre%20comercio%20en%20agricultura.pdf. .

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access to the United States, e.g. the amendments included a 20 percent tariff reduction on

certain leather products; duty-free treatment for products produced in Puerto Rico and

further processed and imported from CBI beneficiary countries; duty-free treatment from

CBI beneficiary countries for products made from 100 percent U.S. components with

exclusion of textiles and petroleum and certain products derived from petroleum.14

Moreover, in May 2000 United States enacted U.S. Caribbean Basin Trade Partnership

Act (CBTPA), that it was implemented on October 2, 2000. This act expands the degree

of preferential treatment to U.S. imports of apparel made in the Caribbean Basin region

with certain annual quantitative limit.15 In contrast to CBERA, which is permanent, the

CBTPA established very clear that the benefits by statute expire on September 30, 2008

or another free trade agreement between United States and a beneficiary country,

whichever comes first.16

CBERA has a rule that establishes that if a product enters the United States in

massive quantities and could affect a local producer, the authorities can impose a

safeguard measure.17 Thus, the President of the United States may suspend duty-free

treatment under the CBI programs if temporary import relief is determined to be

necessary due to serious injury to domestic producers. 18 CBERA may be invoked by the

United States as a unilateral action; it is not based on an agreement or a legal obligation.

The beneficiary countries could not compel or try to maintain in an indefinite way the

benefits or advantages if there is no previous approval of the United States. As Morley

mentions “it is a unilateral agreement, optional and temporary that the United States can

14 Seventh Report, supra note 9, at 3. 15 Id. at 3-4. 16 Id. at 4. 17 Ricardo Monge, ET. AL. supra note 13 at 7. 18 Seventh Report, supra note 9 at 6.

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modify or cancel any time, or as it is mentioned “it can expire without the United States

doing anything.”19 In my opinion, it was interesting that Costa Rica’s CAFTA-DR

opponents20 used this information of the benefits of CBERA as an argument addressed to

Costa Rica’s Congress not to approve CAFTA-DR before the referendum in October 07,

2007. Even though, CAFTA-DR was approved and now the Congress is working to

implement the complementary agenda.

CAFTA-DR´s opponents argued that the benefits of the CBERA will continue,

regardless of Costa Rica’s approval of CAFTA-DR. In other words, it is interesting to

analyze how some opponents use half truths to justify their position against this

agreement, without realizing the consequences that their actions may have on the

majority of the export industry of Costa Rica, especially in the agriculture sector of the

country. Some political groups in Costa Rica, for example Partido Acción Ciudadana

(PAC), and also some voices of the estate universities argue that CAFTA-DR does not

bring additional benefits than the ones already granted by the CBERA. They maintain

that even if Costa Rica does not approve this agreement, the CBERA´s benefits will

19 Samuel Morley (2006), supra note 1, at 10. 20 See the following commentaries: A).- National University Commentaries in: Comentarios del Ministerio de Comercio Exterior de Costa Rica –COMEX- a los argumento de la Universidad Nacional (UNA) sobre el TLC [COMEX commentaries about National University’s Arguments about CAFTA], 3 (Private official document). Available at http://www.comex.go.cr/Respuestas%20de%20COMEX/Comentarios%20de%20COMEX%20al%20acuerdo%20del%20Consejo%20Universitario%20de%20la%20UNA.pdf; B).- Costa Rica’s University Counsel in: Comentarios de COMEX a la Posición del Consejo Universitario de la Universidad de Costa Rica (UCR) sobre el CAFTA [COMEX Commentary of Costa Rica’s University Counsel about CAFTA], 17 (official document). Available at http://www.comex.go.cr/Respuestas%20de%20COMEX/Comentarios%20de%20COMEX%20a%20acuerdo%20del%20Consejo%20Universitario%20de%20la%20UCR.pdf. C).- Arguments from Elizabeth Fonseca, Director of PAC representation in Costa Rica’s Congress was published by La Prensa Libre, February 3, 2007. In Karina Alpizar Corella, PAC Descarta TLC e insiste en la Iniciativa de la Cuenca para el Caribe” [PAC says no to CAFTA and insist in CBERA]. La Prensa Libre, Costa Rica, 4 (2007), available at http://www.prensalibre.co.cr/2007/febrero/03/nacionales05.php. D).- Opinion of Unions and PAC published in Karina Alpizar Corella, Arias Reconoce que Estados Unidos No Castigará al País de No Aprobarse el TLC [Arias declares that USA will not punish Costa Rica if CAFTA is not approved]. La Prensa Libre, Costa Rica, 2, (2007). Available at http://www.prensalibre.co.cr/2007/febrero/02/nacionales03.php.

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continue and will not affect exports to the United States.21 This information is incorrect

because it is very clear that the benefits of CBI for some products -like apparel- will

expire on September 30, 2008 and its extension will depend exclusively on the United

States government.

CAFTA-DR followers and CAFTA-DR opponents agree that if the CBERA´s

benefits disappear, Costa Rica and other countries who are parties to free trade

arrangements with the United States could face economical problems in the sectors that

receive benefits of exports to the United States. In this way, taking into account the

previous statement, I am under the impression that we are comparing two totally different

legal situations. On one side, we have a liberal law whose legal effects benefit the

CBERA´s countries, like Costa Rica. However, as a unilateral act it can be modified,

corrected, expanded, reduced or eliminated without any restriction. The Party that made

the liberal act can eliminate it whenever it wants to. From a strict legal standpoint, the

countries benefiting from CBERA do not have any legal means to force the United States

to maintain the advantages. In relation to this point, the Costa Rica’s Congress

Permanent Commission for International Issues and Commercial Trade identified and

summarized the reasons for CAFTA-DR’s approval.

“Even though CBERA has provided many benefits, there are at least six reasons to approve CAFTA-DR: First: CBERA can be modified, suspended or eliminated unilaterally by the US. This country establishes the law and could change it and no one can say anything because it is not a right, it is a concession. Second: CBERA has a limited coverage. There are some important Costa Rican products that are still subject to customs duties, like for example tuna, or they face tariff barriers, like for example some ornamental flowers. Third: CBERA’s benefits are not permanent; most of them will expire in 2008 (for example, textiles).

21 Id.

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Fourth: CBERA has the mentioned tariff benefit but it does not have other commercial rules that regulate other areas that are important to incentive trade in an organized way. Fifth: CBERA does not include an alternative dispute mechanism that allows solving commercial problems between countries, and this is very important when Costa Rica is dealing with a bigger and financially powerful nation like the United States. Sixth: CBERA is one-way trade. CAFTA-DR includes exportations and importations, generating more benefits to the population”22. On the other hand, bearing in mind the previous analysis, CAFTA-DR as a

multilateral agreement cannot be modified by one Party‘s unilateral will. Consequently,

any modification requires the approval of the signatory Parties23 to make changes that

involves the rights and obligations acquired. This circumstance generates a more stable

and controlled situation because the rules cannot be changed unilaterally by unexpected

and arbitrary decisions. Accordingly, under the vision of the most economically weak

signatory countries, the consolidation of their rights and advantages is one of the most

important legal issues and generates great impact in Central America’s market.

In addition, with regard to the agricultural sector – the focus of the discussion in

this essay- we can say that it achieves the consolidation of the entry rules to the US

market, giving to Costa Rica the possibility of making an agricultural development plan

according to the market’s requirements. Costa Rica, similarly to the other countries in

Central America, has the opportunity to identify the products that are more competitive in

international markets and develop an export plan to support future export activities. With

CAFTA-DR, Costa Rica is familiar with the rules upon which its commercial relationship

22 Major Opinion (2006) supra note 3 at 36-37. (Unofficial translation). 23 Free Trate agreement between República Dominicana – Centroamérica – United States, signed August 5, 2004, Chapter 22. Available on line at http://www.comex.go.cr/acuerdos/comerciales/CAFTA/textofoliado/default.htm, or at http://www.seic.gov.do/Home/Dirección%20Administrativa/Comercio%20Exterior/Tratado%20de%20Libre%20Comercio%20%20(1).aspx?menuid=4

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will be based. It will know the kind of custom duties its actual or potential export

products will be subject to - there will be no surprises and arbitrary modifications.

Therefore, at this moment, and as a general issue, I argue that Costa Rica’s agricultural

products, with only a few exceptions that I will discuss below, enjoy the tariff barrier

elimination and the rights that are provided by CBERA.

III. CAFTA-DR’S TRADE COMMERCIAL LIBERALIZATION EFF ECTS; COSTA RICA AND UNITED STATES.

This section will include an analysis of CAFTA-DR’s principal commercial

liberalization effects in the agricultural sector.

A. General Information.

During the period from January to September 2006, the total amount of imports

and exports between Costa Rica and United States reached $5.947 millions.24 Almost

50% of the total export and import activities were attributed to the trade with United

States. For this reason, United States became Costa Rica’s most important commercial

partner. Also, during 2005, the Costa Rican agricultural sector had a commercial

interchange of $1.247 millions25 with this nation. Ricardo Monge ET. AL. noted:

“United States of America is the most important commercial partner for Costa Rica. 49.1% of Costa Rica’s exports are made to the USA and

24 Information come from COMEX, PROCOMER, Promotora de Comercio Exterior (PROCOMER) and Costa Rica’s Central Bank (BCCR), that it referred in Major Opinion (2006) supra note 3, at 12. 25 Id. at 48.

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50.9% of its imports are from the USA…Costa Rica is a strong exporter of agricultural and agro-industrial products. It exports four times more than it imports of the same kind of products…it is important to mention that United States is the most important source of supply for agricultural products.” 26 In reference to Costa Rica, the commercial balance in relation to the agricultural

sector with United States is very positive. For example, in 2005 agricultural exports from

Costa Rica to the U.S. market were $905 million and its imports of these products from

the United States were $342 million, which means that for every dollar that Costa Rica

imports, it exports $3 back to the United States. 27

B. CAFTA-DR’s effects on Agricultural Free Entry.

As I stated previously with respect to the CBERA, for Costa Rica, from the legal

point of view, CAFTA-DR means clear rules and specific commercial procedures

applicable among the signatory countries of the agreement. CAFTA-DR consolidates a

series of benefits and obligations that Costa Rica was receiving from CBERA and also

expands those effects related to the free entry of agricultural products to the US market.28

At the moment, the agricultural exports from Costa Rica to the United States are

comprised of 1,400 different products. As soon as Costa Rica’s Congress approves

CAFTA-DR’s complementary agenda (following the will of Costa Rican people

expressed in the referendum), and CAFTA-DR enters into force to Costa Rica, the first

effect is that 98.3% of the Costa Rican exports will be guaranteed an immediate access to

26 Ricardo Monge-Gonzalez ET.AL. supra note 13 at 5. (Unofficial translation). 27 Major Opinion (2006) supra note 3 at 48. 28 Id. at 48-49.

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the US markets free of customs duties29 and, consequently, Costa Rica will cease to be

designated as a CBERA and CBTPA beneficiary country.30 The rest of the agricultural

products (1.7%) that are considered sensitive, obtained different degrees of protection

and tariff elimination that will be analyzed below.

There is no doubt that for Costa Rica, CAFTA-DR is the best legal way to clearly

define the rights and obligations between the signatories. Additionally, CAFTA-DR

eliminates the commercial instability that could be generated from the various US

policies especially those related to international trade policies or influenced by domestic

politics. Nowadays United States is increasing its commercial relations with signatory

countries and is less interested in the countries that have not entered into similar trade

agreements. This situation makes Costa Rica’s position uncertain. CAFTA-DR is the

legal instrument that consolidates the rights and obligations, making the commercial

relationships between the countries more stable. Consequently, most of CAFTA-DR’s

countries established customs duty reductions for many agricultural products that can last

for up to 20 years, depending on the product and its categorization.

C. Special Treatment for some agricultural products: Exemption Rules; Costa Rica and United States’ view.

The groups of products that obtained partial or total exemptions related to tariff

elimination are the following:

29 Marco Antonio Ruiz, Costa Rica’s Trade Chancellor, Manifestación del señor Ministro de Comercio Exterior de Costa Rica señor Marco Antonio Ruiz ante la Comisión de Asuntos Internacionales y Comercio Exterior de la Asamblea Legislativa [Marco Antonio Ruiz Commentaries in from of Permanent Commission of International Themes and External Trade of Costa Rica’s Congress], 10 (Oficial Document, October 11, 2006). Available at http://www.comex.go.cr/AL-MINRUIZ-111006.pdf. 30 Seventh Report, supra note 9 at iii (executive summary).

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C1. Sensitive Products.

The sensitive products are those that present a political or economic degree of

sensitivity to any sector of the country. In most countries they are the result of the public

policies or administrative plans to avoid damages to the lower income part of the

population,31 or in the United States to groups with great political power e.g. corn

farmers. Usually these products are the ones that have maintained a certain level of

commercial protection despite the changes in the last 15 years. 32 Costa Rica, similarly to

other countries in Latin America, takes into consideration some socioeconomic factors to

determine the sensitivity of a product. The most important factors are the analysis of the

employee contributions and the contribution of that product to the agricultural GDP

(Gross domestic product)33.

CAFTA-DR presents a wide variety of ways to handle these products. There is no

standardization in the products classification or in the tariff elimination. Even though the

geographic area of Central America is relatively small, the requirements of the sensitive

sectors are very different. This causes that the protection of these sensitive sectors have to

receive diverse treatments.

Costa Rica defined the following products as its most sensitive products:

• Beef: tariff elimination period of 15 years. • Pork: tariff elimination period of 15 years. • Chicken: tariff elimination period of 17 years. • Dairy Products: tariff elimination period of 20 years. • White corn: tariff elimination period of 5 years. • Black beans: tariff elimination period of 15 years. • Rice: tariff elimination period of 20 years. • Vegetables: tariff elimination period of 15 years.34

31 Carlos Arce y Carlos Felipe Jaramillo (2005), supra note 4 at 3. 32 Id. 33 Id. at 4. 34 Id. at 3.

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The opponents of CAFTA-DR in Costa Rica argue that these periods of time are

insufficient to develop real solutions and policies before the entrance of US products at

prices lower than those for the national products.35 I agree with the opinion of Costa

Rica’s Trade Minister who stated that “Some agricultural sectors need more time to

prepare themselves from the United States competition. CAFTA-DR takes into account

the concern of the most sensitive sectors and establishes long periods of tariff

elimination” 36 Mr. Morley came to a conclusion that for the sensitive products CAFTA-

DR recognizes slow tariff elimination and in some cases with no negative

repercussions.37

C2. Tariff-Rate Quotas.

It was agreed that most of the sensitive products will have immediate access

through the creation of tariff-rate quotas or importation quotas with zero tariff according

to a determined rate.38 Morley pointed out that the quota system produced more

accelerated liberalization depending on each category. 39 For most of the products that are

described below, the tariff rate quotas levels will increase in time and the importations

above the tariff rate quotas will subject to a customs duty that will decrease in time,

depending on the level of the duty. 40 In Costa Rica we find the following products that

35 COMEX-UNA Commentaries, supra note 20 at 2. 36 Marco Antonio Ruiz supra note 29 at 10. Furthermore, related with this topic the Permanent Commission of International Themes and External Trade of Costa Rica’s Congress established that CAFTA gives the sensitive products time to adapt to the new circumstances. Major Opinion supra note 3 at 48. 37 Samuel Morley (2006), supra note 1 at 3. 38 Carlos Arce y Carlos Felipe Jaramillo (2005), supra note 4 at 4. 39 Samuel Morley (2006), supra note 1 at 17. 40 Id. at 17.

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have tariff-rate quotas. This country has exemptions for dairy products and meat that

have separate quotas. This information is presented in general terms with the objective of

providing an overview of the subject.

Costa Rica’s Most Sensitive Products41

Product Tariff

Classification

Initial

Quotas

Quotas’ growth

in tons

Safeguard % Quota’s

Initial Duty

Dairy F 1050 5% per year 130% 15-66%

Husk Rice V 51000 1000 t annual 110% 36%

Unhusk Rice V 5250 250 t annual 110% 36%

Chicken Thighs U 330 +90 t annual 130% 151%

Pork R 1100 100 tons per year during

the first 5 years, then

150 tons per year during

the next 10 years

140% 47%

Potatoes B,H 2931 5% per year 50 t 47%

Onions H 600 2% per year ---- 47%

Black beans D ---- ---- 1200 t 47%

White beans D ---- ----- ---- 11%

Red beans D ---- ----- ---- 47%

Tariff-Rate Quotas is quota for a volume of imports at a lower tariff. After the

quota is reached, a higher tariff is applied on additional imports.42 Each signatory

country can use these tariff-rates quotas to protect its agricultural sector. According to

41 Carlos Arce y Carlos Felipe Jaramillo (2005), supra note 4 at 6. 42 David Skully, AoA Issues Series: Tariff-Rate Quota Administration, 1(U.S.D.A. Economic Research Service). Available on line at http://www.ers.usda.gov/Briefing/WTO/TRQ.htm.

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Arce and Jaramillo “this helps the weak countries increase gradually their production or

find new competitive activities”43

C3. Special Agricultural Safeguard Measures.

In Costa Rica, the opponents of CAFTA-DR claim that the special agricultural

safeguard is a different mechanism from the general safeguard anchored in the

agreement. It consists of the possibility to use safeguards to avoid excessive growth in

imports that could negatively affect the access of Central America’s products. 44 This

mechanism is based on import volumes and allows trade restrictions to be imposed

automatically when the imports exceed the predetermined levels.45 These safeguards can

be used in the transition period for up to four consecutive years, as long as the duties have

not reached zero. After that these safeguard measures can be used only with the prior

agreement of the respective parties.46 This subject has been under discussion at various

forums. Costa Rica’s National University declared that the safeguards will not be used

any more when the period of duty protection has ended.47 However, according to

CAFTA-DR’s article 3.18 this claim is unfounded.

Article 3.18: Agriculture Review Commission The Parties shall establish an Agriculture Review Commission in the 14th year after the date of entry into force of this Agreement to review the implementation and operation of the Agreement as it relates to trade in agricultural goods. The Agriculture Review Commission shall evaluate the effects of trade liberalization under the Agreement, the operation of Article 3.15 and possible extension of agricultural safeguard measures under that Article,

43 Carlos Arce y Carlos Felipe Jaramillo (2005), supra note 4 at 5. 44 Id. 45 Id. at 5 - 6. 46 Id. at 6. 47 COMEX-UNA supra note 20 at 2.

19

progress toward global agricultural trade reform in the WTO, and developments in world agricultural markets. The Agriculture Review Commission shall report its findings and any recommendations to the Commission.48

Yet another of the arguments against the Agricultural Safeguards Measures is that

they are not sufficient to balance the benefits, subsidies and internal support that the US

producers receive. 49 In my opinion, the Agricultural Safeguard Measures were not

developed to address the benefits and subsidies that some US agricultural products enjoy.

It is an instrument that was developed to reduce the liberalization effects in an abrupt way

and without any kind of limits. This mechanism helps specially the sensitive products. I

believe that it is reasonable to assume that United States agricultural subsidies will

decrease in the future perhaps in 10 or 15 years.

D. Controlled product access to the United States market.

As I stated above, for Costa Rica CAFTA-DR does not make a big difference in

the liberalization of its agricultural goods exports due to the existing benefits of CBERA.

However, there are a number of products that were not included in the CBERA and that

are now covered by CAFTA-DR, representing wider commercial opportunities and legal

consolidation for the country.50 It is interesting to analyze the treatment that the United

States gives to some products that have been protected and subsidized by it, such as

48 Article 3.18 CAFTA DR supra note 23. 49 Respuesta del Ministerio de Comercio Exterior COMEX a los principales argumentos del documento del Partido Acción Ciudadana (PAC) [COMEX answer to PAC arguments against CAFTA], 3 (2006) (oficial document). Available at http://www.comex.go.cr/Respuestas%20de%20COMEX/Matriz%20PAC%20Octubre%2006.pdf. 50 Canned Tuna example, supra note 12.

20

sugar, beef, peanuts and dairy products.51 Subsequently, the United States establishes

export quotas for Costa Rica that under my criteria, also used by other authors like

Morley,52 are a total imposition of tariff rate quotas. The US is seeking to establish

maximum exports of those products from CAFTA-DR countries to the Unites States

subject to prohibitively high duties. As a consequence, the exports that exceed the

established volume are taxed at such high rate that it is almost impossible to pay the

established tariff for those products.53

According to my criteria, these quotas conflict with the principles and objectives

pursued in the Free Trade Agreements, which seek to eliminate duties for the

development of free trade. Furthermore, the establishment of rigid quotas with annual

increases in some of CAFTA-DR’s products will be positive for Costa Rica, because its

exports could increase. For example, beef will have an increase of 13%.54

IV. AGRICULTURAL PROTECTION EFFECTS IN THE CAFTA-DR COUNTRIES. Agricultural protection in the CAFTA-DR countries consists of the

implementation of internal subsidies for agricultural products or the implementation of

tariff or non-tariff barriers to the agricultural imports. This subject has been discussed in

international trade forums due to its increased importance in the last years. At the same

time, this issue has been used by the free trade opponents to support their position against

bilateral or multilateral trade agreements. The opponents of free trade agreements argue

51 Samuel Morley (2006) supra note 1 at 25. 52 Id. 53 Id, at 25. As a commentary, Sugar tariff rate is $33-35/kilo; this tariff is above the market’s price. 54 Samuel Morley, supra note.1 at 27.

21

that the liberalization is based on inequality and lack of free competition, because such

liberalization is a result of commercial agreements between developed countries and

developing countries. Even though the agreement is based on equality of contracting

parties, the reality of the signatory countries is very different55.

Another of the factors that has to be analyzed as a restriction to free trade is the

developed countries’ implementation of tariff and non-tariff barriers. These barriers

generate an increase in the product’s price and make it more difficult for developing

countries to compete in international markets.56

Moreover, subsidies are defining as - “a grant made by the government to any

enterprise whose promotion is considered to be in the public interest”.57 Thus, the final

price of a product that is subsidized does not accurately reflect the production cost, the

production risk and the profit that is common in the market. In other words, the final

price of subsidized products is not the result of the market variables; in contrast it is the

result of the distortion that modifies the normal factors that are usually taken under

consideration to establish a price. As an example, the government pays to the exporters a

percentage of the FOB value or the total or partial reimbursement for the amortization of

farm machinery, supplies and income taxes, etc.

Accordingly, these protectionist policies undermine the ability of producers in

developing countries to compete on the same playing field with the agriculture producers

55 COMEX - PAC, supra note 49 at 1. 56 Among others: COMEX-PAC supra note 49 at 4; COMEX-UNA supra note.13 at 2; Eva Carazo Vargas, Implicaciones del tratado de Libre Comercio entre Estados Unidos y centro América para el Sector Agropecuario: Aproximaciones desde la perspectiva de la agricultura familiar campesina. [CAFTA Effects in Agricultural Sector], 1, 1(Private document). Available at: http:196.40.23.180/biblio/cedil/documentos/ImpliTLCagrop.htm. 57 BRYAN A GAMER, BLACK’S LAW DICTIONARY, West group, 1159 (ST, Paul, MINN., 2000).

22

of developed countries who receive benefits from the government. The price of a non-

subsidized product will never be the same as that of a subsidized product.

“These agricultural subsidies can increase the production in the developed countries, reduce its imports and decrease the export opportunities for developing countries in those subsidiary products”58

In relation to the implementation of tariff and non-tariff barriers, Ricardo Monge

and others claim:

“ Previous results are consistent with the Ray and Marvel investigations (1984) as well as with those of Ray (1987, 1987b, 1987c, 1989, 1990), who argue that the United States maintain duty and non-duty barriers against the imports of goods from Central America’s countries in which they have competitive advantages, so that they could export to this market.”59 It is clear that developed countries use these barriers to protect its agricultural

activities and it is very common that they have used the self-sufficiency/national security,

exceptional price instability, preservation of the rural way of life/environment arguments

etc as a rationale to justify these barriers.60 Also, it is true that WTO negotiations have the

objective to reduce agricultural interventions, especially those related to internal

subsidies and duty barriers (tariff and non-tariff rate quotas).”61 Even though until now

WTO agreement in agricultural sector brought about a modest reduction in agriculture

subsidies.62 In the future, it is expected that an accord will be reached in a few years,

58 Carlos Arce and Carlos Felipe Jaramillo, 2005, supra note 4 at 6. (Unofficial translation) 59 Ricardo Monge Gonzalez, Miguel Loría Sagot, Claudio González Vega. Retos y Oportunidades para los sectores Agropecuario y Agroindustrial de Centro América ante el Tratado de Libre Comercio con los Estados Unidos [Agricultural and agroindutrial sectors challenges and opportunities in Central America with CAFTA-DR],32 (May, 2004) (Documento no 9. Academia de Centro América) (Unofficial translation). Available at http://wb1n0018.worldbank.org/LAC/lacinfoclient.nsf/d29684951174975c85256735007fef12/8c4c01d66e843c7e85256d5f006663c2/$FILE/Monge%20CAFTA%20paper.pdf 60 MICHAEL J. TREBILCOCK AND ROBERT HOWSE, THE REGULATION OF INTERNATIONAL TRADE, 327 (2005). 61 Id. at 31. 62 Id. With respect of this agreement it is necessary to mention here that Uruguay Round of Multilateral Trade Negotiations established the first step to try to reduce the subsidies and tariff and non-tariff barriers

23

because the current market trend is oriented toward commercial free trade without

barriers that modify the product’s prices.

In addition, I can mention that the most common duty and non-duty barriers used

by countries, such as the US:

1- Import Quotas;

2- Seasonal Tariffs;

3- Tariff-rate Quotas;

4- Automatic Licensing Procedures; and

5- Increased Tariff 63

Case research in Costa Rica demonstrates that the United States applies tariff rate

quotas in chocolate and similar products (Chapter 18 Harmonized System), automatic

licensing procedures are applied to beef import and beef made products (Chapter 2

Harmonized System), antidumping actions are imposed against flower imports (Chapter 6

Harmonized System), and seasonal tariffs are applied with respect to different fruits and

vegetables (Chapter 8 & 7 Harmonized System).64

In my opinion, trying to maintain an objective position according to international

reality, I argue that the subsidies, tariff and non- tarrif barriers have been protectionist

instruments used by countries in three ways: 1) to maintain the status quo of protected

social classes of the society that are important to their economic and politic stability, 2) as

a political instrument developed to provide an incentive to production and exports, and 3)

that the developed countries apply to protect its agricultural sector. This reduction of protectionist politics is the only way to try to achieve the balance in front of the international agricultural market. 63 Ricardo Monge Gonzalez ET.AL., supra note 13 at 8. 64 Ricardo Monge Gonzalez ET.AL (2004), supra note 59 at 32.

24

as a national strategy to ensure food for their people.65 International reality also shows

that these agricultural financial protections existed in the past and continue to exist in the

present. Furthermore, they are used more often by developed countries, but increasingly

by developing countries as well. Dr. Carlos Pomareda stated:

“The economical and financial incentives play an important role to motivate exports, especially to give incentive to assume risks. In Central America, these incentives have been used with some variations between countries, their intensity and periods have changed considerably”66 For illustration, the use of agricultural subsidies as a way to develop

governmental economical policies and to protect some countries’ working classes, I can

provide the following examples:

“Guatemala: Promotion and Development Law for Export Activity and Free Zones (Ley 29-89 Ley de Fomento y Desarrollo de la Actividad Exportación y Maquila) and Ruling Free Zone 65-89): These laws offer duty import reductions to agricultural machinery, equipment and production and exports supplies. They also relieve exporters of the duty to pay income tax for a 10 year period. El Salvador, 1990: Export Reactivation Law (Ley de Reactivación de las Exportaciones): Established a 6% subsidy for the FOB exportation value as a tax compensation to exporters. Also the Free Zone System Law (Ley de Regimen Zonas Francas) provided total tax exception to import machines as well as income and municipal tax exception for 10 years. Nicaragua, 1991 Export Promotion Law (Ley de Promoción de Exportaciones) provided tax relief to agricultural machinery and stocks, raw material and supplies, semi elaborated articles and package material. The relief also includes sales and income tax incentives to buy stocks and raw material for six years. This law created CBT (Certificado Beneficio Tributario) as a 50% subsidy of the FOB export value that the government provides.

65 President George Bush´s message during the Farm Bill process approval “It is important for our nation to grow food, feed our population. Can you imagine a country that is not able to grow enough food to feed its population? It would be a nation exposed to international pressures. It would be a vulnerable nation. When we talk about American agriculture we talk about a national security subject. Cited by Eva Carazo Vargas, supra note 56 at 1. 66 Carlos Pomareda, Los Pequeños Agricultores y su Participación en las Agroexportaciones en Centro América. [Small Agricultures and their Agroexport Participation in Central America] 4-16 (Taller regional de la UNCTAD en cooperación con IICA ICORECA-CAC denominado el sector agroalimentario: integración regional y vinculaciones internacionales para su desarrollo) (unofficial translation). Available at: http:// www.unctad.org/infocomm/diversificacion/san%20jose/pomareda.pdf

25

Costa Rica, 1984: Through the Export Incentive Law (Ley de Incentivos a las Exportaciones), the government exempts raw material, utility capital gains from income tax payment and grants 15 – 25% subsidy of the export FOB value” 67

Now, when we closely look at CAFTA-DR, it is reasonable to conclude that

signatory countries lost the opportunity to conclude an agreement with respect to

agricultural subsidies, tariff and non- tariff barriers and how United States of America

could help to developing CAFTA-DR countries to minimize the poverty problems in its

rural areas. CAFTA-DR in contrast, postponed the finals discussion and the final analysis

to a multilateral WTO forum which will have multilateral interests that not necessarily

protects Central American and Dominican Republic objectives.

In addition to our analysis, CAFTA-DR’s Article 3.14: Agricultural Export

Subsidies established:

1. The Parties share the objective of the multilateral elimination of export subsidies for agricultural goods and shall work together toward an agreement in the WTO to eliminate those subsidies and prevent their reintroduction in any form. 2. Except as provided in paragraph 3, no Party may introduce or maintain any export subsidy on any agricultural good destined for the territory of another Party. 3. Where an exporting Party considers that a non-Party is exporting an agricultural good to the territory of another Party with the benefit of export subsidies, the importing Party shall, on written request of the exporting Party, consult with the exporting Party with a view to agreeing on specific measures that the importing Party may adopt to counter the effect of such subsidized imports. If the importing Party adopts the agreed-on measures, the exporting Party shall refrain from applying any subsidy to its exports of the good to the territory of the importing Party. If the importing Party does not adopt the agreed-on measures, the exporting Party may apply an export subsidy on its exports of the good to the territory of the importing Party only to the extent necessary to counter the trade-distorting effect of

67 Id. at 17-18. (Unofficial translation).

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subsidized exports of the good from the non-Party to the importing Party’s territory.”68

For better interpretation of above article 3.14 CAFTA-DR it is necessary to refer

that explanation that Professor Gantz provided in the Dominican Republic Manual which

present the following arguments:

“Export subsidies are to be eliminated on intra-CAFTA-DR trade. (Art. 3.14) However, if a third country (e.g., the European Union) applies an export subsidy to one of the CAFTA-DR Parties (e.g., the Dominican Republic), a CAFTA-DR Party (e.g., the United States), may “introduce or maintain” an export subsidy on agricultural exports to the Dominican Republic unless the Dominican Republic adopts measures to counteract such subsidies. The idea of course is to create a level playing field between agricultural exports for goods exported from the United States compared to those exported from other jurisdictions, such as the EU. In general, the United States does not use export subsidies to promote agricultural exports (with some exceptions); rather, U.S. farm policy favors the use of various domestic subsidies, some of which have been held to be inconsistent with WTO rules.69

V. OVERVIEW OF THE OPPORTUNITIES AND RISKS OF COST A RICAN AGRICULTURAL PRODUCTS UNDER CAFTA-DR. When I think about Costa Rica’s risks and opportunities in its agricultural sector

under CAFTA-DR, the first question that comes to my mind is: Is Costa Rica ready to

make all the transitional policies in its agricultural sector as a consequence of CAFTA-

DR? To answer this question it is necessary to analyze the principal risks and

opportunities that this sector has.

68 Article 3.14 CAFTA-DR supra note 23. 69 David Gantz, The Dominican Republic- Central America- United States Free Trade Agreement: Analysis, Interpretation and Application, II-6 (2007).

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A. CAFTA-DR’s Risks for Costa Rica.

A1.- U.S.’s subsidies and support agricultural production policies.

As I mentioned before, U.S.’s subsidies systems are amazing because this country

has the budget to give all the necessary support activities that its agricultural sector needs.

E.g. in 2002, United States adopted the 2002 US Farm Hill, which provides for an

estimated increase of $83 billion in the agricultural budget between 2002 and 2012.70

Consequently, these subsidies cause fictitious prices in market place. As an example, the

United Status policies that support agricultural production allow grain and cotton exports

far below costs.71

In contrast, Costa Rica subsidies are lower and its government does not have the

budget to maintain huge agricultural subsidies. Also, it is necessary to mention that Costa

Rica´s budget for the agriculture support is coming from import tariff, taxes and

international cooperation. Under CAFTA-DR most of the import tariff will disappear,

and the international cooperation is not under Costa Rica’s government control.72 These

circumstances make totally vulnerable Costa Rica´s subsidies budget and it cannot

compete in equal conditions. Even though CAFTA-DR established a long period of time

to eliminate tariff to Costa Rican sensitive products, at the end of this period these

products- especially those that compete with subsidiary products of the United States-

70 David E. Sanger, Reversing Course, Bush Signs Hill Raising Farm Subsidies, New Cork Times, 14 May 2002, available online at www.nytimes.com. 71 Institute for agriculture and Trade Policy (IATP), United Status Dumping on World Agricultural Market (Minneapolis, Feb. 2005) cited by Amy Angel, Transition policies for the agricultural sector in CAFTA-DR, 6 (Nov. 2007) (Presented at the First Annual Workshop of the CAFTA-DR Agriculture and food Market Integration Consortium CAMIC). Available at http://camic.tamu.edu/sanjose/angel_english.pdf. 72 See in the same thinking line Amy Angel, Id.

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will tend to disappear, for example rice and beans, among others. I agree with P.

Pinstrup-Andersen when he noted:

Agricultural export subsidies are particularly harmful to developing countries as they artificially lower world-market prices for their export. In the short term, poor countries benefit from the lower prices, but in the long term, their farmers and entire industries are forced out of business due to the effect of the very high post-Uruguay Round export subsidies.73

A2.- Favorable Production and Commercialization Treatment for Agricultural Sector in the U.S market.

CAFTA-DR offers U.S. workers and farmers the opportunity to access a region’s

market to goods, services and farm products from the United States. Consequently, for

the US agricultural sector, CAFTA-DR brings better trade conditions than the actual

negotiations specially after the protection period expires. In addition, US Government

offers technical, commercial and marketing support to their exporters and agricultural

producers as a way to develop its agricultural sector. Also, this country has better

infrastructure (ports, highways, telecommunication, among others) and credit

opportunities to incentive agricultural production. In addition, this nation has big land

extensions with similar characteristics that make possible to achieve scale economy.

In contrast, Costa Rican government recourses are insufficient to support its

agricultural sector. It offers the minimum technical, commercial and marketing

assistance. Also, the credit access is limited and the interest rates are higher regarding US

market. Their facilities are inadequate to incentive agricultural sector development. Costa

Rica production does not have the benefit of economy scale as a result of their land

73 P. Pinstrup-Andersen, To Benedit Developing Countries, the Doha Round Agricultura Agreement Must Be Ambitious, editorial, International Policy Council, 28 de February 2003, available on line at www.agritrade.org/Doha/Press/Op%20ed%20Per%20Pinstrup%20Abdersen.pdf, cited by MICHAEL J. TREBILCOCK AND ROBERT HOWSE supra note 60 at 336.

29

characteristics. All these factors make harder the competence between Costa Rican

agricultural sector with its similar sector in the Unites States.74

B. CAFTA-DR’s Opportunities for Costa Rica.

B1. CAFTA-DR substitutes CBERA with greater benefits.

CBI’s benefit for Costa Rica agricultural products was analyzed above with

details. For this section I could mention that CAFTA-DR eliminated the uncertainty that

U.S. government may change in the future its international policies with respect to CBI’s

benefit. CAFTA-DR substitutes CBI benefit –that is a unilateral concession- for a

multilateral agreement -that cannot be changed without express manifestation of the

signatory countries-. The direct effects of this free trade agreement benefit are:

i.- Costa Rica may attract foreign investment to incentive its agro industrial sector, consequently, there will be technology interchange. ii.- Local and international enterprises established in the country will generate more confidence to invest in technology, facilities, etc. iii.- Employment rate will increase due to investment increase. iv. Lower poverty levels due to higher employment rate and distribution of richness.75

B2- Diversification production and exports.

Regarding to the other signatories countries -excluding the United States-, Costa

Rica exports a high variety of agricultural products to the international market. This gives

an advantage and at the same time minimizes negative effects of the entrance of

74 Amy Angel, supra note 71 at 7-8. 75 Interview with Rodrigo García Brenes, CEO and majority shareholder of Exportaciones Norteñas S.A., Pineapple Costa Rica´s export company, San Carlos, Costa Rica (Mach 10, 2008).

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subsidiary products from US market. CAFTA-DR will help Costa Rica’s planning

process and expansion on non traditional products as fruits, vegetables and flower etc.76

We can find diversification not only in the products, but also in the activities

related to the agricultural sector. We can find successful cases of agricultural producers

and exporters that mix their activities with tourism activities e.g. Café Britt with its

Coffee Tour in which tourists can go to the coffee plantation and learn about the coffee

produce and industrialization process. 77

C- Transition Policies for Agricultural Sector in Costa Rica. In the last decades, Costa Rica has been developing a new legal framework to

afford the changes of the new liberal economic model. One of the most important laws is

the Trade Negotiations and the Administrations of Free Trade Treaties, Agreements and

Foreign Trade Instruments Law that was stated in December 2001.78 This law created two

fundamental trade administration agencies: The Directorate for Implementation of

International Trade Agreement (DAACI) and The Consultative Council on Foreign

Trade.79 These agencies increase Costa Rica’s government capacity to develop long term

strategic planning. After this law was created and as a way to facilitate coordination with

all the institutions involved in trade, Costa Rica’s government created The International

76 Amy Angel, supra note 71 at 4. 77 Information about Coffee Britt tour is available on line at http://www.cafebritt.com/coffeetour/index.cfm?aff=ct&gclid=CNSx242K6JICFQqWggoddB1-4g. 78 Ley No. 8056 para las Negociaciones Comercial y la Administración de los Tratados de Libre Comercio, Acuerdos e Instrumentos del Comercio Exterior [ Law No. 8056......], December 21, 2000, published in the Official Gazette on January 15, 2001. (hereinafter L8056). 79 Article 9, L8056 supra note 78. See also Tratado de Libre Comercio, Agenda integral de Cooperación. Plan Nacional de Acción Propuesta Conceptual, Gobierno de Costa Rica [Trade Agreement Integral Cooperation Agenda, National Action Plan of Costa Rica, Conceptual Proposal] 6 (November 2007). Available on line at http://www.ustr.gov/assets/Trade_Agreements/Regional/CAFTA/asset_upload_file250_3358.pdf

31

Commission of the DAACI. This commission includes representatives of the Ministries

of Economy, Industry and Trade, Agriculture, Finance and Health. It is presided over by

the representative of the Minister of the Foreign Trade.80

The implementation of CAFTA-DR’ accelerate the developing policies in rural

areas as a way to minimize the negatives effects in the agricultural sectors and as a

technique to take advantages for the benefits that this agreement brings to Costa Rican

people. Costa Rica’s government actions plan mention:

“One of the main challenges Costa Rica faces in its economic development is to ensure that the benefits of the modern open economy are evenly spread amongst all the members of the population and reach even the poorest communities . . . Conditions have also traditionally been affected by the notable inability of the State to provide basic public services to these communities, such as drinking water, electricity, telecommunications, health care and primary education. The standards of living in rural areas in Costa Rica are therefore below the national average.”81

The Inter American Developing Bank has recommended policies to avoid losses

and to maximize gains for small farmers and rural households emphasizing the following

areas:

a- Provide a combination of income support during the liberalization period, along with technical assistance for the production of high value- added export crops and other activities. b- Create a stable and competitive macroeconomic environment. c- Facilitate rural economic growth through investments in rural infrastructure. d- Provide assistance to access to export market, specially in sanitary and phytosanitary requirements.

80 Id. 81 Id.at 26.

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e- Give priority to the management of valuable natural resources to ensure the sustainability of production and exports specially in terms of fisheries resources.82

Moreover, World Bank suggests that Costa Rica’s government needs to focus in

the following areas to take advantage of the CAFTA-DR.

a- Education. b- Innovation policies. c- Infrastructure access. d- Public institution strength. e- Compensatory action for lower income households can be affected

during the transition time.83 Therefore Costa Rica’s government has taken in consideration all the international

recommendations and has made an action plan to maximize the opportunities that

CAFTA-DR brings to its economy. Thus, the government has taken special measures that

represent an investment of US$355 million in five years period, out of which, US$219

come from loans from the World Bank, the IDB and the Central American Bank for

Economic Integration. These funds will be used to funding three specific areas: 1) small

and medium enterprises competitiveness, 2) Development of sustainable agricultural

production, 3) increased education in rural areas.84

Costa Rica’s government assigned US$17.6 million to the development of

sustainable agricultural production. It is important to mention that Interamerican

Development Bank lent US$14.4 million of this amount. 85 Therefore, this information

82 Jessica Todd, Paul Winters and Diego Arias, CAFTA y la economía rural de Centroamérica: marco conceptual para recomendaciones de políticas y programas, 4-5 (December, 2004) (Inter American Development Bank). 83 Carlos Felipe Jaramillo, Qué sabemos de los efectos del CAFTA? [What we know about CAFTA effect?] 29, 32 (No. 1 Revista Centroamericana en la Economía Mundial del Siglo XXI). 84 Amy Angel, supra note 71 at 9. 85Id.

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confirms that Costa Rica has limited resources to implement all the transition policies

that CAFTA-DR requires. Costa Rica’s Agricultural Sector Action Plan includes:

a-) Investments and technical assistance in sustainable agricultural production: co-financing of technical assistance and investment (50 percent in general; 10 percent contribution for indigenous producers); introduction to new technologies and soil and water conservation, with incentive to agribusiness of at least 20 percent of the investments’ costs (except for labor); to a maximum of 30 percent. b-) Training and information: training for organizations, extension agents and other professionals; demonstration plots in integrated farms; emphasis on organic agriculture, conservation, and cooperatives; improve and adapt Agricultural Information System (INFOAGRO). c-) Studies to support agricultural sector competitiveness: development of information and baseline data; competitiveness studies; monitoring system and evaluation of environmental and social impacts; market studies of payment for environmental services; specific project on agricultural, marketing and agroindustrial production86.

Finally, with respect to the agricultural sector it is necessary to mention that Costa

Rica’s Action Plan establishes several measures to improve its agricultural sector

development. The most important are the following: Technical assistance; irrigation

infrastructure; technological development for agrifood chains; finance for productive

projects; market information; including specialized centers and reports; quality control

systems; improvement in the plant and animal health systems; assistance of purchases

from small and medium producer in the Strategic Supply Program; among others. 87

86 Ministerio de Agricultura y Ganadería (MAG), Acciones del Ministerio de Agricultura y Ganadería para atender los desafíos y aprovechar las oportunidades del Tratado de Libre Comercio con los Estados Unidos de América (DR-CAFTA) [Costa Rica’s Agricultural Minister: Action Plan to Attend Risks and Maximize Opportunities of CAFTA-DR], 112-22 (July – December 2004) (official document). See also Amy Angel, supra note 71 at 9-10. 87 Gobierno de Costa Rica, Plan Nacional de Desarrollo Jorge Manuel Dengo Obregón 2006-2010, Ministerio de Planificación Nacional y Política Económica. Avalilable on line at http://www.mideplan.go.cr/content/view/69/371/. See also Amy Angel, supra note 71 at 10.

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VI. CONCLUSIONS

1- CAFTA-DR is very important for the agricultural sector of Costa Rica for the

following reasons:

• CAFTA-DR will consolidate the legal situation of the agricultural goods

exportation to the US, moving from the unilateral concession anchored in CBERA

to a consolidated right as a result of negotiation of a Free Trade Agreement;

• CAFTA-DR includes agricultural goods that were excluded in CBERA, which

means an enlargement of opportunities for the Costa Rica’s agricultural sector;

• CAFTA-DR presents specialized and faster mechanisms to resolve conflicts

through alternative resolution process that are not established by CBERA;

• Costa Rica can prepare an agricultural development plan according to the market

opportunities and to those products that have competitive advantages;

• CAFTA-DR is the legal vehicle to establish in a clear and concise manner the

rights and obligations of the signatories countries by eliminating the commercial

instability of the US policies, especially those related to international trade;

• Even though CAFTA-DR covers countries with different economic situations, it

is one of the most complete legal instruments that consolidates clear rules for the

commercial trade and that also seeks to achieve gradual development of the

markets;

• CAFTA-DR establishes periods of times and different protection degrees, like the

tariff elimination for sensible products, so the countries can make the necessary

adjustments;

35

• The Agricultural Safeguard Measures established in CAFTA-DR help reduce the

effects of the abrupt liberalization, especially in the sensible products.

• Tariff rates quotas and rigid quotas established by the US will benefit Costa Rica

because it can increase its volume of exports.

2- The implementation of internal subsidies for agricultural products or the

implementation of duty or non-duty barriers to the agricultural imports (agricultural

protection) is under discussion in international forums.

3- Duty and non-duty barriers generate an increase in the product’s price and make it

more difficult for underdeveloped countries to compete in international markets.

4- The final price of a product that is subsidized does not accurately reflect the

production cost, the production risk and the profit that is common in the market.

5- The protectionist policies undermine the ability of producers in underdeveloped

countries to compete on the same playing field with the agriculture producers of

developed countries who receive benefits from the government. The price of a non-

subsidized product will never be the same as that of a subsidized product.

6- The most common duty and non-duty barriers used by countries, such as the US are:

Import Quotas, Seasonal Tariffs, Tariff-rate Quotas, Automatic Licensing Procedures;

and Increased Tariff. Also, for many years, Central American countries have

implemented agricultural subsidies as a way to develop governmental economical

policies and to protect some of its working classes.

7- The subsidies, barriers and non-barriers quotas have been protection instruments used

by the countries in three ways: 1) to maintain the status quo of protected social classes of

the society that are important to their economical and political stability, 2) as a political

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instrument developed to provide an incentive to production and exports, and 3) as a

national strategy to ensure food for their people.

8- CAFTA-DR’s signatory countries lost the opportunity to make an agreement with

respect to subsidies, barriers and non-barriers duties, because they postponed the final

decision to a multilateral elimination forum.

9- U.S.’s subsidies systems are amazing because this country has the budget to develop

all necessary support activities that the agricultural sector needs. In contrast, Costa Rica

subsidies are lower and its government does not have the budget to maintain huge

agricultural subsidies.

10- US Government offers technical, commercial, marketing support, better infrastructure

and credit opportunities to incentive agricultural production. In contrast, Costa Rican

government recourses are insufficient to support its agricultural sector.

11- CAFTA-DR offers to Costa Rica’s economy the following opportunities, among

others: attraction of foreign investment; technology interchange; confidence to invest in

technology, facilities; higher employment rate and distribution of richness.

12- Costa Rica’s government is doing an investment of US$355 million in five years

period, to be used in three specific areas: 1) small and medium enterprises

competitiveness, 2) Development of sustainable agricultural production, 3) increased

education in rural areas.

13- Costa Rica’s government assigned US$17.6 million to the development of sustainable

agricultural production.

14- Costa Rica’s Action Plan includes several measures to improve its agricultural sector

development. Among others: Technical assistance; irrigation infrastructure; technological

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development; finance for productive projects; market information; quality control

systems; assistance of purchases from small and medium producer.

15- Finally, CAFTA-DR effects on Costa Rica’s agricultural sector will depend on the

good implementation of its action plan. CAFTA-DR by itself is not the solution for the

economy growth, unless the government takes the right actions to minimize the risks and

take advantage of the opportunities. It is a win-win situation for the signatory countries

and a great opportunity to promote growth.