Costa Rica^[28]

1 Introduction

Costa Rica is a small country (54 000 square kilometres and 3.5 million people) with an annual average per capita income of US$3 646 (in 2001), above the average for Latin America. This small country is often lauded for its long democratic tradition and reasonable economic stability.

The primary agriculture of Costa Rica is well diversified: coffee, bananas, shortcycle crops, cattle for beef and dairy, and forest plantations account for the vast majority of the use of the land. However, in terms of value of production per hectare, other crops are more important. These include fruits and vegetables, flowers and ornamentals.

Coffee is still the single most important crop in terms of land use (109 000 ha)^[29] and value of production, with a large number of small producers depending on it. The second most important land user is rice (68 000 ha) followed by bananas (48 000 ha) and sugar cane (56 000 ha). Other important land users are beans (32 000 ha), oil palm (40 000 ha) and oranges (25 000 ha). These seven crops use 82 percent of cropped lands but contribute only 61 percent of the total value of crops harvested. Cattle production for beef is still the most extensive land-use activity. This activity has declined in productivity and importance in the agricultural sector. Beef exports, which used to be significant, are now very limited. Dairy production, in contrast, is more intensive; it has grown and accounts for a growing proportion of exports. Poultry and eggs are important subsectors, at the expense of imported maize and soybeans.

Production and quality of vegetables and fruits have grown substantially. An important number of packinghouses contract with small producers and provide them with technical assistance. Prices are paid on the basis of quality and compliance with tests for residues.

Management capacity, capital assets, technology, debts and net income vary substantially among farms. Agro-ecological diversity and crop selection add to the differential conditions. Hence, it is not possible to generalize about agriculture in Costa Rica or its performance.

Landless workers as well as peasants with farms of less than 3 ha, usually located on hillsides and practising rain-fed agriculture often have incomes under the poverty line. Most of them do not depend only on crop sales for their income, even in the case of coffee growers. Off-farm employment is a common practice. The small size of the country and the good communications and road infrastructure allow a high mobility of labour for daily and weekly jobs.

Mid-size farms, of 3-10 ha, are the most common structure in agriculture. Larger farms are very limited in number. They are usually dedicated to beef cattle, oil palm, rice, pineapples and bananas, often managed by firms and international corporations.

Basic agro-industry is well developed, to allow peeling, drying and roasting of coffee, milling of rice and sugar cane, extraction of palm oil and orange juice concentrate, slaughtering of cattle, processing of chickens and milk, and packing of fruits, palm hearts and vegetables. Some food industries depend substantially on imported inputs and do not have a direct relation with agricultural producers. They include industries in the bread and pasta sector, beer and soft drinks, candy, etc.

The orientation of Costa Rican agriculture towards export markets has required a growing use of imported seeds, fertilizers and agrochemicals. The private sector is fully engaged in these businesses; and in some cases, agricultural cooperatives are involved in their marketing. The development of services that contribute to agricultural competitiveness is also quite evident. These grew over the last 20 years and now represent an important component of the agricultural cluster. A study of the agro-export services in Central America revealed that in 1998, Costa Rica was the country with the most advanced private agricultural services (Pomareda and Villasuso, 1998).

1.1 Agriculture in the national economy

Primary agriculture accounts for 12 percent of domestic GNP, and its share continues to fall. However, the agro-industrial sector, most of which is reported within the food industry, accounts for another 12 percent of GNP. If agricultural services are also included, their contribution to GNP could add another 8 percent. Altogether, the agricultural conglomerate accounts for about 32 percent of GNP.

Until 1990, agricultural exports accounted for almost 72 percent of total exports. The emergence of tourism contributed to a decline in the relative importance of agriculture in export revenues. Furthermore, the establishment of INTEL as a primary industry in the country, in 1999, led to a substantial decline in the importance of agriculture relative to other sectors. By 2000, the share of agriculture in total exports was just 32 percent.

Agriculture employed 20 percent of the labour force in 2000, down from 25 percent in 1990. The growth of tourism and other services in rural areas, as well as rural-urban migration, provides a partial explanation for this trend. Two observations are needed regarding the official figures. First, in agriculture, there is substantial underemployment and self-employment, not always properly estimated in the national statistics. Second, many workers in agriculture, including migrants from Nicaragua, are not formally registered.

Unless these facts are taken into account, it is hard to explain how the increased areas planted to crops such as sugar cane, melons, oranges, bananas, pineapples and coffee are harvested. All require large amounts of labour, especially for harvest. In addition, there was a substantial increase in areas of cut flowers, ornamentals and strawberries, although it is mostly residents in urban areas who provide the labour for these crops.

1.2 Policy changes and programmes over the last two decades

The transformation of agriculture in Costa Rica over the last two decades is due to three major forces: the national policy framework, trade agreements, and external market and non-market conditions. This section reviews the main policies and trade agreements which exercised effects over time. The external trade environment is considered in detail in Section 3.

In 1980, Costa Rica was facing a critical economic situation. The overall crisis in Latin America, international oil prices and questionable domestic policies had contributed to these conditions. The communist regime in Nicaragua and the war in Central America created additional difficulties. The rate of inflation reached unmanageable figures as the local currency was devalued by 254 percent in 14 months, between 1980 and 1981.

In this context, a letter of intent was considered between the Costa Rican Government and the IMF, late in 1981, but it was not signed. The government then suspended its international debt obligations. A new government began in May 1982, with substantial economic support from the United States. The model adopted was strongly based on the promotion of exports and the liberalization of the domestic economy. The key instruments were positive interest rates, subsidies to exports, reduction of barriers to imports, promotion of investments, especially in duty-free zones, and institutional reforms.

Economic stabilization was achieved with two consecutive SAPs and their accompanying loans from the World Bank. Substantial complementary funding, in loans and grants, was provided by the United States Agency for International Development (USAID). In the area of agricultural policy, the SAPs exercised much pressure to reduce the public agricultural sector. Within that framework, the country has made some efforts to redefine functions and increase efficiency of the public entities. Unfortunately, the efforts were more in the direction of reductions of personnel, more than increasing their capacity. The programmes achieved some reforms regarding the degree of government intervention in the markets for agricultural inputs, credit and products, and the closure of some of the government-administered agribusiness under the state-owned enterprise, Corporación de Desarrollo. Privatization of the National Electricity Institute, National Insurance Institute, National Civil Insurance, National Oil Refinery, National Bank of Costa Rica and Central Bank of Costa Rica was not achieved; this is still the case 20 years on.

Trade liberalization was promoted with the deliberate intention of attracting foreign investment, which in turn would allow imports of goods and services that complemented domestic resources for production and exports. The creation of employment and the generation of foreign exchange would be the most visible effects of such strategy.

Direct foreign investment (DFI) in Costa Rica has been key to the strategy and an important contributor to growth and development (Marshall, Marshall and Gonzalez, 1999). Figure 1 shows the growth of foreign direct investment as a percentage of GDP between 1990 and 2000. In Latin America in 1998, Costa Rica held the second position (after Chile) in DFI per capita, equivalent to US$105. This figure is higher than that for Mexico (US$88) and considerably higher than that for other Central American countries (excluding Panama) equal to US$11.

The two sectors that attracted most foreign investment were Industry and Agroindustry, and much of the investment was in agro-related industries, including tyres, machinery equipment, agrochemicals, packing materials, etc. Sixty-four percent of capital originated from the United States and 12 percent from Mexico.

Figure 1. Trends in direct foreign investment in Costa Rica as a percentage of GNP, 1990-2000.

Source: Central Bank of Costa Rica.

In 1996, the Ministry of Foreign Trade created the Trade Promotion Office (Promotora de Comercio Exterior [PROCOMER]). PROCOMER has become a facilitator and a fundamental ally of Costa Rican productive enterprises in their task to participate successfully in international markets. PROCOMER is focused on serving the exporting sector and, throughout its seven years, it has considerably increased the number of services it offers.

As part of its investment and trade strategy, Costa Rica has placed much emphasis on duty-free zones. These have grown substantially as industrial parks, where investors are allowed to import inputs and equipment without duties and do not pay taxes on revenues. Their commitment is to export the whole of their production. Some have been granted special tariffs for electricity. INTEL accounted for the single most important investment in this field in 1998. The generation of employment is the main product of the Free Zones.

On the public investment side, the modernization of the ports in the Pacific (Puntarenas) and the Atlantic (Puerto Limon) and a new port in the Pacific (Caldera) were completed in the early 1990s. Complementary initiatives included modernization of the Customs Office and the creation of the Only One Window, to manage export-import paper work. Even though these reforms are positive, other factors are becoming a growing constraint to efficient trade. The jamming of roads, high tariffs in ports, high electricity tariffs and other problems are being signalled as impediments to maintaining the competitive capacity gained in the past (CIC, 2001).

The opening of the Costa Rican economy has gone beyond free trade of goods and services. The inflow of people as tourists or as migrants has been substantial. However, in contrast with other Central American countries, the emigration of Costa Ricans to the United States is very small.

The reason for a brief reference to tourism in the analysis of the aggregate economy is its importance as a generator of foreign exchange and income, and its implications for food security. Migration, however, has important implications for the provision of labour and consumers, mainly among the lower-income segments of the population.

Tourism has been the fastest-growing sector in the economy. This growth is attributed to the country’s image and tourism promotion initiatives The creation of employment was substantial for younger and more educated people, including those formerly employed in agriculture or about to enter the agricultural labour force. Most of the direct labour and management workers employed in the tourism sector are Costa Ricans.

Migrants from Nicaragua also have an important effect in the economy as they increase the number of consumers and enlarge the labour force. They satisfy the needs for labour in agriculture. Originally, migrants were admitted temporarily during the harvest season of sugar cane, but over time, many became permanent residents and now provide most of the labour force in sugar cane, coffee, pineapples and melons. They are also employed in the construction industry, as guards and domestic service in urban areas. It is estimated that currently there are around 700 000 Nicaraguans living in Costa Rica, or around 20 percent of the population. This figure has important implications for food security, as a good portion of the migrants from Nicaragua count among the poor.

1.3 Participation in regional and multilateral integration efforts

Costa Rica is a small open economy. The export sector (goods and services) accounts for nearly 50 percent of GNP. For the last 20 years, the country has opened its doors to trade and new foreign investment. Costa Rican exports have grown at an average annual rate of 14 percent during the last decade. The trade policies adopted and the efforts made in trade promotion have further enabled product and market diversification, with positive effects on the economy as a whole, particularly in agriculture.

National trade policy revolves around two principles: proactive participation in multilateral and regional forums, including the WTO, the CACM and the FTAA, as well as a number of bilateral agreements (Mexico, Chile, Canada, Dominican Republic, and Trinidad and Tobago), and trade promotion and support measures.

In 1984, Costa Rica requested observer status at the General Agreement on Tariffs and Trade (GATT), soon after other Central American countries had done so. This was encouraged by domestic expectations of potential benefits of the GATT and the indirect conditionality of the United States through public Law 98-67 (Caribbean Basin Initiative [CBI]) as specified in Title II. This offered additional benefits to countries that adopted the international trade laws established by the GATT. The World Bank and IMF exercised additional pressure to adopt such rules. Costa Rica was admitted provisionally to the GATT in July 1985 and was definitively admitted in September 1989 (Segura, 1991).

Two currents of thought that encouraged Costa Rican membership of GATT were the pressure to align the country with a new model and the expectations that it would bring important benefits for investment and trade. While the industrial private sector was fully in support, the agricultural private sector was more cautious, particularly because of concerns regarding distortions in the markets for agricultural products. Nevertheless, within the agricultural sector, those producing for export and particularly the emerging non-traditional agricultural exporters were more enthusiastic. The existence of the Tax Credit Certificate (CAT) programme and other incentives obviously contributed to such enthusiasm.

2 Experience in implementing the WTO agreements

The general terms agreed by Costa Rica concerning imports and exports are well specified in the country’s WTO Trade Policy Review and are summarized in Table 1. Some of the main developments since 1995 are highlighted in this section.

2.1 Market access

At the start of the UR negotiations, Costa Rica had already gone very far in trade liberalization. As a result, the country had little to offer in order to negotiate concessions. Nevertheless, the country managed to achieve protection for sensitive agricultural products such as dairy products, sugar and dark poultry meat. The general conditions agreed are shown in Table 1. The average applied tariff in agricultural products steadily decreased from 17.1 percent in 1995 to 14.8 percent in 2000. Escalating tariffs for processed agricultural products are applied (10 percent for raw products, 13 percent for semi-finished and 20 percent for processed products).

Table 1. Costa Rica commitments at GATT and URAA, 1994

Source: CAC: August 1996. Centroamérica. Matriz de avance de cumplimiento de los compromisos en la OMC.

Small charges are imposed on import processes, but they make up an important proportion of Government revenues. In 1999, this figure accounted for 46.4 percent of total government tax revenues.

Costa Rican import tariffs are not limited by the CACM external tariff, as the latter is not yet a common market. There is current discussion on this matter as countries complain of unfair competition from Central American partners, because some inputs for the food industry have significantly different external import tariffs.

In its trade relations with Central American partners, Costa Rica maintains free trade for agricultural products, as shown in Table 2. Nevertheless, sanitary restrictions and previous authorizations are used as barriers to intra-regional trade. Border protection, constant disputes and retaliation are common in intraregional trade.

Table 2. Applied tariff structure for the main agricultural products, 1998 (%)

Source: CAC (1999). Some of these figures have changed, as in the case of dairy products (57 percent since 1999) and dark poultry meat (150 percent, since 2000).

As observed in the previous tables, Costa Rica has kept high protection for a few agricultural products. The arguments used for this protection were: dairy enjoys heavy export subsidies in OECD countries; sugar is traded in the most distorted market; and dark chicken parts are the result of a market segmentation strategy in the United States, allowing these exports at absolutely low prices. The arguments have been accepted, yet there is continuous pressure, both internally and internationally, to lower these rates of protection. At the insistence of the Ministry of Trade, Costa Rica lowered the import duty on dairy products to 57 percent and on dark chicken meat to 150 percent in 1999 and 2000, respectively.

2.2 Tariff rate quotas

TRQs have been established for poultry meat, fluid milk, powdered milk, yoghurt, butter, cheeses and poultry sausages. In administering these TRQs, Costa Rica accords at least the MFN to all its trade partners.

Since 1995, the use made of TRQs has varied but in general has been fairly limited. Quotas have been used up completely only in the case of butter fat in 1995. For other products, the use has been limited. Only in the cases of cheese, ice cream and poultry sausages did the quotas reach 50 percent of the allowed amount, in 2000.

Since 1994, the TRQ application system is administered through an allocation mechanism based on stock exchange transactions, administered by BOLPRO, the commodity exchange. The mechanism is designed to prevent direct government intervention and to favour competition among interested private parties.

2.3 Safeguards

The national legislation on safeguards is based on the CACM rules provided in 1993. This legislation allows incremental protection to be created to prevent imports due to unforeseen events or due to the fulfilment of regional and international commitments. The possible negative effects on employment, incomes, etc. are taken into account.

The Special Agricultural Safeguard can be applied to black beans and rice. It was used recently to protect against very low-priced rice imports. Protection for rice has been kept for years at 35 percent. However, in March 2002, the country placed a temporary import duty of 80 percent on paddy rice imported from the United States through the application of the Provisional Agricultural Safeguard (Article XIX, GATT, 1994). The product was to be imported by domestic rice mills under contract with local supermarkets. The issue is currently under debate at WTO where the United States has presented a query.

2.4 Domestic subsidies

Regarding Green Box measures, there are no reduction commitments. Nevertheless, the amounts allocated to programmes falling into the Green Box have declined owing to budgetary constraints. They were US$67 million in 1995 and were reduced to US$21.9 million in 1998. Costa Rica does not have any programmes that fall under Amber Box measures.

Allocations to agricultural research have declined substantially, but this has been partially overcome by contributions from the private sector, at least in the cases of sugar cane, bananas and coffee. Agricultural credit no longer enjoys a subsidized interest rate, but the rice insurance premium maintains a 50 percent subsidy.

During the last five years, the government has implemented the national programme for transformation of agriculture, under the command of the Agricultural Production Council. The programme allows financing with partially refundable resources, the design of agricultural investment projects, especially in agro-industry, training and search for partnerships. The net costs and benefits have been questioned, and so the program is being analysed to introduce modifications.

2.5 Export subsidies and export promotion

Costa Rica depends substantially on agricultural exports. To encourage exports, including agricultural exports, the country applied export subsidy certificates from 1994 to 2000 (CATs). The objective was to motivate non-traditional exports (Horkan, 1996). The program was criticized because it benefited larger firms and also because it was misused to favour fraudulent export operations (Alonso, 1997). The programme ended in 2000 as part of the country’s commitments at WTO.

Costa Rica has been among the countries that have battled most against protectionism and subsidies to agriculture in the developed countries. To reinforce its position, it became a member of the Cairns Group in November 1999. Nevertheless, on the import side, the country benefits substantially from low international prices of grains, due in part to the subsidies to production and exports, and other measures of support to agricultural research, in developed countries.

Regarding measures affecting exports, the following should be noted:

• Regarding export procedures, since 1995 there has been a standard unique export form, which simplifies substantially export paper work.

• Export prohibitions are defined only for precious woods in bulk and protected species of flora and fauna. There are prior export authorizations for a few products such as cattle, bulk sugar, virgin honey flowers and raw cotton.

• Duty and tax concessions are available in three forms: inward processing, drawbacks, and relief from import duties (until December 1999).

• There are no export finance or insurance privileges.

2.6 Export market access

Within its trade liberalization strategy, Costa Rica has argued for the elimination of escalating tariffs for agricultural products with higher degrees of processing. This is one of the most devastating policies of developed countries and limits agricultural development in poor countries (Pomareda, 2001). The potential for development in Costa Rica depends largely on the generation of added value, especially if it can be achieved at the farm level or at least in the rural areas. Table 3 shows that WTO still allows a range of tariffs to protect the agro-industry and food industry in developed nations.

Table 3. WTO average and range in tariffs, for main agricultural products,

Source: ECLAC (2001) Latin America and the Caribbean in the World Economy Mexico, 2000.

2.7 Other trade agreements

Trade among Central American countries is governed by the Central American Integration Treaty. It was originally approved in 1962 and has been updated on several occasions. Tariffs are eliminated on intra-regional trade, yet there are some restrictions regarding licenses.

As part of its trade strategy, Costa Rica has been, after Mexico and Chile, the most intense negotiator of trade agreements in Latin America. It signed an agreement with Mexico in 1994, with Chile in 1999 and with the Dominican Republic in 2001. An agreement with Canada was just completed late in 2001, and it is pending approval by the National Assembly. Negotiations are under way with Panama, Trinidad and Tobago and others.

The general conditions for trade of agricultural products under these agreements are summarized in Table 4. In all these agreements, sensitive products have been kept outside the basket of imports into Costa Rica. However, this is not the case for exports. In the case of Mexico, for example, export quotas with 5 percent tariffs are allowed for dairy products and beef. Non-commercial requirements have so far prevented these exports from materializing. This brings about the issue of trade transparency mechanisms, which need to be strongly addressed by each country, for fair trade to become a reality. It is necessary to know not only the trade rules but also the way in which they are applied.

Costa Rica’s most immediate goal in the field of trade is the negotiation of an agreement with the United States. It is expected that benefits will be additional to those currently derived from the CBI. The issue is problematic for three reasons. First, all the Central American countries are also interested in such an agreement, and a recent visit from President Bush with the Central American Presidents encouraged them to work together for a group treaty. Second, negotiations for the FTAA are under way, and it is uncertain whether Costa Rica will be granted by the United States a unique case of exception, before the other countries of Latin America. Third, recent decisions of the United States to increase subsidies to agriculture are likely to influence exportable surpluses.

Table 4. Tariffs for agricultural products in Free Trade Agreements and WTO-MFN (imports into Costa Rica) (%)

^a Including Law 6946.

There is some criticism by agricultural producer organizations of the country’s excessive enthusiasm for trade agreements, without doing enough to increase the capacity to compete in foreign markets. The trade figures discussed in Section 3 support the reason for concern.

2.8 Sanitary and phytosanitary standards

SPS measures are applicable according to the rules defined in the SPS Agreement. The Ministry of Agriculture and Livestock and the Ministry of Health are responsible for their application. They are members of the National Sanitary and Phytosanitary Measures Committee. As such, they provide advice to private sector enterprises and exercise custom controls at all ports, airports and international border offices.

Table 5. Tariffs for agricultural products in Free Trade Agreements and WTO-MFN (exports to partner) (%)

Excl: merchandise subject to payment of import duties (MFN).
^a End date is 2004 (4 percent/year).
^b Preferential tariff within quota, excluded outside the quota.
^c End date is 2004 (3.4 percent/year).
^d In 2002, the quota is 1 166 tonnes at 4.4 percent; zero tariff in year 2011.
^e End date is 2004 (4 percent/year).
^f End date is 2004 (2 percent/year).
^g End date is 2015 (16 different stages).
^h End date is (5 percent/year).
ⁱ End date is 2004 (1 percent/year).

Costa Rica applies control measures to the importation and transit of plants, agricultural and food products, biological organisms and live animals. Its effectiveness is appreciated by the private sector in the prevention of incoming diseases and pests. It has allowed rejection of products from Central American and other countries. Import certificates and sanitary inspection are required for all agricultural and related products. It is estimated that around 15 percent of imports subject to SPS requirements are inspected. The toxicity of imported products has not been reported in the last five years.

The national system is well developed, and it has played an important role in the country’s export strategy. Its partnership with agricultural producer organizations, suppliers of agrochemicals and private producers has allowed an effective distribution of responsibilities. As a result, exports of Costa Rican products in foreign markets have a very low rejection rate for phytosanitary reasons (Table 5).

2.9 Trade-related intellectual property rights

Costa Rica is a signatory of most conventions on intellectual property rights, including the WTO Intellectual Property Rights Agreement (TRIPS). Enforcement of the legislation is a continuous battle, and its achievements have helped attract foreign investments.

The most notable rules concern copyright and neighbouring rights, industrial property rights, trademarks, patents, industrial designs and utility models, integrated circuits, undisclosed information and protection of intellectual rights in biodiversity.

In the case of biodiversity, in 1998 Costa Rica established rules for access to the genetic and biochemical elements of biodiversity. Protection is provided by means of patents, trade secrets, copyrights, etc. The National Institute of Biodiversity, a non-profit organization, is a very prestigious entity that leads all work on bio-prospecting, research and information management.

Particular attention is provided to international partnerships, extending knowledge to the Costa Rican society and assuring respect for the rights of indigenous communities.

3 Review of food and agricultural trade

3.1 Total agricultural and food trade

Agricultural trade, as mentioned earlier, has shown a positive trend, and Costa Rica enjoys a growing agricultural trade surplus. However, because trade of other products and services has grown faster, agricultural exports and imports are a declining portion of total exports and imports (Table 6).

Table 6. Agriculture and food trade (annual averages)

Source: FAO.

The transformation in primary agriculture has allowed a substantial increase in the exports of non-traditional agricultural products. Table 7 shows data for the main categories including agriculture, livestock and fisheries products. Traditional products have declined in relative importance, while non-traditional products have grown, although at a declining rate. Total agricultural exports peaked in 1998 and have fallen since then.

There is no definite explanation for the most important force influencing the decline in the rate of growth of agricultural exports. Four hypotheses are often discussed: the model is reaching exhaustion; incentives to exports (CATs) declined in 1999 and were eliminated in 2000; international competition is growing as other Latin American and Asian countries are entering the markets for non-traditional agricultural exports; and also international prices for some export products such as coffee are declining.

Table 7. Total and agricultural exports by subsectors (US$ million), 1990-2000

^a Estimated.

Source: SEPSA.

Figures 2 and 3 show exports for a few products as well as their different aggregate values per unit of weight. Non-traditional agricultural exports have grown much faster than traditional products.

The most interesting case is that of marine fisheries and aquaculture. Their exports have grown, and so has the aggregate value per tonne. Important segments in this line are also dairy products and products of other agro-industries. Fruits, particularly bananas, also are important, yet their value per tonne is low.

Costa Rica has placed great effort in promoting exports of higher value products. The country has a reasonably well-educated labour force, a private sector with a recognized capacity and the presence of foreign investors. In this context, the search for added value in agriculture appears to be the most suitable means by which to take advantage of the available resources. The country’s strong stance against protectionism in developed countries is thus justified because it is the main deterrent to its export strategy.

Figure 2. Costa Rica, exports of selected agricultural products (US$1 000).

Source: FAO

Figure 3. Unit value of exports of selected agricultural products.

Source: FAO

- The value of " products sea" in 2000, is a projection based on the annual rate of growing

- Sea products: seafood, mollusks, fishering

- Processed products: beer, chocolates, candies, prepared fruits, spaghetti.

Nonetheless, the opportunities for export of agricultural products have brought an increased interest in agroindustries to export products with added value. Traditional exports of bananas, beef and green coffee did not require significant new investments. However, exporting roasted-vacuum packed coffee and processing of macadamia nuts, palm hearts, fruits and juices, seafood and dairy products called for new investments in agro-industry.

As already indicated, private foreign investments in agro-industry have been the second most important in the total foreign investment portfolio. They included around 100 mid-size operations and one large operation in the last ten years. The Dos Pinos Dairy Cooperative inaugurated its modern plant in March 2001, with an investment of US$70 million. Some private investments in mid-size agroindustries were financed by the government Fund for Transformation of Agriculture.

The national agro-industry is being challenged by imports of processed products. As shown below, these are growing at a fast rate. A few agro-industries have modernized their technology and equipment, and some are building alliances with firms from the United States and Mexico. Others are considering possible alliances with firms in the food industry elsewhere, yet at a timid pace.

3.2 Agricultural imports

Imports of agriculture and related products and inputs are also growing substantially. In this regard, Figure 4 illustrates an interesting fact: The country is importing an increasing proportion of processed products. These would suggest that its domestic agro-industry is losing competitive capacity.

However, the volume of grains is growing rapidly because of the need to feed the poultry sector (Figure 4). However, because grain prices have had a negative trend, the net value of grain imports has not increased as much. The declining prices for these commodities have made the impact on foreign exchange expenditures less significant. A recent study (Pomareda, 2001) showed that by the year 2020, Costa Rican imports of feed grains (corn and soybeans) would require almost three times as much foreign exchange as in 2000.

As observed in Figure 4, imports of high-value products are increasing at a fast rate. These include all kinds of processed products, like pasta, canned foods, juices, beers, wines, high value cheeses, chocolates, etc. The establishment of foreign supermarket chains and their import enterprises strongly favour the imports of these products. The high unit value of these products (Figure 5) reveals that the mix of goods included is of a high quality and price.

Figure 4. Imports of selected agricultural products (US$1 000).

Source: FAO.

Although Costa Rica has escalating tariffs, imports of processed products are growing rapidly. Furthermore, in some cases, high-value products are imported at an undervalued price and the corresponding low import duty, because of insufficient disaggregation of the tariff codes, or because the exporter and importer declare it improperly. In the case of dairy products, for example, fine cheeses enter the country as “other cheeses”, which pay the same tariff as cheddar cheese, and in the import bill are registered at the same price as this cheese.

Agricultural inputs, such as agrochemicals and fertilizers, have also grown substantially as part of the import bill. The data in Figure 6 do not include imports of machinery and equipment, which are also significant. The relatively low 5 percent tariff on machinery, equipment and agrochemicals favours these imports.

Figure 5. Unit value of imports of selected agricultural and food products (US$1 000/tonne).

Source: FAO.

Figure 6. Imports of agricultural inputs (US$1 000).

Source: SEPSA.

3.3 Implications of the export-oriented strategy

The most directly observable change in agriculture, because of the development strategy pursued, has been the use of the land. Traditional export crops have remained more less stable, while non-traditional export products increased in areas. Also there was a substantial reduction in the areas planted to basic grains (rice, maize and beans).

The preferential quota for sugar in the United States market, the banana agreement and the market for coffee have favoured these crops. Only in the last few years has the chaotic situation regarding coffee prices exercised pressure on some farmers to take less care of plantations and reduce areas planted; both factors have contributed to a decline in production. However, as indicated earlier, some producers are making an effort to increase quality to receive a better price.

Basic grains, the most common products among small producers, have declined substantially in importance (Figure 7). Their international prices have been on a downward trend. This was accompanied by the elimination of price guarantee programmes, a government decision when implementing the SAPs. Under such market conditions, small producers of grains would have not been able to survive, so some of them changed crops, while others opted for off-farm employment. The implications for food security are commented on in the following section.

In contrast, the production of more profitable options, such as intensive dairy and the poultry sector, expanded substantially. Among the more profitable crops are also ornamentals, fruits and vegetables. They do not require large areas, and they generate more employment, especially for women, and net income per hectare. However, it should be recognized that they are riskier and require larger debts per hectare; hence, not many producers have succeeded in these ventures, going it alone. Alliances with exporters have been a key formula to stay in business, although there have been complaints about the distribution of benefits.

The broiler sector has been the fastest-growing productive activity. This was favoured by declining grain prices, high technology and substantial vertical integration in the industry. The sector is also protected by a tariff of 150 percent on dark meat parts.

Figure 7. Land use of main agricultural products, 1990 and 2000

Source: SEPSA

In general, then, the model has favoured those producers in more profitable activities for the export and domestic markets, and it has penalized those that stayed with extensive cattle, grains and other traditional products. Beyond the choice of products, benefits have accrued in greater proportion to those willing to take risks, those with more managerial capacity and those able to absorb debts, according to equity and expected profits.

For the labour force in primary agriculture, the growth of exports has allowed employment options for almost any person willing to work in farming. It has favoured mainly those employed on intensive farms, especially for exports. Above all, it has provided a great opportunity to migrant workers, who otherwise would have enlarged the number of poor in Nicaragua.

Increased agricultural production for export and trade of agricultural products and inputs was made possible by a substantial development in services. The limited capacity of the public sector to offer these services allowed the emergence of private enterprises. Many firms provide technical, management, and financial assistance, including services such as product development, laboratories for residues, assistance to comply with HACCP standards, certification for export and market analysis.

More directly involved in production, there are firms that provide services for the design and installation of greenhouses (used for ornamentals, flowers and mini vegetables), installation of irrigation systems, pollination with bees, land preparations, etc. In the export track, there are a growing number of firms involved in the transport of products, cold storage, doing export paper work, and related matters. Also, a few legal firms have specialized in the solution of trade controversies and disputes.

It is clear that increased agricultural trade has had an important effect in the service sector. This is unfortunately neglected when referring to the importance of agriculture.

3.4 Environmental impacts

Environmental impacts on agriculture, attributed to trade intensification, are difficult to analyse. In the case of agriculture, two aspects need to be distinguished. In the aggregate, the agricultural export model leads to more intensive agricultural practices. More labour, agrochemicals and plastic materials per hectare are utilized. In some areas, also, more water is extracted from aquifers to allow agro-industrial production. Thus, it could be that the agro-export model in Costa Rica had the effect of accelerating resource exhaustion.

However, all firms involved in agriculture for export purposes have become more responsible regarding environmental practices, as this influences their image and relations with foreign consumers. Furthermore, the adequate management of residues and implementation of hazard analysis critical control point (HACCP) systems allows production with fewer residues on products and reduced environmental impacts. Certification with ISO 14000 and other systems is growing among firms that produce for the export market. Also, domestic programmes have been created to encourage clean production, such as Ecologic Flag.

Interest in agrotourism and ecotourism, as well as expectations for the market for carbon offsets, is also motivating sound environmental practices in agricultural enterprises. Costa Rica is the leading country in Latin America in ecotourism and in the sale of carbon-sequestration services under agreements with several developed nations.

Although there are positive visible effects of the model followed, there are some undesirable aspects. The most significant aspect is the congested roads, due mainly to three factors: increased number of heavy trucks to move produce between the ports, producing areas and the local and Central American and Mexican markets; increased number of imported family cars; and insufficient investment in roads. These forces are among the main contributors to the loss of competitiveness of firms and increased private costs, because of lost time and environmental damage.

The second impact of increased trade is the pressure for consumption of imported goods, strongly supported by publicity. This is accompanied by a decline in personal savings and investment. The level of personal debt for consumption has doubled in ten years, during which period, per capita income grew only 30 percent.

Moreover, the pressure on natural resources is not negligible (Segura and Moreno, 2002). The intensification of consumption, larger industrial investments, more intensive agriculture, increased tourism, large inflow of workers and increased number of cars are all contributing to a decline in the quality of aquifers, air and soils. Inadequate management of waste and toleration of industrial wastes and public transport emissions aggravate the problem. Costa Rica’s “Green Image” (35 percent of the territory comprising national parks) does not go along with its brown environmental agenda.

As a result, the sustainability of the model is of growing concern in civil society. Increased migration, congested roads, increased delinquency and management of waste are increasingly often in the public debate. Foreign trade still absorbs much of the policy agenda. The issue is substantial because there is an urgency to answer the question of how far trade should be encouraged, before trade works against quality of life.

3.5 External shocks

The trade strategy of Costa Rica has been favoured on some occasions and damaged by external shocks on others. A brief comment on this regard is provided.

The Central American crisis of the 1980s and early 1990s limited the opportunities to trade within the region. However, these conditions gave Costa Rica the opportunity to develop faster than its partners. As a result, when order returned to the region, Costa Rican exports to other countries in Central America grew faster than imports. Currently, Costa Rica has a positive trade balance with the rest of Central America.

The economic crisis in Nicaragua during the decade of the 1980s, and even now, has brought mixed results for Costa Rica. On the one hand, Nicaragua is a very limited market because its conditions of poverty and substantial external debt limit the purchasing capacity of the population. On the other hand, migrant workers from Nicaragua to Costa Rica have made agricultural production possible, especially for export. The government bears the costs of crowding out, unrest and other undesirable consequences, but the private sector receives the benefits of this labour force.

Costa Rica signed a free trade agreement with Mexico that started in December 1994. Unfortunately, the Mexican crisis emerged right before Christmas of that year. Mexican interest in imports from Costa Rican products was almost nil at that time. For Mexico, tackling the relations with the United States within NAFTA was substantially more meaningful. Subsequent months and years have shown clearly how Costa Rica has lost out in its trade relationship with Mexico. It is unknown, however, how much Mexican investments in Costa Rica, which are substantial (second in importance), are contributing to exports to other countries.

Costa Rica’s trade with Asian countries is small; hence, the Asian Crisis of 1997-1998 had limited direct impact on the net demand for Costa Rican exports. However, it could have had some effect on US imports from Costa Rica, but this has not been documented.

Also, in 1998, Costa Rica was affected by Hurricane Mitch, but to a lesser degree than other Central American countries. On the one hand, agricultural production, mainly rice and melons in the northern Pacific and beans in the North Central areas, were negatively impacted. On the other hand, the severe damaging effects of the hurricane in Honduras, El Salvador and Nicaragua favoured the exports of agro-industrial products from Costa Rica to those countries. This, in addition, helped create demand for Costa Rican products on a more permanent base.

More recently, the lowering of coffee prices has had devastating effects on the local economy. These effects are felt in employment, farm incomes and foreign exchange earnings. The adaptation has been in reduced care of fields (less input) and a slight reduction in areas planted. However, it has motivated some producers to seek complementary farming and non-farming activities, improvements in the quality of coffee and more vertical integration.

The September 11 disaster had a temporary effect in the decline in tourism. Fortunately, the situation has recovered; by February 2002 (the peak of the summer season), the inflow of tourists had reached a similar level to the previous year. The effects are rapidly perceived in hotel occupations, consumption in restaurants and in general, and inflow of foreign currency.

Among the external facts of relevance for agriculture and food security in Costa Rica, the negative trend in international grain prices should be mentioned. These have favoured imports and, therefore, the fast production of poultry and pig meat and eggs.

The external shocks referred to have not been quantified one at a time. However, without doubt, they had important effects on the trade of agricultural products. In some cases, they favoured exports, and in the others they had a negative impact. Also, they would have had implications for food security from the demand side, because of their effect on the incomes of urban and rural consumers, availability of products and generation of foreign exchange.

The point to be made is that, even when the commitment in this analysis is to look at transformations in agriculture as part of a long-term process, there are transitory effects. They can be important for individuals and families. Natural disasters lead to the loss of capital assets of families located in a particular site; low coffee prices take out of production those farmers for whom coffee production is the sole source of income; low grain prices make poultry producers better off, etc. Thus, aggregate effects hide the conditions of particular groups.

4 Food security developments

This section addresses trends in food security in the past decade. A serious qualification is that there is no available information that would allow direct measures of food insecurity. Inferences are made on the basis of indirect observations. Another relevant comment for Costa Rica is that the issue of food insecurity has not been high on the political agenda, although poverty as such is permanently addressed.

4.1 Trends in dietary and calorie intake

Regarding food security, two basic issues are important: the purchasing capacity of consumers and food availability. Salaries are the basic indicator of purchasing capacity. Table 8 shows the salaries for agricultural workers (the lowest in the scale) in current colones and equivalent US dollars. A permanent effort is being made to maintain the purchasing capacity. Unfortunately, as also shown in Table 8, the unemployment rate and number of unemployed increase.

Table 8. Unemployment rate and agricultural salary, 1992-2000

Source: SEPSA, BCCR.

Overall, food availability is satisfactory as domestic production and imports provide adequate supply. Nevertheless, as Table 9 shows, food imports are increasing at a high rate. The total volume and value of food imports doubled between 1990 and 2000, and for some products more than doubled. While the volume of imports increased 2.5-fold, thanks to international low prices the agricultural import bill rose only 1.9-fold. The export-oriented strategy has proved so successful far, yet there are marked uncertainties in this regard.

The data show that the aggregate supply of basic grains has experienced an important change. Imports account for a larger portion of total supply. Reliance on these imports is reasonable while prices are low and while the country earns enough foreign exchange. Two comments are offered in this regard.

First, the producers that abandoned basic grains are grouped into two major groups: those who moved into other options, and those who remained producing grains. The latter are worse off, as their basic income remains low. The situation is better off for those who opted for complementary off-farm income.

Second, if there is evidence that the country is not successful in earning larger amounts of foreign exchange earnings, it may be wise to reconsider producing at least part of the basic grains, especially when there are expectations that international prices may rise, owing to weather conditions. There are regions in Costa Rica in which the production is possible, and there are producer groups who can do it competitively. Research and technical assistance may be necessary for this purpose.

Even when there are frequent claims regarding the insufficient production of basic food, experience has shown that food security for a country or a small agricultural producer is not a matter of producing all the food it consumes.

Table 9. Costa Rica, imports of main agricultural products, 1990-2000

Source: FAO.

Regarding the use of the FAOSTAT data to address the issue of changes in calorie intake, the calculations are not performed for at least two reasons. First, in Costa Rica, the diet is very different for the various segments of the population, but there is no disaggregated consumption data for such segments. Thus, an average figure will not provide any light in terms of appraising those segments with a greater food insecurity.

Second, the food diet is increasingly sustained by a larger variety of products, while basic grains have declined in relative importance in direct intake. The imports of maize for example are basically for animal consumption. To make calculations of direct and indirect intake of calories for each population segment, the disaggregated diet needs need to be known; this information is not available.

Using a method developed by Pomareda (1998), a survey was undertaken to evaluate perceptions regarding the changes in the conditions of food security over previous years in the five Central American countries. Costa Rica ranked best among all countries in the region. The method uses a selected number of indicators, grouped into four major areas: production of basic foods; the removal of market distortions; generation of income; and balance of net earnings of foreign exchange.

Leaders of organizations of civil society and agricultural producer associations were asked to give their opinion regarding the state of several variables within each criterion. Specifically, they were asked to rank these conditions from zero to ten in 1990 and in 1997. In the case of Costa Rica, the country gained in all indicators of food security.

There were small gains in the production of basic foods, because reduced production of grains and beef offset any gains in of milk and poultry production. Significant improvements were made in market development. There were also net gains regarding income, mainly due to the adjustment of the minimum wage and gains in average per capita income, although there were no gains in the absolute reduction of poverty. In relation to foreign exchange availability (to import food), there were also gains, as agricultural exports rose more than agricultural imports. Food imports were also a smaller portion of total exports. However, it should be noted that other imports had increased more significantly, thus aggravating the country’s aggregate commercial deficit.

These indicators of food security would need to be recalculated to provide more recent evidence on gains or loses. The author believes that there have been no substantial further gains in any of the groups of indicators. Nevertheless, this is only a hypothesis that would need to be tested.

4.2 Trends in poverty and undernutrition

The distribution of income reveals that 20 percent of the population is under the poverty line. This figure is of concern, since Costa Rica in the past has made such a substantial social investment and has shown a reasonable rate of growth of average per capita income during the past 15 years. Although the incidence of poverty declined from 27 percent in 1990 to 20.3 percent in 2000, the absolute number of poor has not declined.

The main issue is to identify the groups that face the most severe food insecurity. Poverty is more severe in rural areas (23.8 percent compared with 17.1 percent in urban areas). In the rural sector, these are the landless workers and the small producers growing traditional products. In urban areas, the poor and unemployed are the most food insecure. In both groups, the most exposed segments are the elderly, women and children.

Regarding the landless, two groups can be identified: those with less education employed primarily in agriculture, who suffer the implications of seasonality and low salaries, as well as those not being covered for social services. Nicaraguan migrants count substantially among them. The other segment with no problems of food security includes workers employed in tourism and other services and, to some extent, those employed in non-traditional agricultural activities. New employment opportunities are the means to alleviate the situation of these segments.

Among small producers, the most exposed to food insecurity include those dedicated to traditional crops, located in fragile lands, isolated and without access to irrigation water. In addition, they are usually more vulnerable to natural disasters. Another characteristic of this group is their limited capacity to obtain employment in alternative activities. On a geographical basis, the rural poor in the province of Guanacaste are the most food insecure. This region is the most exposed to drought and general weather instability. However, it is also the region where tourism has grown at a faster rate (Proyecto Estado de la Nación, 2000).

For these segments at higher risk, without the ability to gain employment, trade liberalization does not bring any benefits. Government support and relief programmes are the means to assist them. The programmes of Instituto Mixto de Ayuda Social, Fondo de Desarrollo Social y Asignaciones Familiares (FODESAF) and the National Emergency Commission have allocated important volumes of resources to assist these groups.

The most direct beneficiaries of agricultural trade liberalization are consumers. Twenty years ago, Costa Rica had a limited supply of high-quality fresh products and very expensive imported processed food products because of high import tariffs and insufficient competition. The scenario has changed substantially in response to open competition.

Locally produced fresh fruits and vegetables have increased substantially in volume, variety and quality. Presentation of the products in the markets and supermarkets is excellent, including vacuum-packed fresh products ready to use. This is complemented by a large variety of imported products, particularly processed products.

There are a growing number of outlets where food can be acquired. An international food chain began operations three years ago, and the three major domestic food chains increased their number of outlets and improved the quality of their products and services. One of these has just completed an alliance with a Netherlands firm and one in Guatemala, to create a Central American Food Distribution consortium. The distribution network of supermarket chains has extended to rural areas.

Basic food prices have increased less than other products and services in the basic basket, and the lower-income population has benefited substantially from these conditions. For the higher-income groups, food expenditures have increased, allowing a larger variety of new and imported products. Publicity for food products has increased and has had a substantial effect on demand. Also, the number of fast-food chains has multiplied significantly in ten years.

It should be recognized, however, that advertising and the extended facilities to obtain consumption credit have contributed to the increased per capita debt of the population.

5 Negotiating proposals and the future

This section discusses briefly the country’s concerns in the WTO Doha Round trade negotiations. These issues are also relevant to other ongoing negotiations for trade and investment agreements with Canada, the United States, Panama and the Free Trade Area for the Americas (ALCA). It is necessary to unravel “the country’s” concerns and clarify the trade interests of different groups in society.

Those involved in the export business are concerned with policies of competitors that lower international prices for the products that Costa Rica produces, such as coffee. Vietnamese coffee and Ecuadorian bananas produced with very low labour costs are cases in point. The labour issue is thus a concern in the WTO negotiations and also in ALCA, although in the author’s view, this issue should be discussed elsewhere.

Agricultural subsidies in developed countries are very much favoured by some but rejected by others, although in general, there is a public declaration against them. Broiler producers would like further support and worldwide availability of grains. However, milk producers are concerned about the maintenance of production and export subsidies to dairy products, while the dairy industry would like to continue enjoying the benefits from subsidies that allow inexpensive milk powder production. They argue that it will be quite hard to pay the domestic price to keep producers in business, unless they are allowed to import some raw materials (milk powder and fat oil) at very low prices.

Importers challenge the lower degree of protection for some products, such as dark poultry meat and sugar. Without this protection, these products could be imported: broilers from Brazil or the United States, sugar from Guatemala or fructose from the United States. Producers question vehemently the desirability of lowering the import tariff further, because of the risk of being driven out of business by the economies of scale of competitors or export subsidies in exporting countries. However, those involved in imports of final food products wish that the country lowered its tariffs further.

Escalating tariffs that limit access to markets for high-value products in the developed countries is an issue of generalized concern among most producers and exporters. There is a high expectation that this issue will be resolved as it is a severe deterrent to development of the most desirable export model.

Agricultural producers in general reveal concerns about the increased barriers associated with environmental matters, such as increased demands for clean certification and proof of non-damage to natural resources and the like. There is a high expectation that these matters will be treated in a more transparent way in WTO and other trade agreements, particularly in the FTAA.

These comments, going beyond the official declarations summarized in Table 9, reveal the multiple interests pertaining to the rules for trade. It is not possible to pursue a single absolutely free trade regime unless all distortions are removed. Also, it is important that domestic dialogue, alliances and commitments be made before negotiating outside the country. Costa Rican negotiating proposals are summarized as follows.

5.1 Tariffs

Reductions

• Deeper cuts in, or elimination of tariffs on, all agricultural products including value-added products produced in, and exported by, developing countries.

• Use a formula approach to achieve deep cuts to all tariffs from bound rates, reduce higher tariffs by greater amounts, including tariff peaks, and eliminate tariff escalation. A maximum level should be established for all tariffs. In the first year of implementation, a down payment on tariff reductions to be made to bring tariffs to levels as if the Uruguay Round reductions had continued. (W/54)

Form of tariff

• Additional provisions to make tariff regimes simpler and more transparent; no bound duties containing specific minimum entry price schemes; tariff commitments to be expressed in ad valorem terms. (W/54)

5.2 Tariff quotas

Volume

• Substantial increases in all tariff quota volumes (TQVs). In the first year of implementation, a down payment to bring TQVs to levels as if the UR rates of increase had continued

In quota tariffs

• No comments on this issue

Tariff quota administration

• Additional or strengthened rules and disciplines to ensure that tariff quota administration does not diminish the size and value of the market access opportunities provided by such tariff quotas. This should involve close examination of all administrative practices and other measures which act to prevent the full realization of existing and expanded market access opportunities, including a mechanism to review and correct the cause of significantly under-filled tariff quotas.

• Tariff quota administration rules which provide improved opportunities for exports from developing countries. (W/54)

5.3 Special and differential treatment

• Differential treatment and related modalities as appropriate in the area of market access. (W/54)

5.4 Amber box

Reductions

• A formula approach to deliver major reductions in trade and production distorting support leading to elimination. The formula would include a substantial down payment during the first year of the implementation period (e.g. a 50 percent initial reduction) and would result in commitments on a disaggregated basis). (W/35)

De minimis

• Differentiated AMS formula and commitments for developing countries including preserving de minimis provisions and exceptions for investment and input subsidies and domestic support for diversification from illicit narcotic products. (W/35)

5.5 Green Box

• The basic and policy specific criteria for the Green Box should be reviewed to ensure that all such support meets the fundamental requirements of no, or at most minimal, trade-distorting effects on production. Enhanced Green Box provision for developing countries, which would address their specific concerns regarding food security, rural development and poverty eradication. (W/35)

5.6 Export competition

• Elimination and prohibition of all forms of export subsidies for all agricultural products starting with a reduction (e.g. not less than 50 per cent) in both outlays and volumes in the first year of the implementation period, with the starting-point being the bound ceilings of countries. (W/11)

• Additional or strengthened rules and disciplines to prevent circumvention of elimination and prohibitions, including the subsidy element of unfair export credits, guarantees and insurance programmes and non-commercial transactions (W/11)

• The following issues need to be addressed:

  (1) a definition of “officially supported export credit”;

  (2) identification and listing of forms of officially supported export credit operations;

  (3) identification and listing of types and institutions and programmes to be covered by disciplines;

  (4) terms and condition for use of such credits, which could include source of funds, maximum repayment term, starting-point of credit, repayment of principle, payment of interest, cash payments, sharing of risk, minimum interest rates, validity period for export credits and minimum premiums; and

  (5) notification requirements of official transactions that exceed 180 days to provide, on an aggregated basis by programme or institution, the products concerned (volume and amount of credit) and countries of destination of the transaction.

• Export credits, guarantees and insurance programmes given by private financial institutions are not required to be notified on a regular basis, provided that, upon request, the relevant information under (d) and (e) is provided.

• As a special and differential treatment:

  (1) Appropriate minimum interest rates, inter alia, shall be established to address the interests of exporting developing countries.

  (2) In recognition of the “Decision on Measures Concerning the Possible Negative Effects of the Reform Programme on Least-Developed and Net Food-Importing Developing Countries”, adopted in Marrakesh, the disciplines to be adopted must include appropriate provisions for differential treatment in favour of least-developed and net food-importing developing countries. These provisions should include longer periods allowed for compliance, and be consistent with the exemptions already provided in the Agreement on Agriculture for developing countries and with the modifications resulting from the negotiations to the general rules and disciplines applicable to export subsidies. (W/139)

  (3) The final provisions should include a longer implementation period and extension of existing special and differential treatment for developing countries under Article 9.4 of the Agreement on Agriculture until elimination and prohibition of export subsidies are completed. (W/11)

5.7 Exports restrictions and taxes

• Develop improved disciplines on export restrictions and taxes and eliminate tariff escalation.

• Preserve Article 12.2 for the Agreement on agriculture and provide additional special and differential treatment provisions to address the legitimate needs of developing countries, including least developed and net food-importing developing countries. (W/93)

5.8 Special and differential treatment (proposals not previously covered)

• Enhanced technical assistance and promotion of international cooperation to assist agriculture and rural development, and food security programmes in developing countries. (W/35)

6 Conclusions

Costa Rica has had its own investment and trade strategy since the early 1980s. Thus, the main effect of the URA, in force since 1994, has been to provide complementary support to the country’s policies. Furthermore, other trade agreements have been in operation during the last seven years. As the economy of the country is more open and as agriculture becomes more diversified and vertically integrated, it is more difficult to single out the effects of trade policy in agriculture alone.

The results of trade liberalization policies have been positive in general, owing to complementary measures in the promotion of foreign investment, institutional reform and a multisectoral development approach. Trade and agricultural policy reforms on their own would have not been enough to achieve the observed level of growth and development.

Within agriculture, significant protection is maintained only for those products with high market distortions, because of intervention in developed countries. This is reasonable until such distortions disappear. There should not be more any pressure on developing countries to liberalize trade of particular products further until the system works for all.

Exports of high-value products are a necessary condition for trade to bring larger economic benefits and create more employment possibilities. The domestic efforts made by each individual country must be coupled with WTO pressure to remove escalating tariffs in developed nations.

Macroeconomic stabilization and efficient export promotion services have provided an adequate environment for effective trade in general. Other measures directly geared to build stronger export capacity in agriculture have not been utilized. The continuous message from government is: “Those who do not make an effort to change will soon be out of business”. It argues that, if the government promotes the development of efficient markets and encourages the building of enterprise capacity, this makes a more meaningful contribution than through the maintenance of an inefficient public agricultural extension system.

Regarding food security, there is evidence from Costa Rica that more can be gained with a multidimensional approach than pursuing self-sufficiency. Generating foreign exchange, employment and income and eliminating economic distortions and lowering transaction costs has provided substantial improvements in aggregate food security in Costa Rica.

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