The fourth round of free-trade agreement (FTA) negotiations between Costa Rica and China concluded early this month and, according to the Foreign Trade Ministry (COMEX), negotiations appear to be on track for a final handshake in February of 2010. But even as deliberations with the Eastern giant continue, opposition to the initiative from many Costa Rican businesses and organizations is growing.
The Costa Rican Chamber of Industries (CICR) and Food Industry Chamber (CACIA) are leading the anti-FTA push, claiming the agreement is unnecessary, rushed, dangerous and unexplained. Though the disapproval of the industry groups is rooted in looking out for the best interests of Costa Rican companies and manufacturers, what they say they want above all is an explanation from COMEX and the government to justify signing the agreement.
“The government has not made the case as to why the country needs this free trade agreement,” said Tomás Pozuelo, president of CACIA. “It creates such enormous challenges.
China is not a democracy, it works on different rules and it makes the cheapest products in the world. The questions are, why are we doing this and what is the benefit to us? This is why we are against the treaty.
No one has been able to tell us why we’re creating this agreement.”
COMEX, which is leading the free-trade agreement talks, says that the reasons for the FTA are obvious and that the benefits it will provide Costa Rica are too attractive to pass up.
“Consumption by China is growing every year, and this provides the opportunity to increase the amount of Costa Rican exports,” said Fernando Ocampo, chief negotiator of the FTA for COMEX. “The agreement will also benefit local markets as more Chinese investment enters the country.”
The two sides of the debate are clearly defined. Each side is staunchly in favor of or against the agreement with China, which – exporting over $1.4 trillion in goods and services in 2008 – is the world’s second largest exporter.
Even as the battle lines are drawn, COMEX continues to aggressively push the negotiations forward, projecting that the fifth round of talks will take place in November and that a final agreement will be ready in February of 2010.
Meanwhile, opponents understand that their lone opportunity for a cancellation of the agreement lies in the Legislative Assembly, which will vote on the FTA after final negotiations are completed. In the meantime, CACIA and CICR, hoping for an 11th-hour reprieve, have said they are attempting to “educate” Legislative Assembly members regarding their concerns about the FTA with China.
The Arguments Against Free Trade
The list of concerns voiced by CACIA and CICR is expansive, but it includes two primary fears. The first regards opening the Costa Rican market to Chinese competition. With over 1.3 billion people, China has the largest population in the world. And, according to the United Nations, it is the second largest producer of manufactured goods (after the United States) in the world.
In the most recent round of talks, China asked that 90 percent of the Costa Rican market be made available to its products. As a result, China could begin to sell its goods and services in Costa Rica free of tariffs.
With the tariff – which is currently around 15 percent – waived, Chinese goods would be sold at a much lower price. This means that Costa Rican manufacturing or processing companies would be forced to compete against very inexpensive Chinese goods in their own backyard.
“It’s going to break a lot of businesses,” Pozuelo said. “We are a country of four million people, and you want us to compete against a country with over a billion people? China can produce a tremendous volume of goods, at a cheaper price, using cheaper labor.
Costa Rican businesses, particularly industrial businesses, cannot compete with that.”
Accompanying this concern are the many unknowns regarding Chinese labor practices, and, indeed, of the country in general.
According to Juan Ramón Rivera, vice president of CICR, Costa Rica has had business relationships for only three years with China, and their business and trade practices are basically unknown.
“We don’t know who China is,” said Rivera. “We need to take the time to learn how they operate, understand their business practices and study them some more before jumping in a free-trade agreement with them. We are not going to achieve knowledge of the biggest country in the world in six months or a year.”
Rivera also alluded to the Central American Free Trade Agreement with the U.S. (CAFTA), which was approved in 2008.
Rivera and Pozuelo agreed there was confidence entering into the agreement with the U.S. because their labor practices, rooted in a democratic political system, are similar to those of Costa Rica.
Both men expressed concern that the labor practices of the two countries are incompatible, resulting in an unfair advantage for China. For example, they said, China is without labor laws incorporating principles such as a ceiling on working hours, unions, child labor regulations and minimum wage.
According to the Bureau of Labor Statistics (BLS), in 2007 the 112 million Chinese employees in the manufacturing sector earned an average of $0.81 per hour.
The other prominent concern of the agreement’s opponents is product safety, as China has a history of producing unsanitary or unsafe products. According to the U.S. Consumer Product Safety Commission, of 152 product recalls in the U.S. in 2007, 104 were of Chinese goods. With the increase of products from China in the Costa Rican market, there appears to be unanimous agreement – among both opponents and proponents of the agreement – that product entryguidelines must be revamped to ensure that Chinese products sold inCosta Ricameet safety requirements.
“We are accustomed to trading with honest countries that have reliable systems of quality testing,” Rivera said. “If we go into a free-trade agreement with China, we are going to have to increase the quality control testing mechanisms in the country. Currently, we aren’t prepared to do business with untrustworthy partners.”
The Other Side of the Debate
As calls for the delay or cancellation of the FTA become louder, COMEX and the Economic, Industry and Trade Ministry (MEIC) remain confident that negotiations with China will bring tremendous benefits to Costa Rica. Their primary arguments in favor of the agreement center on the amount of raw materials that would enter the country, and the interest in importing Tico agricultural products, such as bananas and coffee, that they say exists in China.
In 2008, the second leading cause of the trade deficit in Costa Rica stemmed from the country’s high costs to import raw materials, such as steel, copper, silver and iron.
Costa Rica does not produce these materials; therefore, it must import them. With an FTA with China, raw materials would be much less expensive.
“Costa Rica isn’t a producer of raw materials,” Ocampo said. “Free trade with China will provide raw materials to manufacturers so that they can create infrastructure that we couldn’t create previously. It will give us the means to produce finished goods that we currently have to import.”
The acknowledged poor condition of the country’s infrastructure is regularly reported to be one of the weakest aspects of the Costa Rican economy. According to the World Economic Forum Global Competitiveness Report, “the poor state of Costa Rica’s infrastructure represents a potential bottleneck for further economic modernization and diversification.” Of the 131 countries ranked by the report, Costa Rican infrastructure ranked 82nd.
Another perceived benefit of the agreement is the interest expressed by China in Costa Rican agricultural products. According to Eduardo Sibaja, head of MEIC, “China’s most coveted Costa Rican goods are agricultural.”
“We have seen a huge interest in the agriculture sector, which is the reverse of most other free-trade agreements,” said Sibaja.
“Typically, countries have no interest in our agriculture, but we produce things that China cannot produce, and that creates a very big opportunity for agriculture producers. This is a very different type of agreement in that regard.”
How Will the Legislative
Parties on either side of the FTA issue appear to be decided and unwilling to bend. As expressed by Pozuelo, “There (can be) no compromise” on the issue.
If events unfold according to plan, COMEX will meet with China again in November to discuss which products would be deemed “sensitive” and would be excluded from the trade agreement.
Although China appears to be pushing for the agreement to be highly inclusive, Ocampo assured The Tico Times that the products most vital to the Costa Rican economy would be safeguarded. However, if 90 percent of goods and services are included, much of the Costa Rica market will necessarily be opened to Chinese competition. Moreover, products to be included and excluded have yet to be listed.
Both Pozuelo and Rivera said that their respective organizations will work during the upcoming months to lobby in the Legislative Assembly against the trade agreement with China. If the FTA negotiations are concluded in February, the upor-down vote of the Legislative Assembly will take place shortly thereafter. Pozuelo said he fears that the presidential election in 2010 will overshadow the vote and that it will slide under the radar of the national press.
“Everyone in Costa Rica should be aware of the potential impact of this agreement,” Pozuelo said. “It is going so fast and it seems that COMEX wants it approved before anyone takes a real hard look at it.”
Whatever the decision of the Legislative Assembly, it will undoubtedly shape the economic future of Costa Rica for years to come.