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CAFTA Would Eliminate Tariffs on 50,000 Items

July 27, 2007

The country is holding its breath to see what will happen Oct. 7 when Costa Ricans vote on the Central American Free-Trade Agreement with the United States (CAFTA). The construction industry is no exception.

Voting down the free-trade agreement would mean a continuation of the status quo: things in the industry would continue as before, which is perhaps not so bad. In 2006, construction was up 64% over the previous year (TT, Jan. 26).

A free-trade agreement with the United States, however, could affect the industry in any number of ways, the most direct being the instant elimination of tariffs on thousands of construction materials imported from the United States.

Literally 50,000 individual articles – from faucets to flooring to ceramics to gypsum board to cable to lamps to pipe to wood – would become tariff-free, said Randall Murillo, executive director of the Costa Rican Construction Chamber.

That could mean big savings for construction companies and consumers – but it depends on the product.

Costa Rica already manufactures about 30,000 of these 50,000 construction articles domestically and competitively, meaning prices on those items aren’t likely to vary much.

As an example,Murillo mentioned the socalled “gray” materials – gravel, sand, concrete and steel, to name a few. Prices on these items likely won’t change because they are already manufactured in the country.

“What happens is that the leading companies in the United States are also the leading companies here,”Murillo said.

Concrete, for example, is already produced in Costa Rica by Holcim and Cemex, two of the three largest concrete companies in the world. The import of heavy, bulky products like steel and concrete also would require special dock facilities, which Costa Rica lacks.

Many other products, however, would benefit from a free-trade agreement with the United States. Value-added products such as bathroom furnishings, ceramic tile and fine wood are already imported mostly from the United States, and all would enter the country tariff-free under CAFTA,Murillo said.

“Where I think (CAFTA) will benefit us is that more American products will enter” and give residents of Costa Rica a greater variety of products to chose from,Murillo said.

The trade agreement’s big benefit will be for the construction industry itself, Murillo said; the chamber expects a boom in construction when companies begin investing more heavily in Costa Rican facilities.

That might not necessarily be a good thing for small consumers.

Speaking on his own behalf, Josue Castañeda, a member of the marketing department of construction materials importer ConstruPlaza, said that demand-side price pressure from all the new construction could cancel out the consumer savings from the tariff cuts.

“It all depends on the demand for the product,” he said.

 

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