Equal Partners?

Costa Rica and Canada ink possible blueprint for FTAA.

A SIGNIFICANT BARRIER TO THE CREation of a free trade zone from Alaska to Patagonia by 2005 is the varying wealth of the 34 economies involved. Rich nations fear competition from cheap labor among less-developed competitors. Poorer states can't withstand being swamped by goods manufactured by far more efficient economies.

Rich and poor may have found a blueprint after Costa Rica and Canada in April inked a free-trade pact with innovative arrangements to accommodate their differences.

Costa Rica has 4 million inhabitants, a gross domestic product (GDP) of US$15 billion and annual per capita income of $3,775. Canada, an affluent, high-tech, industrial society of 31 million has a GDP of $722 billion and a per capita income more than six times higher, at $23,300. Trade between the two nations was a modest $269 million last year.

"One of the biggest issues is how to integrate the many small economies of the region with the seven or eight giants. This shows that it can be done," says Anabel Gonzalez, Costa Rica's vice minister of trade. "I think it will give one or two ideas to those negotiating the Free Trade Area of the Americas."

Under the agreement, which legislatures of each country are expected to ratify in 2002, Costa Rica gains secure access to a large market for its exports, but the Central American country must also slowly reduce its tariffs on Canadian products. Canada will abolish tariffs for 86% of goods while Costa Rica does the same for 65% of Canadian goods.

Sensitive areas will be excluded for seven to 14 years. (Canada will drop all tariffs within seven years). Goods with the longest wait before a drop in tariffs include Costa Rican textiles and footwear and Canadian beans, onions and tomatoes.

"The asymmetry of tariff reductions is especially important," says John Gartke, commercial counselor at the Canadian embassy in San Jose. "We can say, 'Here is what a big economy and a small economy can do on these issues.'"

Safeguards first. Trade Vice Minister Gonzalez says the treaty will also classify Costa Rican exports made mainly from imported raw materials as wholly Costa Rican. "This is very important for small economies that do not have access to many raw materials," she says.

Moreover, the accord includes safeguards that commit each country to enforce its own domestic labor and environment standards. Canada will advise and help train labor inspectors to strengthen Costa Rica's ability to enforce workers' rights to organize and bargain collectively and prohibit forced or child labor.

Unlike the North American Free Trade Agreement, there are no trade sanctions or fines applicable for treaty breaches. If either country has a complaint about the other's labor or environment provisions, they can take it to that nation's labor ministry. If they are not satisfied with the ministry's response, they have the right to ask for a review panel made up of representatives from other nations to resolve the problem.

The treaty is also the first to include measures to reduce red tape and ease customs procedures. "No free trade treaty has included them before nor does the World Trade Organization," says Gonzalez.

David Lewis, vice president of Manchester Trade Ltd., a Washington-based business consultancy group, says all eyes will be on the Canada-Costa Rica treaty, looking for its effects on negotiations over the much-debated Free Trade Area of the Americas "It will be interesting to see the ripple effect," Lewis says.

If there is no ripple effect, Canada might well move ahead just the same. As Canadian political scientist Peter McKenna wrote in Toronto's Globe and Mail: "Ottawa is not prepared to stand idly by if a hemispheric deal is not in the cards."