Reconciling the image of the Costa Rican export model

Many countries have a Ministry of Economy that has a foreign trade department. The fact that Costa Rica has a Ministry of Foreign Trade is proof that the country knows it has to look outside to find new markets. President Solís has said that in matters of foreign trade, countries have to be as promiscuous as possible and that Costa Rica has to diversify its activities. What markets is Costa Rica aiming for and what strategies will it implement?

The institutionalization of foreign trade in Costa Rica is a decades-long process. Recognizing that foreign trade is a very important matter, a specialized and differentiated matter, is one of the great achievements in relation to the design of institutionalism and the development model.

A country as small as Costa Rica has to have a strong capacity of relating to the world. That capacity can be generic or specialized. We’ve gone with a specialized model that includes foreign investment. In that, you can see the will and the reflection of a State policy that makes it possible to reach the degree of specialization we are managing.

Foreign trade’s part in Costa Rica’s GDP is huge, for reasons of size and location. So we have created a commercial platform of global reach; we have free trade agreements that cover almost 60 countries, which means a potential market of 2.5 billion people. This situation makes it possible for us to be able to arrange our priorities. We have to decide if we want to increase the amount of potential consumers by expanding our platform or if we want to delve into making the best of the consumers we already have on our radar. It is a complicated decision but the government has decided to go with the second option, that is to say, to make the markets we already have a priority, obviously without discarding the possibility expanding to new markets. In short, to make the best of the markets with which we already have commercial relationships and agreements and keep the door open for expansion into new markets. 

President Solís has declared that he is thinking of introducing some changes to the FTA with the United States. What are those modifications and how would they change the relationship with the United States?

President Solís has been very transparent and honest with this matter. We see it as a sign to the United States and to the world of the strength of Costa Rica’s democracy. This isn’t the model of a specific party; it is a State model; trade liberalization is a national policy. There were leaders in favor of and against the FTA but the decision has been made and we are in charge of executing the will of the people.

But agreements have review and modification mechanisms, they aren’t carved in stone. Most of all trade agreements. The President’s direction tells me that in those agreements were there is possibility for improvement or evolution, we have to take it; always inside of the agreements’ framework.

After seven years of having signed and implemented the agreement, we believe it is time, not to make urgent changes, but to at least meet with the countries it comprises and talk about our perspectives and where we are going. It is an exploratory matter, to establish our necessities and listen to the necessities of our partners. Always within the existing mechanisms and processes to do so. Lastly, another element that motivates us even more to look for this sort of encounter is that from January 2015 on the agreement foresees tax exemption for many products and that has an impact on the commercial relationship between United States and the Central American countries, and on the relationship of the Central American countries amongst themselves.

What sectors of the local economy benefit the most from the agreement with the United States and what sector could benefit more? 

I believe that with certain arrangements the sector that could benefit the most is the services sector. This agreement, in terms of services, has been particularly conservative. I believe there was lack of discussion, especially in Costa Rica, on the area of series and now we have the chance of delving into that.

Free trade in general consists of an approach to the rules of the market, which are typically intervened or obstructed. This agreement is an effort of improving the rules of the market in the region, but this agreement, like all the rest, is based on a legal framework established by the WTO. And in terms of services the WTO established a long time ago a certain level for variables and advances.

The sectors have least benefited are those in which the obstacles aren’t taxes, but technical and health norms, etc. Those matters are the greatest difficulty to truly maximize trade options and they have to be analyzed in an isolated way, taking into account the specific details of each case. So the matter of technical reforms is one of the subjects that we are most interested in talking about in a hypothetical review committee, to talk about the complication it brings and the possibilities for improvement that we see.

How will you try to increase the flow of products in the markets you already have? Are you aiming for quality or quantity?

We see many opportunities. The first dimension we see has to do with quality, segmentation and niches. We are betting on a more segmented work, more focused in a niche dynamic, sustained in trade business intelligence and with a greater support for our companies in terms of information. We have to locate niches that have characteristics we can make the best of. That aims for quality but also for quantity. We are looking at the matter of volume not just in terms of more products but also in terms of better prices. So, higher prices for better products, or for products adapted to certain niches. So we are working on adding the Costa Rica brand to our products, to increase their value and prestige and at the same time to identify them with the country. We also have the intention of adding value to our products, but also green elements, that are in accordance with the advances made in terms of caring for the environment. We want to take our agriculture product to the agroindustry though a process that is as natural as possible. 

How does the Ministry manage this sort of licensing policies? 

The public policy of having our own country brand is essentially an agreement process headed by the Ministry. The idea is to create a country brand committee that works directly with the Ministry of Tourism and the foreign trade developer is the one that runs the certification program.
The concept of a country brand is projected on investments, tourism, commercial promotion, diplomacy, etc. that is why it is a process in which all participants are coordinated to send a common message. 

Are those licenses meant only for Costa Rican companies or also for foreign companies that operate in the country?

The product has to be Costa Rican, but the companies can be foreign.

The flows of foreign direct investment in the world probably have four origins. First, the foreign direct investment goes to a country because it has a large market. Second, because the country has many natural resources, which are the raw matter. Third, when the country has a highly privatized model. Fourth, the combination of two factors: the access to markets because they are close or because of operative convenience and the fact that the country has qualified resources, mostly for a more elaborate production.
Costa Rica is not a large market and it doesn’t have abundant natural resources. It isn’t characterized by outsourcing its services by privatizing them. So, our country attracts foreign investment because we have free trade agreements and investment protection agreements with over 60 countries, which represent over 2.5 billion potential consumers. Also, our people are very educated and we have a very flexible dynamic in terms of how our human resources adapt. A series of institutional conditions also help, because many companies can benefit from them. On the other hand, we offer high quality of life for those employees who are sent to Costa Rica.

We have seen that, on the one hand, attracting investments and promoting exports is part of the same cycle. That is where new elements come in, which the current administration is now bringing to the table. We want an investment attraction and export promotion policy and strategy that is more integrated, that makes it possible for the companies that come into the country to better fit into the chain of the local economy and for Costa Rican exports to have a greater added value.

We have to focus more on the sectors we can chain together and on a support strategy for the companies to have a greater possibility of adding value to their products. That is the axis of our vision. There are two instruments to achieve that: the promotion of investments is being worked on through a private company called CINDE that receives public funding since 2011. Therefore, its priorities adjust to our public policies; and the trade developer, PROCOMER, a public entity that has its own structure and funding and that I preside over as Minister.

With this system we want to keep attracting the investments we have already generated but we also want to make incursions into other sectors, like renewable energy, agroindustry, that will generate a greater flow of investment outside of the metropolitan area, where the social and economic gap is greater.

Our land territory is the eleventh part of our maritime territory; it is greatly disproportionate. This disproportion hasn’t been taken into account by public policies, because they have forgotten the maritime territory. We want the possibilities our sea represents to be part of the development equation we are putting into place. The communities and less developed areas, the poorest ones, are located at the coastline, so it is indispensable to generate this sort of development. 

What are your objectives?

My priority at the moment is to think about reconciling the image of the Costa Rican export model in the collective imagination.

The division that occurred in the referendum about the agreement with the United States has pointed out that there is a social polarization related to the country’s export model, and it has to be taken into account. There is this vision that globalization benefits some and is detrimental to others. That it benefits multinational companies and is detrimental to local companies. It benefits the capital and is detrimental to the work.

From my administration’s point of view, we have to reconcile the interests of the large companies with the interests of the small companies. That is possible through an active strategy and public policy that promotes supply chains and increases the national added value.

Another objective I have has to do with the consumer. The consumer, from a theoretical point of view, is the final objective of open trade. Because it has a larger offer to choose from, better quality and, thanks to competition, lower prices. Nonetheless, certain trade barriers and structural problems in the domestic markets prevent those benefits from reaching the consumer. So attending to the consumer is another of our main challenges.

The third great objective has to do with the export infrastructure. There have been years of un-investment in many aspects and we need to give new life to those sectors, like in digital systems that make trade easier. We have to simplify our procedures and lower the costs. We are developing many projects for this sort of matter and we want to establish them shortly.

Lastly, Central America is another great challenge. Our objective is to achieve Central American integration. We want to establish a regional trade in which all countries have the same advantages. The true creation of a common market.

Vanessa Massimini (ProjectDirector)
Matteo Transtevere (Editorial Director)