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Doing business in Costa Rica.

The U.S. Dept. of Commerce has produced a 95-page Country Commercial Guide which offers helpful information on doing business in or with Costa Rica. Excerpts follow. If you wish to read the complete report, Email me (kalwagenheim@cs.com) and I will Email it to you as a file attachment:

Market Overview: The US is Costa Rica's main trading partner, accounting for over half of its total imports. The US had a trade deficit of US$29.2 million with Costa Rica in 2004 vs. a US$49.3 million surplus in 2003. US exports declined slightly (US$3.4 billion in 2003 vs. US$3.3 billion in 2004);

The US is also the leading investor in Costa Rica with US$358 million in 2003, the last year for which data is available. Total investment into the country for that year amounted to US$587 million. US companies such as Intel, Procter & Gamble and a number of franchising and service companies have facilities here;

Economic growth continues at a steady pace, with GDP rising 4.2% in 2004 but down from 5.6% in 2003. Inflation rose to 13%, exceeding the Government's goal of 10%.

Market Challenges: The Costa Rican market is generally open. Tariffs, with certain exceptions, range from 0 to 15%. There have been sporadic reports of problems with Customs clearance of incoming goods;

The Government has not enjoyed success with certain of its concession schemes to manage many of its public works projects, including the Juan Santamaria Airport, the Pococi prison facility, and various road improvement programs;

Although Costa Rica's IP laws are considered to be adequate, enforcement of intellectual property laws has been lacking in many cases, due to insufficient resources and training, and weaknesses in the country's criminal code;

While Costa Rica has negotiated a Free Trade Agreement with the U.S., Dominican Republic, and its Central American neighbors (save Panama and Belize), the Pacheco administration has stated that it will not send the agreement to the legislature for formal approval until it considers the Government's package of fiscal (tax) reform, which, to date, has resulted in a stalemate;

Market Opportunities: Market prospects are excellent in the following sectors: kraftpaper, paperboard, and other paper products; information and communication technology; auto parts; medical equipment; construction equipment;

Future prospects in these and other sectors are likely to improve if CAFTA-DR is approved by the U.S. and Costa Rican congresses. More than 80% of all non-agricultural goods, and more than 50% of agricultural products, will be duty-free immediately upon signing;

Over time, the agreement will open the cellular and Internet service markets as well as insurance. CAFTA-DR will also strengthen Costa Rica's IPR protection regime, eliminate the dealer protection regimes, allow non-discriminatory treatment for U.S. firms in government procurement bids, and provide stronger protection for investors;

Political and Economic Environment

The U.S. trade surplus with Costa Rica was US$53 million in 2003, up by US$78 million from a US$25 million deficit in 2002. U.S. goods exports in 2003 were US$3.4 billion, up 10% from the previous year. Corresponding U.S. imports from Costa Rica were US$3.4 billion, up 7%. Costa Rica is the 29th largest export market for U.S. goods;

The stock of U.S. foreign direct investment (FDI) in Costa Rica in 2003 was US$1.6 billion, down US$75 million from 2002. The total inflow of FDI in Costa Rica in 2003 was US$57 million, down US$75 million from 2002. U.S. FDI is concentrated mainly in the manufacturing sector, but FDI in the services sector is significant and growing;

Government Procurement

A growing number of U.S. exporters and investors are reporting unsatisfactory experiences when responding to government tenders. For example, the Government (through the Comptroller General) and large state-owned enterprises have occasionally annulled and re-bid tenders after the financial analysis was completed and awards granted. The Government has also modified tender specifications midway through the procurement process. The bidders in these cases were forced to bear the costs associated with these changes. Costa Rica is not a party to the WTO Agreement on Government Procurement;

Export Subsidies

Tax holidays are available for investors in free trade zones, unless tax credits are available in an investor's home country for taxes paid in Costa Rica. CAFTA-DR will require the elimination of WTO-illegal export subsidies;

Services Barriers

Costa Rica's insurance, telecommunications, electricity distribution, petroleum distribution, potable water, sewage, and railroad transportation industries are state monopolies. There are also restrictions on the participation of foreign companies in some private sector activities, such as customs handling, medical services, prison operation, and other professions requiring registration and long-term residency. Under CAFTA-DR, Costa Rica will accord substantial market access in services, subject to very few exceptions. Liberalization in insurance will be achieved through a phased-in approach with the vast majority of the market open by 2008, and a total opening by 2011. Costa Rica also made commitments to gradually open its telecom market in three key areas--private network services and Internet services starting in 2006, and wireless services starting in 2007--and committed to establishing a regulatory framework to help foster effective market access. Under CAFTA-DR, Costa Rica committed to modernizing the state monopoly telecom provider ICE by Dec. 31, 2004, but did not meet that deadline due to inaction by the Legislative Assembly.

Investment Barriers

Several U.S. investors have recently noted serious difficulties executing contracts made with the government. The slow pace of the legal system (a commercial dispute in the courts can take an average of 10 years to be resolved) has been cited as a barrier by many U.S. investors. Another concern is the frequent use of "recursos de amparo" before the Constitutional Court, which are challenges to review the possible illegality of acts by the authorities or to review the constitutionality of legislation and regulations. Such challenges have been used at times to thwart an investment or hinder the quick resolution a dispute;

Costa Rica's constitution and the expropriation law make clear that expropriations are to occur only after full advance payment is made. However, many U.S. investors had their land expropiated 20 or 30 years ago and had to fight long and hard for adequate compensation. One case remains of a U.S. investor who has not been compensated;

While electrical generation and distribution remain a state monopoly, an electricity co-generation law enacted in 1996 allowed some private-sector participation (limited to 15% of the total market) in the production of electricity, but not in its transmission. This law has since been modified to permit the private construction and operation of plants under build-operate-transfer (BOT) and build-lease-transfer (BLT) mechanisms, but the operator must have at least 35% Costa Rican equity. Legislative proposals to open the electricity and telecommunications sectors to investment and competition were abandoned in 2000 in the wake of large-scale demonstrations against reform and a Constitutional Court ruling against specific legislation under discussion. Existing private power producers have had their long-term, fixed-rate contracts challenged by certain Costa Rican governmental organizations, but these contracts have been honored;

Other Barriers

The law regulating commercial representatives of foreign firms (Law No. 6209) grants local companies exclusive representation, without a signed agreement, for an indefinite period of time. In most cases, foreign companies must pay indemnity compensation in order to terminate an undesirable relationship with the local company. CAFTA-DR will address these issues through comprehensive transparency requirements and specific provisions on dealer protection laws.

Using an Agent or Distributor

Costa Rican law provides for two main forms of representation: a representative and a distributor. It is possible for one person to be both a representative and a distributor at the same time;

The Costa Rican Commercial Code permits a US company the opportunity to participate in public tenders directly, without a local Costa Rican representative. The only requirement is that the official representing the US Company must have a Power of Attorney that must be certified by a Costa Rican Consulate in the US. However, the process of bidding on public tenders is usually a tedious process, and best accomplished through the employment of a qualified Costa Rican representative;

Finding a Partner

The Commercial Service (CS), a division of the US Department of Commerce (USDOC), offers companies assistance in identifying potential business opportunities. Assistance is provided via the CS website, and/or counseling sessions over the telephone, via e-mail, or videoconference, or by office appointment. For a complete list of CS services, please go to www.buyusa.gov/costarica/en

Agricultural Sector

The US is the single most important agricultural partner of Costa Rica negotiated a free trade agreement with Chile, effective Feb. 2002. Chilean fruits (fresh and canned), candies, and other food products received preferential tariff treatment, resulting in stronger competition for US products. Costa Rica also has free trade agreements with Canada, which took effect in Nov. 2002, and Mexico which took effect in Jan. 1, 1995. These agreements provide duty-free access to agricultural products competing with U.S. products;

Most grains are imported in bulk, limiting the import market to a few major players. Two wheat mills (Molinos de Costa Rica and Fabrica de Harinas de Centroamerica) account for all wheat imports. Two groups of private sector importers make almost all yellow corn and soybean import purchases. Rice is imported by a group of producers and millers associated under the name Corporacion Arrocera (Rice Corporation). Rice importers outside of this group have to pay higher duties. The law that created the Rice Corp. allows only the Rice Corp. to import duty free, when there is a rice shortage;

Import permits (other than phytosanitary and sanitary) are not required for imports of grains, poultry, meat, dairy products or any other agricultural product, per the terms of Costa Rica's GATT accession agreement;

Franchising

The growth of franchising is slowing due to market saturation, mostly in the fast food sector. Franchising has been spurred by the rise of tourism to Costa Rica. The first franchise to enter the market was McDonald's in 1970, and others such as Pizza Hut quickly followed. Payless Shoe Source, Marriott Courtyard Hotel, Comfort Inn, TGI Friday's, KFC, Tony Romas, Burger King, Haagen-Dazs, Outback Steakhouse and Office Depot are the latest arrivals to the Central Valley, where a majority of Costa Rica's residents live. On the other hand, other franchises, such as Rooms to Go and Blockbuster Video, were unsuccessful in Costa Rica either because of the economic conditions at the time or poor copyright protection;

About half of the 30 franchise retail businesses operating here are fast food/specialty food enterprises. Franchises employ some 4,000 Costa Ricans. About 20% of these franchises are locally owned, and the remaining 80% are foreign-owned, (and of this amount, 90% are U.S. franchises);

Costa Ricans are very price conscious and savvy shoppers. They are generally aware of what items cost in the U.S. and how the same or similar items are priced in Costa Rica. While they are willing to pay slightly more for the perceived quality of an American product, they are still limited by their home budgets;

Opportunities exist for growth and expansion of franchising in Costa Rica outside of the fast food sector. Entrepreneurs continue to appreciate the mature business systems and proven track record that many franchises offer. Effective franchise marketing normally entails sensitivity to the need to adapt to the local culture, such as adding local foods to the menu or translating manuals/catalogs into Spanish;

Direct Marketing

Direct marketing has enjoyed limited success in Costa Rica. Since the country does not have a postal/mailing system with defined street names and numbers, it is difficult to obtain client lists or reliable addresses. There is no law that regulates direct marketing. In the absence of a specific law, the general law that applies to advertising and public relations agencies also regulates the direct marketing method of selling;

Selling to the Government

Government entities generally acquire their goods and services through public tenders, which are published in the official newspaper, La Gaceta, and major newspapers. Some purchases are made directly from suppliers that have pre-qualified and pre-registered with government entities;

Foreign companies may bid directly on Government tenders. However, when competing for government contracts, there is a considerable advantage to have a strong local partner or representative. The local representative should be established, reputable, well known and respected in business circles, and knowledgeable about Costa Rican business culture and process. This is especially true when competing for and executing government tenders;

Distribution and Sales Channels

Costa Rica is affectionately referred to as "Latin America Lite" because of the abundance of US products and services that gives the country the feeling of being in America. The retail distribution sector closely follows US practices. Some 75% (2.5 million people) of the country's consumers live in the Greater San Jose area known as the Central Valley. They are accustomed to large shopping centers and malls that house retail stores, kiosks, food courts, theaters, and supermarkets.

Franchise outlets, smaller mixed-use commercial centers and hypermarket-type operations are proliferating rapidly due to increased pressure and competition from big retail stores such as Price Smart and Hypermas. In recent years, retail outlets have undergone a mayor consolidation. Five large department store chains, six supermarket chains, and countless small and medium-sized family-owned firms compete with the larger retailers. Rural areas are served by the "general store", locally known as a "pulperia".

Trade Promotion:

A limited number of privately organized trade promotion events are mainly organized by the following companies: Fercori.http://fercori.co.cr; Compuexpo.mundoexpo@racsa.co.cr; Visit USA, Pennwell/Coscom, http://pennwell.com; Expo-Construccion 2005, http://construccion.co.cr

Key Export Products

Paper and Paperboard--Leading Sector #1. Costa Rica is one of the largest importers and consumers of paper and paperboard per capita in Central America and the Caribbean. The market size for paper and paperboard rose to US$264.7 million in 2003;

The paper and paperboard market fell from 2000 to 2002, particularly for kraftliner paper and paperboard used for corrugated boxes. After a decline in the banana sector from 1999 to 2002, the sector recovered in 2003 as exports rose to 111.8 million boxes. Other agricultural products, such as pineapple and melon, also experienced an increase in the export market. As a result, imported kraftliner paper for corrugated carton boxes, the most prominent sub-sector, increased in 2003 to US$137.1 million, and total imports of paper and paperboard for 2003 increased to US$254.3 million;

Local production of paper and paperboard is limited to toilet paper, cleansing tissues, napkins and diapers. There is only one large local company producing this line of products, Kimberly Clark. This company has two plants, one mill paper plant in San Antonio de Belen (West of San Jose) and another tissue manufacturing plant in the Industrial Free Trade Zone Park in Cartago Province, East of San Jose. There is another paper mill but only for recycled corrugated carton, located West of San Jose;

The most promising sub-sectors for exporters of paper and paperboard are: uncoated bleached and unbleached kraftliner paper and paperboard; uncoated paper and paperboard for writing; and newsprint paper. Other sub-sectors with high demand include bond paper used for writing, press and computer printing, faxes, photocopies and other office activities;

Computers and Peripherals (CPT)--Leading Sector # 02. The demand for computer and peripheral equipment increased from 2000-2002, but decreased by 12.3% in 2003 to US$131.9 million;

Software accounted for 17% of reported imports, which is usually shipped with the hardware. Market growth for the sector from 2004-2006 is expected to improve by an average of 1-2% per year. Computer penetration on a household basis increased 2.7% a year from 2000-2003;

Internet services are poor relative to Costa Rica's neighbors. The recent addition of greater bandwidth to be provided by the Government will begin to address the problems in this critical area. CAFTA, if approved, will bring competition to this market. Real strides in the next generation of wireless communications are still a long way off;

Major US competitors in this sector are Germany, Mexico, China, United Kingdom, France, Panama, Japan, and Taiwan;

The US market share for computers and peripheral equipment in 2003 was 88.9%. There is no significant local production of this type of equipment for direct local consumption, although there are several producers of parts and components for export performed as in-bond operations within Free Trade Zone facilities, including Intel's local plant;

Opportunities: According to most Costa Rican importers of computer and peripheral equipment, good sales opportunities continue to be projected for virtually all categories of products in this sector.

Plastic Materials and Resins (PMR) Leading Sector #3. The total value of the market for plastic materials and resins increased 12% to US$143.43 million in 2003. This was primarily due to increasing prices in the raw material inputs. The construction sector, which has grown rapidly over the last two years further increased demand. The consensus within the industry is that the market will grow normally at an annual rate of 7% to 8% from 2005-2006. Details: Costa Rican Construction Chamber http://www.construccion.co.cr/revista/2002-10/honorarios.htm

The manufacture of plastic products such as tubing and ducts used in the construction industry, as well as in the water supply and sewage services sector, are integral to the development and growth of Costa Rica. There is considerable local production of plastic products, though no reliable statistics are available;

Since Costa Rica does not have a petrochemical industry, all types of resins are imported. Two local companies are involved in the basic transformation of resins. One of these is a PVC compounder; the other is an acrylic compounder, primarily for paints. Companies manufacturing plastic products, import their resins, additives, pigments, stabilizers, plasticizers and lubricants. Only certain fillers, such as clays, calcium carbonate and some solvents, are found in the local market;

The largest supplier of plastic materials and resins to Costa Rica is the US, whose market share was 64.09% (2003). Major U.S. competitors in this sector are Mexico, Colombia, Germany, Israel, Taiwan, Guatemala, South Korea and Italy;

Telecommunications Equipment--Leading Sector # 4. The telecom industry is managed by the Costa Rican Institute of Electricity (ICE), a government monopoly in charge of the electric power generation, transmission and distribution as well. During the last five years, the telecommunications sector has experienced a significant growth, especially in the cellular telephone system and the Internet. These two technologies have dramatically increased the demand for more telecom infrastructure. The Government decision to limit the funding for new telecom projects prompted the entity to turn to a leasing scheme to obtain the necessary infrastructure needed to expand the network and meet the demand;

Under the leasing scheme, ICE acquired 545,000 lines of cellular infrastructure equipment from Lucent Technologies and Ericsson, using TDMA technology. In 2000, ICE awarded to Alcatel a contract for the infrastructure to operate 400,000 cellular lines in GSM technology. The lines were installed and began operations in Dec. 2002. In 2004, ICE awarded another tender for the infrastructure to operate 600,000 cellular lines in GSM technology to the Swedish company Ericsson, which was scheduled for installation in 2005. The total value of the contract for the operation of this second tender was established to be US$120 million. However, it is currently under review by the Office of the Comptroller General;

In the Internet segment, ICE awarded a tender for advanced broadband Internet access, estimated at US$60 million. The service was expected to begin in early 2005. The installation and operation of this cellular infrastructure has generated a great demand for cellular telephone sets and accessories. The local market has been flooded with a wide variety of cellular telephones from different brands for both TDMA and GSM technology (Motorola, Sony, Ericsson, Nokia, Siemens and Alcatel);

The market for telecom equipment increased dramatically in 2003 to US$248 million, due primarily to the installation of Alcatel switching equipment for the 400,000 GSM cellular lines, which entered the country under the temporary admission regime. Since there is no local production of telecom equipment, the total import value for all telecom equipment equals the size of the local market;

Privatization and liberalization of the telecom sector in Costa Rica has been consistently opposed by ICE workers unions and some political leaders. However, under the Central American Free Trade Agreement (CAFTA) Costa Rica agreed to allow the participation of private operators in two segments of the Costa Rica telecom sector: cellular telephony and Internet services. If approved by the Costa Rican Congress, these two services were to be open to private participation in Jan. 2007;

The most promising sub-sectors in the telecom market are digital, cellular and wireless telephone systems, data transmission equipment and fiber optic networks;

Agricultural Chemicals--Leading Sector # 5. Agriculture is an important part of Costa Rica's economy, accounting for 10.7% percent of the country's Gross Domestic Product in 2003. The Government places great importance on this sector by facilitating banking credits and incentives to growers. The demand for agricultural chemicals (fertilizers, fungicides, herbicides, and pesticides) is high because the soil in general is very poor in nutrients such as nitrogen, phosphorus, potassium, sulfur calcium, and magnesium. The agricultural fields are also affected by tropical agricultural diseases, such as Sigatoka (in bananas), funguses, nematodes, and other diseases;

The agricultural sector, particularly in the areas of traditional export products, such as bananas, coffee, and sugar, experienced a significant decrease due to the decline in international market prices (2000-2002). As a result, several banana and many coffee crops were destroyed or abandoned, decreasing the demand for fertilizers and agricultural chemicals. However, in 2003, the agricultural sector experienced a recovery as international prices began to climb. For example, production in the banana sector increased from 88.9 million boxes in 2002 to 111.8 million boxes in 2003. Many other agricultural products, such as coffee, pineapple and melon, also experienced a significant increase in their production for the export market. This reactivation has also increased the demand for fertilizers and agrochemicals;

Since Costa Rica does not produce materials for fertilizers and agro-chemicals, the agricultural sector depends entirely on the importation in this sector. The market size for agricultural fertilizers and chemicals was US$126.2 million in 2002 and US$170.0 million in 2003, with accounting of the market (US$118.4 million in 2002 and US$169.9 million in 2003). The US is the largest supplier of agricultural chemicals inputs to Costa Rica. Imports from US were US$35.5 million in 2002 and US$59.9 million in 2003;

The US market share of Costa Rica's total imports was 30% in 2002 and 35% in 2003. Major third-country competitors to U.S. products in Costa Rica are Russia, with a market share of 9.8% in 2003, Colombia (9.7%) and Germany (8.2%). The annual growth rate for this sector was projected to be between 5% to 10% in 2004-2006;

In Costa Rica, there are three local producers of finished fertilizers, which in reality are blenders or mixers of fertilizers: FERTICA, ABOPAC, CAFESA. A few local companies produce agro-chemicals (pesticides, herbicides, and fungicides) for well-known international companies established here, such as Cyanamid, Dow Chemical, ELF, Rohm & Haas, Rhone Poulenc, BASF, Griffin. About 10% of their production is exported to Central America and the Caribbean, while the remainder goes to local consumption;

The most promising sub-sectors for exports in this sector are fertilizers, herbicides, and fungicides. US products enjoy a good reputation in the Costa Rican market due to their high quality, competitive prices, and consistent ocean shipping services;

Auto parts. Leading Sector #6: The market for auto parts was strong through the 1990's. However, from 2000-2002, the sector experienced a slight downturn, reflecting a slowing economy. Total imports in this sector recovered in 2003 with a 25.4% increase over the previous year, to about US$144.7 million;

The consensus within the local automotive parts industry is that the sector would grow at an annual rate of 6-8% from 2004-2006. Competition from used automobile imports from Korea increased sharply during 1998-2002, because of lower duty rates for these vehicles. This led to an increase in auto parts imports from Korea, which reduced the US share of market. Industry sources say the US share of the import market was expected to improve slightly from 2004-2006. US market share for automotive parts for 2003 was 32.8%;

Many importers of automotive parts and accessories purchase their products in the US, although a significant portion of the items is not of US origin. Local production is limited to small electrical and metal parts, batteries, electrical copper cable, hydraulic seals, filters (air/gasoline), steel leaf springs, aluminum and steel wheels, windshields, carpets, hoses, mufflers, bus bodies, and tires. Major US competitors in this sector are Japan, South Korea, Brazil, Taiwan, and France. Most Costa Rican importers of automotive parts say good sales opportunities continue to be projected for virtually all categories of products in this sector;

Medical Equipment (MED)--Leading Sector #7. Costa Rica has a socialized health care system identified as the Costa Rican Social Security System (Caja Costarricense de Seguro Social, or CCSS). This includes 29 hospitals: 9 general hospitals, 7 regional hospitals (1 in each geographic region/ province), and 13 peripheral hospitals. Sixteen of the hospitals are located in the Central Region of the country. Costa Rican law does not prohibit private hospitals, which have grown in recent years. The CCSS is also responsible for 505 clinics, of which 416 are small clinics with only basic equipment, known as "Equipos Basicos de Atencion Integral" (EBAIS), which provide basic medical assistance to patients in remote areas of the country;

The country's hospitals have 6,920 beds that belong to the CCSS, plus 150 beds in three private clinics/hospitals. The public encourages the replacement of obsolete medical equipment in the principal clinics and hospitals. The public sector, represented mainly by the CCSS, buys approximately 85% of the medical equipment in Costa Rica. Details: http://www.info.ccss.sa.cr/;

The level of demand for medical equipment in Costa Rica is expected to continue to rise, as most hospitals need to continue replacing obsolete equipment. Imports in this sector increased 45.2% in 2002 to about US$16.7 million, and then jumped 344.9% to US$74.3 million in 2003. This rate of increase was not expected to continue, as it included the imports of a great amount of equipment by the Costa Rican Social Security agency, which is currently under investigation by the Costa Rican Congress for irregularities in its procurement. Market growth for the 2004-2006 periods was expected to average 3-5% per year;

There is no significant local production of medical equipment that is consumed directly in Costa Rica. Major U.S. competitors are Finland, Germany, Spain, Japan, and United Kingdom. The US market share for medical equipment in 2003 was 44.8%;

Best Products/Services: Among the best products/ services are following subsectors: power injectors for cardiology and for computerized axial tomography studies; patient warmers; monitoring systems for intensive care; secretion vacuum-cleaners; chest seals; intensive-care beds; muscular mechano-therapy and massage appliances; pacemakers; x-ray equipment; x-ray film; utltrasonic scanning equipment; clinical laboratory equipment; bacteriology laboratory equipment; surgery equipment; electromyography equipment; and electroencephalography equipment;

Opportunities: Assuming CAFTA is approved by the Congresses of both countries, 98% of US exports of medical equipment will receive duty-free treatment.

Construction Equipment--Leading Sector # 8. The construction sector has been identified as one of the most dynamic sectors of Costa Rica's economy for the past three years. Its growth has been attributed to the rise in the country's economy in past few years. The reduction of interest rates in the local banking system has also contributed. The Costa Rican Chamber of Construction companies reported that the local construction sector rose 36% from 2.0 million square meters of construction area in 2002 to 2.7 million square meters in 2003. Most of this took place in the private sector, for example, residences, warehouses, industrial plants, offices, shopping malls, supermarkets, schools and hospitals;

The market size for construction equipment was US$31.6 million in 2002 and US$34.3 million in 2003. The annual growth rate for the import of construction equipment was expected to average between 5 to 10%; over the next three years (2004-2006). Since there is very little local production of construction equipment, total imports are roughly equal to the size of the local market;

The US is the largest supplier of construction equipment to the Costa Rican market, with total exports of US$17.7 million in 2002 and US$17.4 million in 2003, representing an average market share of 52% of Costa Rica's total imports over the past two years. In 2003, major third-country competitors were Italy, with a market share of 14.0%, France (10.9%), and Korea (6.0%);

Best Products/Services: Construction equipment in high demand are tractors, backhoes, shovel loaders, asphalt mixers, and dump trucks. US construction equipment enjoy an excellent reputation in the Costa Rican market due to their high quality, availability of spare parts and maintenance and repair services through dealerships, competitive pricing and consistent ocean and air shipping services;

Opportunities: The Costa Rican Concessions Council is undertaking feasibility studies or preparing bid documents for several roads and highway construction, enlargement and repair projects through the Public Works Concession Model, for the following five years. The execution of these projects will require heavy construction equipment. San Jose - San Ramon Highway, 65.8 Km; Radial Heredia Highway, 15.0 m; Peripheral Ring Highway, 24.0 Km; San Jose-Cartago Highway, 20.5 Km; San Jose-Limon Highway, 156.0 Km;

In the private sector, there will be a large tourist development in the Guanacaste Province that will require the construction of several hotel projects;

Agricultural Imports

U.S. corn export volume to Costa Rica increased 5.5% in 2003. The value of corn imports from all countries reached US$68.8 million in 2003, up from US$59.9 million in 2002. The US had a 99.0% market share in 2003. Imports of white corn have become an important component of total corn imports in recent years as local production has declined relative to consumption.

Best Products/Services: Although most of the imported volume is represented by yellow corn used for animal feed, imports of white corn for human consumption in the form of tortillas, has increased recently as a result of lower domestic production;

Total soybean imports totaled US$55.7 million in 2003, vs. US$54.8 million in 2002, remaining in the second place on the list of Costa Rica's largest agricultural import products in terms of value. The US lost its longstanding 100% share of the soybean import market in 1999, 2000 and again in 2003 (since no soybeans are produced locally), due to competition from Brazil and Argentina. However, US soybeans regained market share in 2001 and 2002, controlling almost 100% of the market. Soybeans are imported primarily for meal. Soybean oil has been in surplus over the last few years, with exports to Central America providing an outlet. There is only one oilseed crusher in Costa Rica, INOLASA, located near the Pacific port of Caldera (where all bulk grains arrive);

The value of wheat imports from the US increased 27.6% to US$38.8 million in 2003. Shipments from the US outpaced imports from all sources, which increased by 5.5% during the same period. Ukraine exported 17,833 tons to Costa Rica in 2003, but the US still has the largest market share in this market. About 75% of Costa Rican wheat imports are hard red spring, with soft red winter and durum comprising the rest. The US traditionally supplied 100% of the market, but Canada became a competitor in recent years. Canada exported 56,256 tons to Costa Rica in 2001, and 34,057 tons in 2002, or 16.8% of total imports. There are only two wheat mills in Costa Rica;

The private sector makes all wheat purchases. No wheat is produced locally. There is strong competition in the domestic market between the two local wheat mills, Molinos de Costa Rica (the largest) and FAHACASA;

Rice: After a shipment of 20,000 MT of rough rice from Uruguay in 1999, rice imports have been made primarily from the US. Imports from the US in 2003 amounted to 134,624 tons of rough rice (roughly 90,000 tons of milled rice equivalent), valued at US$17.3 million. The majority of rice imported by Costa Rica is rough rice. Although in the past the GOCR resorted to delaying the rice import process by holding sanitary permits for a longer than normal period of time, this has not occurred this year. GOCR charges US$20 per metric ton of imported rice for phytosanitary inspection. The GOCR approved a law that allows only the rice sector to import rice duty free, whenever a rice shortage is determined (normally every year during the first half of the year;

Best Prospects/Services: Although the largest volume of imports by far is represented by rough rice, there are opportunities for exporting milled rice in different presentations;

Opportunities: Once CAFTA is approved a tariff rate quota of 5,000 MT, growing 5% per year, will be opened for milled rice exports from the US;

Imports of fresh fruit reached a value of US$27.5 million in 2003. $6.4 million of this amount were imported from the US. The leading fruit imports from the US were grapes ($3.1 million), apples ($1.9 million), peaches ($597,000), and pears ($348,000). Total imports of fresh fruits from the US declined in 2003 mainly due to higher imports from Chile, which now enjoys duty free access to the Costa Rican market for fruits competing with US- origin product;

The US and Chile are exporting almost the same products to Costa Rica, but during different seasons. Imports from Chile take place from January to July. During the rest of the year, imports come mostly from the US, except for those fruits available year round. Costa Rica imports fresh fruits year-round, but about 70% of total domestic consumption of non-tropical fruits occurs during the Christmas season (October-December). Costa Rica also signed a FTA with Canada, which came into effect in November 2002.

Best Prospects/Services: The best prospects under this category are grapes, apples, pears, peaches and nectarines, plums and cherries.

Opportunities: If approved, CAFTA will give the US immediate access duty free to the Costa Rican market for most of the fruits mentioned above.

Imports of US processed fruit and vegetables totaled US$6.8 million in 2003. These products, especially mixed fruits, mixed vegetables, yellow and sweet corn, peas, mushrooms and garbanzo beans, generate strong import demand. Mexico, Chile, and Guatemala are the main competitors of the US in the canned fruit and vegetable market. The FTA with Chile has created more competition for the US in these product categories. Central American countries also enjoy duty-free access to the Costa Rican market. Based on preliminary data, the US has continued to lose market share in this sector in 2004;

Best Prospects/Services: Mixed fruits, mixed vegetables, yellow and sweet corn, peas, mushrooms, garbanzo beans and other canned beans;

Opportunities: Tariff reductions under CAFTA will allow the U.S. to become more competitive in this market against Chilean, Mexican and Central American products.

US exports of snack foods to Costa Rica totaled US$8.0 million each in 2002 and in 2003. Imports of snack foods from the US are expected to grow in 2004 as consumers demand a wider variety of imported products;

The US is facing increased competition in this sector as a result of free trade agreements signed with Chile, Canada and Mexico. Prospects for U.S. exports in this sector may improve if the Central American Free Trade Agreement (CAFTA) is approved. Competing products are imported mainly from Central America (Guatemala and El Salvador) and from Chile, Mexico, Argentina and Europe on a smaller scale;

Domestic production of potato chips, chocolates and other candies and cookies also provides competition for the US. These products are also exported to Central America (with a small amount shipped to the United States);

Best Products/Services: Salty snacks, popcorn, potato chips, mixed nuts, are all good prospects in this market.

Opportunities: Under CAFTA, the tariff on snacks will decline over time to zero, thus providing increased market access to US products.

Openness to Foreign Investment

Costa Rica has a generally open international trade and investment regime, with the exception of a few sectors that are reserved for state companies;

Industry surveys by CINDE and Costa Rican Foreign Trade Corporation (PROCOMER) suggest that investors are most attracted by Costa Rica's economic and political stability, competitive labor costs and well-educated workforce. In the late 1990's, the Government campaigned to attract high-quality foreign investment to Costa Rica. The Costa Rican Investment and Development Board (CINDE) continues to assist the government's efforts through its offices in Costa Rica, the United States, Europe, and the Far East. The Commercial Code details all business requirements necessary to operate in Costa Rica. The Laws of Public Administration and Public Finance contain most requirements for contracting with the state. All businesses must be registered in the National Registry, thereby becoming national companies that may have national or foreign owners. The investment requirements for foreign and national persons and companies are identical. Businesses may be established starting from nothing, acquired, merged with, or taken over in much the same way as is done in the U.S. Foreign partnerships with local businesses are quite common;

The Government has stated an interest in using the 1998 concessions law to build and manage public works projects. However, there have been few successful concessions completed thus far in Costa Rica. Alterra Partners, a partnership including US firm Bechtel Enterprises and Singapore's Changi Airport Authority, assumed management of Costa Rica's principal airport under a 20-year, US$200 million contract in May 2001. A final agreement on applicable tariffs for use of airport facilities is still pending, almost four years after the contract was ratified. A railroad concession project was cancelled in 2001, after failing to attract investors. In 2002, of the five bids for projects related to the principal Pacific seaport, two were disputed in the Comptroller General's Office and the other three have been cancelled. The concession to build and operate a new prison facility at Pococi was awarded to a U.S. company, Management Training Corp.(MTC), but the award was cancelled after the Constitutional Court ruled that a private company could not operate a prison under Costa Rican law;

While the Government focuses on promoting foreign investment in export industries, foreign franchises have prospered in the domestic market for the past 30 years. Investments have been made in a wide array of sectors, including fast food (Taco Bell, Kentucky Fried Chicken, Pizza Hut, Domino's Pizza, Papa John's Pizza, McDonald's, Burger King, Subway, and TCBY Yogurt), car rentals (Hertz, Avis, Dollar, and Budget), hotels (Marriott, Hampton Inn, Best Western, and Intercontinental), and designer clothing boutiques (Tommy Hilfiger and Liz Claiborne). Price Smart (started by two of the founders of Price Club in the U.S.) has opened three Costa Rican stores since mid-1999;

Investment Incentives

Three investment incentive programs operate in Costa Rica: the Free Trade Zone system, the Active Finishing Regime and a duty drawback procedure. These incentives are available equally to foreign and domestic investors. These incentives include tax holidays, free or subsidized infrastructure and industrial parks, training of specialized labor force, and protective tariffs in some cases;

The Export Processing Law of 1981 established publicly operated Free Trade Zone (FTZ) industrial parks in Santa Rosa (Puntarenas) on the Pacific Coast, and Moin (Limon) on the Caribbean seaboard. Eight FTZs operate throughout Costa Rica, six of which are privately managed. Companies in FTZs receive exemption from virtually all taxes for eight years and at a reduced rate following this period. Companies operating in FTZs also enjoy simplified investment, trade, and customs procedures. The tax holidays provided for investment in FTZs are scheduled to phase out in accordance with World Trade Organization (WTO) agreements. The Government is considering a plan to equalize corporate income tax rates for all companies operating within the country, including companies operating in the FTZs;

The Active Finishing Regime, created by Decree in August 1997, suspends taxes for renewable six-month periods on imported inputs of qualifying companies, and then exempts the inputs from those taxes when the finished goods using or containing them are exported. The regime also facilitates a five-year renewable suspension of taxes on capital goods used to manufacture exported goods. Companies within this regime may sell to the domestic market if they have registered to do so and pay pro rata import duties on capital equipment used for the domestic market. The drawback procedure provides for rebates of duties or other taxes that have been paid by an importer for goods incorporated into an exported good;

Investment in real estate requires particular care due to potential problems with title and to the possibility of adverse possession by squatters. This is especially true for absentee owners of undeveloped or vacant rural properties, as Costa Rican agrarian law is relatively quick to confer title to occupants of land considered "abandoned." Landowners should be sure to demonstrate a continuing presence on and control over their land;

Investment in beachfront property can be problematic since almost all beachfront is public property for a distance of 200 meters from the high tide mark, an exception being in long established port cities. The first 50 meters from high tide cannot be used for any reasons by private parties and the next 150 meters, also owned by the state, can only be leased from the local municipalities for specified periods and particular uses, such as tourism installation, vacation homes, etc. Investors should exercise caution and obtain qualified legal counsel before purchasing property, particularly near beachfront areas. Potential investors in Costa Rican real estate should also be aware that the right to use traditional paths is enshrined in law and can be used to obtain court-ordered easements on land bearing private title. Disputes over easements are particularly common when access to a beach is an issue;

Foreign-Trade Zones/Free Ports

Free Trade Zones have been established near the port cities of Limon (Caribbean) and Puntarenas (Pacific) as well as in various Central Valley locations;

2003 Foreign Direct Investment by Country of Origin, Percent of Total. US, 56.4; Canada, 11.4; Mexico, 8.6; Central America, 7.1; Panama, 4.1; Netherlands, 0.9 ; Germany, 0.6; Japan, 0.2; Other, 10.7;

2003 Foreign Direct Investment, by Sector, in US$ millions: Agriculture, 36.3; Agro-industry, 8.4; Commercial, 6.0; Industry, 387.0; Services, 82.9; Financial, 3.9; Tourism, 88.3; Other, 36.6. Total: 576.7;

Partial List of Major Investors in Costa Rica: Intel, Standard Fruit Co. (Dole), Chiquita, Abbott Laboratories, Baxter, Scott Paper, Proctor and Gamble, Citibank, Bechtel, Marriott, Western Union, ALCOA, Conair, Warners, Merck, Pfizer, McDonalds, Marriott Corp., Four Seasons Hotel, Price Smart, Payless Shoe Source: Cinde. Web: www.cinde.or.cr/

Contacts

Department of Commerce-U.S.Commercial Service. Unit 2508. APO, AA 34020-9508. T:(506) 519-2000 ext. 2203 / 2207 / 2263 / 2271 or 220-2454. Fax:(506) 231-4783. E-mail: san.josecr.office.box@mail.doc.gov. Web: www.buyusa.gov/costarica/en. James McCarthy, Commercial Attache;

U.S. Department of Agriculture. Foreign Agricultural Service (FAS). Unit 2507. APO AA 34020. T:(506) 519-2000 Ext. 2333 F: (506) 232-7709. E-mail: fassjo@racsa.co.cr. Website: www.fas.usda.gov/. Katherine Nishura, Agricultural Attache. Victor Gonzalez, Agricultural Specialist;

U.S. Department of Agriculture. Animal and Plant Health Inspection Services (APHIS). Unit 2522. APO AA 34020-9522. T:(506) 290-4548 F: (506) 296-3556. E-mail: aphiscr@sol.racsa.co.cr. Web: http://www.aphiscr.com/. Contact: John Stewart, APHIS Attache;

U.S. Department of State-Economic Section. Unit 2501. APO AA 34020-9501. T: (506) 220-3939 F: (506) 220-2305. Web: www.usembassy.or.cr/. Larry Burkhart, Economic Officer. Whitney Witteman, Economic Counselor;

AMCHAM (Local American Chamber of Commerce). US Mailing Address: 1576 P.O. Box 025216. Miami, FL 33102-5216. International mailing address: Apdo 4946-1000. San Jose, Costa Rica. T: (506) 220-2200 F: (506) 220-2300. E-mail: chamber@amcham.co.cr. Website: www.amcham.co.cr/. Contact: Ms. Lynda Solar, Executive Director;

Costa Rican Chamber of Commerce. Apartado 1114-1000. San Jose, Costa Rica. T:(506) 221-0005 or 221-0124 F: (506) 233-7091. E-mail: camaraco@racsa.co.cr. Contact: Ms. Evita Arguedas, President;

Chamber of Representatives of Foreign Firms (Crecex). Apartado 3738-1000. San Jose, Costa Rica. T: (506) 253-0126 F: (506) 234-2557. E-mail: crecex@sol.racsa.co.cr. Web: www.infoweb.co.cr/crecex. Contact: Alvaro Aguilar, Pres;

Camara de Industrias de Costa Rica. Apartado 1003-1000. San Jose, Costa Rica. T: (506) 281-0006 / 0004 / 0005 F: (560) 234-6163. E-mail: camind@sol.racsa.co.cr. Web: www.cicr.co.cr. Contact: Ms. Mayi Antillon, Executive Director;

Camara Nacional de Agricultura y Agro-Industria. Apartado 1671-1000. San Jose, Costa Rica. T: (506) 280-2173 / 225-8245 / 280-1569 /280-0096. F: (506) 280-0969. E-mail: cnaacr@racsa.co.cr. Ms. Monica Navarro, Executive Director;

Costa Rican Investment and Trade Development Board (CINDE). Apartado 7170-1000. San Jose, Costa Rica. T: (506) 220-0036 or 299-2803 F: (506) 299-2866 or 220-4750. Website: www.cinde.or.cr/. Ms. Edna Camacho, Director; Costa Rican Chamber of Hotels and Restaurants. Apartado 8422-1000. San Jose, Costa Rica. T: (506) 248- 0990 F: (506) 222-6716. Web: www.costaricanhotels.com. Ana Gabriela Alfaro, Executive Director;

Costa Rican Construction Chamber. Apartado 5260-1000. San Jose, Costa Rica. T: (506) 253-5757 F: (506) 221-7952. Web: www.construccion.co.cr. Jaime Molina, President;

Costa Rican Chamber of Information Technology. Apartado 1289-2050. San Jose, Costa Rica. T: (506): 283-2205 (506) 280-4691. Web: www.camtic.org/. Alexander Mora, President;

Costa Rican Customs Office. Ave 1 y 3, calle 1era. Costado Este Ministerio de Educacion. San Jose, Costa Rica. T: (506) 233-9525 / 257-8591 Ext. 103 /112 F: (506) 223-7334. Web: http://www.aduanas.go.cr/. Luis Gomez Sanchez, Gen. Dir;

Ministry of Economy, Industry, Commerce, Foreign Trade. Apartado 96-2050 San Pedro Montes de Oca. San Jose, Costa Rica. T: (506) 256-7111 / 257-0755 F:(506) 233-9176. E-mail: mgonzalez@comex.go.cr. Web: www.procomer.com/. Manuel A. Gonzalez, Minister;

Costa Rican Institute of Electricity and Telecommunication. Apartado 10032-1000. San Jose, Costa Rica. T: (506) 220-7422 / 220-6375 / 220-6296 F: (506) 220-1555. E-mail: ksanchezc@icetel.ice.go.cr (secretary). Web: http://www.ice.go.cr/. Pablo Cob, President;

Ministry of Science and Technology-MICIT. Apartado 5589-1000, San Jose. T: (506) 290-5091 F: (506) 290-5092. E-mail:lzuniga@micit.go.cr. website: http://www.micit.go.cr/. Contact: Mr. Fernando Gutierrez, Minister;

Ministry of Public Works, Transportation. Apartado 10176--San Jose, Costa Rica. T: (506) 222-8681, 222-2025 xt. 2600 F: (506) 255-0242. E-mail: rquiros@mopt.go.cr Web: www.infoweb.co.cr/mopt. Randall Quiros, Minister;

Costa Rican Tourism Institute (ICT) Apartado 777-1000. San Jose, Costa Rica T: (506) 233-9605 F: (506)223-5107 / 255-4997. E-mail: asistur@racsa.co.cr (Assistant). Web: www.tourism-costarica.com/. Mr. Rodrigo Castro, Minister;

Costa Rican Foreign Trade Corp. (Procomer). Apartado 1278-1007. San Jose, Costa Rica. T: (506) 256-7111 Ext. 240 / Ext. 278 F: (506) 233-4655. E-mail: cmartinez@procomer.go.cr (secretary) Web: www.procomer.com/ Manfred Kissling, Gen Mgr. Freddy Gonzalez, Operations Mgr;

Dun & Bradstreet Costa Rican Correspondent. Apartado 1103-1000 San Jose. T: (506) 232-0443 F: (506) 231-0929. E-mail: racsos@ice.co.cr. Ing. Oscar Solera Castro, General Manager--D&B Correspondent #8;

Inter-American Development Bank (IDB). Apartado 1142-1007 Centro Colon. San Jose, Costa Rica. T: (506) 233-3244 F:(506) 233-1840. E-mail: cof-ccr@iadb.org. Web: http://www.iadb.org/ Contact: Fortunato Lari, Resident Rep. Jorge Requena, Representative;

Central America Development Bank (BCIE). Apartado 10276-1000. San Jose, Costa Rica, T: 207-6500 F: 253-2161. E-mail: adhernan@bcie.org. Luis Varela Murillo, Regional Project Analyst;

U.S. Department of Commerce. Mark Siegelman, Desk Officer for Costa Rica, Room H3033. 14th & Constitution Ave., N.W. Washington, D.C. 20230. T: (202) 482-0704 F: (202) 482-0464. E-mail: mark_siegelman@ita.doc.gov;

U.S. State Dept. Robert Boynton, Costa Rica Desk Officer. 2201 C Street, N.W. Wash. D.C. 20520. :(202) 647-4980 or 647-4000 F: (202) 647-2597. Web: http://www.state.gov/;

Embassy of Costa Rica. Ambassador Tomas Duenas Minister Counselor for Economic and Trade Affairs Laura Dachner. 2112 S Street, NW. Washington, D.C. 20008. T: (202) 328-6628 F: (202) 234-6950. E-mail: consulate@costarica-embassy.org. Web: www.costarica-embassy.org. (Costa Rica has consulate offices in Atlanta, Chicago, Houston, Los Angeles, Miami, New Orleans, New York City and San Francisco).
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Title Annotation:COSTA RICA
Publication:Caribbean Update
Geographic Code:2COST
Date:May 1, 2006
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