QCOSTARICA — On January 1, 2025, Costa Rica eliminated the last tariffs that remained under the Free Trade Agreement (FTA) with the United States for milk and rice.
That is why the question now arises: what can be done now to get the most out of the trade agreement?
The first thing is to improve logistics, diversify markets with more products and be aware of whether the new administration of Donald Trump will promote any changes, according to several experts consulted by La Republica, Costa Rica’s business newspaper.
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Greater trade openness has two impacts: on the one hand, consumers have imported products on the shelves at a lower price, but on the other, it creates a challenge for producers, who have had to improve their quality to compete on equal terms with imported goods.
The FTA has been described as very positive by the business sector and represented the culmination of a strategy for Costa Rica’s insertion into the global economy.
In addition, it consolidated the United States as the main destination for exports, imports and foreign direct investment.
“Costa Rica has used the agreement to diversify its economy. It has attracted significant investments in the information technology and biotechnology sectors, which has contributed to GDP growth. Multinational companies such as Intel, Microsoft and Amazon, to name a few, have established significant operations in the country, generating employment and technology transfer. The services sector has grown notably, with exports representing 45% of the country’s total exports in 2023,” said Óscar Álvarez Araya, former ambassador and international analyst.
However, despite all these benefits, Costa Rica faces important challenges, such as the need to improve its infrastructure, especially ports on the Pacific and roads.
Education remains a critical area to ensure that the workforce is up to the task of meeting an increasingly sophisticated market demand.
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The latter is a key issue if the country wants to continue investing in the semiconductor sector and maintain its competitiveness.
“Costa Rica must continue to export those products in which we are successful and sell others with high added value. The main advantage that the FTA gave us was to have legal security, since we did not have to renew the commercial preferences of the Caribbean Basin Initiative, which generated uncertainty in that market,” said Victor Umaña, economist at INCAE.
Another aspect that generates expectations for the future are the decisions that Donald Trump may make in terms of foreign trade: whether he will decide to impose a general tariff for all exports, renegotiate the trade agreement or negotiate incentives for American companies consolidated in Costa Rica to produce in the United States. This could affect, above all, employment.
“I would hope that these decisions do not affect the country, which reports a very balanced trade balance and is an ally of the United States in terms of drug trafficking. In addition, Costa Rica does not manipulate the exchange rate to export more,” said Umaña.
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On the other hand, the authorities of the Ministry of Foreign Trade have thought about signing a Free Trade Agreement with the Northern Block, made up of Mexico, the United States and Canada, after these 20 years.
This would bring more legal security, investment and cooperation and would open opportunities for sectors such as medical devices, semiconductors, aerospace and other goods and services in which there is already potential.
Opening a new negotiation would imply reviewing technical standards, establishing new tariff reduction periods and adding trade in services and investment, as well as administrative issues regarding the resolution of differences.
“Costa Rica has individual agreements with the United States, Mexico and Canada, but it can improve them by negotiating globally. To do so, it faces the challenge of improving its logistics infrastructure, which is key to taking even more advantage of the foreign trade and investment flows derived from regional trade agreements. This will be essential if we want to reach other partners such as Japan, Turkey, India, Brazil, Malaysia, Thailand and Indonesia,” said Katherine Chaves, executive director of the Chamber of Foreign Trade (Crecex).
Pending challenges after 20 years of the FTA
Costa Rica must improve a number of aspects in order to take advantage of this market:
- Infrastructure. Improve ports in the Pacific and roads.
- Telecommunications
- Education. Adapt the workforce to a more sophisticated market.
- Logistics. Optimize supply chains and market access. Expand agreements: Negotiate a FTA with the Northern Block (Mexico, the United States and Canada).
Main export products
Since 2009, Costa Rica and the United States enjoy tariff preferences thanks to the FTA.
These are the goods that are sold the most according to information from the Foreign Trade Promoter:
- Various medical devices
- Needles and catheters, cannulas and similar instruments
- Pineapple
- Banana
- Medical prostheses
- Infusion and serum transfusion equipment
- Electrodiagnostic devices
- Coffee
Time for change?
The return of Donald Trump will not affect the dynamics that have been taking place in terms of foreign trade, assured businessmen and financial analysts.
“I am sure that despite the new government of Donald Trump, Costa Rica will continue to enjoy the benefits of international trade and strengthen its participation thanks to nearshoring. We trust that global trade agreements will continue to work,” said Victor Pérez President of the Chamber of Exporters of Costa Rica.
Laura López, General Manager of Costa Rica’s Foreign Trade Promoter, told La Republica: “We believe that, with the presidential changes, the trade agreement will not be affected since Costa Rica and the United States have maintained a historical stability in their commercial relations. The data show that, during Donald Trump’s first term, Costa Rican exports to the United States were stable. In goods, shipments grew +5.4% each year on average; and in services they increased +2.4% (excluding tourism). In foreign investment, investment from the United States grew +10% (excluding the year 2020 due to the Covid-19 situation).
“The FTA with the United States brought the benefit of being able to compete and as there are more players in the market, prices are lowered and the consumer benefits, however, better conditions are needed such as lower interest rates, less social charges, cheaper public services to prepare for the new competition.
“The return of Donald Trump has very good overtones for Costa Rica, as a more accelerated consumerism is expected, since he has promised to lower income tax. Now, with respect to the tariff adjustment for China, Canada and Mexico, the truth is that they would have to go through the upper and lower chambers of the Senate and this could take a long time to be approved,” according to independent financial analyst, Daniel Suchar.
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