STRONGER TIES

Costa Rica 2017 | ECONOMY | FOCUS: CAFTA

Though Costa Rica has benefitted from CAFTA-DR more than any other regional signatory, adding high-tech jobs and increasing exports to the US, it should be careful not to rely too heavily upon an asymmetrical relationship with its northern neighbor.

CAFTA-DR, the Dominican Republic-Central America Free Trade Agreement, is a free trade agreement between the US, the Dominican Republic, and five Central American countries: Costa Rica, El Salvador, Guatemala, Honduras, and Nicaragua. Ratified in 2007, CAFTA aimed to “strengthen the special bonds of friendship and cooperation" among its signatories by promoting regional economic integration through clear and mutually advantageous trade rules. Though the last country to ratify the accord, Costa Rica has been one of the biggest beneficiaries in the nine years since it took effect. A look at the results and current state of the agreement shows that it has led to growth across several sectors. That being said, careful planning will need to be taken to ensure that these gains are equitably spread throughout the Costa Rican economy. When announced, CAFTA was controversial for a number of reasons. Costa Rican unions balked at the requirement to end telecommunications and insurance monopolies, and other politicians worried that the trade deal put the country at the whim of the US government. Moreover, since Costa Rica's economy was doing better than its Central American neighbors at the time, this fed concerns that the country would be dragged down by its neighbors. A referendum to ratify the accord led to heated rhetoric, but the deal ultimately passed with tight 51.56% of the vote. Yet nine years later, Costa Rica is reaping the fruits of the agreement. It is the source of 40% of CAFTA exports to the US, above and beyond any other Central American country. It has also helped diversify exports, adding products like computer processors and medical supplies to the country's more traditional export profile of coffee, bananas, and pineapples. By 2013, the country's trade surplus with the US had risen to USD4.7 billion, making the country by far the country's biggest export partner. FDI has also risen in recent years, reaching a new high of USD2.8 billion in 2015. President Luís Guillermo Solís Rivera sees this as evidence that the country is economically on the right track. “[Foreign] investment numbers have been steadily climbing in Costa Rica at a rate of around 14% per year," President Solís told TBY. “That has been the case for the last two or three years. This is important because it indicates that the strategy we are pursuing is successful." Private industry would seem to agree; three-quarters of firms surveyed by a Costa Rican newspaper in 2013 said that CAFTA had had a positive impact on their operations, against one-quarter that said that it had not had any affect.