Free Trade in Costa Rica – Is it working?

Free Trade is it working?

FTA, "Is it working?"

Back in Oct, 2007 Costa Rica (by a close vote (53/ 47) approved a free trade agreement (FTA) with the United States. The vote split the country, with supporters arguing it would bring economic development, and critics warning (mostly labor unions) that it would hurt the little guy, like farmers and small businesses.

This trade agreement was suppose to expand Costa Rica’s access to the US market and vise-versa. In other words attract US and other investments, and connect Costa Rica to some of the most dynamic economies of our Western hemisphere over a period of several years.  Costa Rica government claimed by 2010, all doors would be open.

The Central American Free Trade Agreement (CAFTA) has become more divided, between the 10s of thousands of Costa Ricans’ that live in poverty, the lack of jobs for the young, and the current decline in the tourist industry, which accounts for millions of revenue for local businesses and government.

Union Protesting the FTA

Unions and activists Protesting the FTA back in 2007

CAFTA supporters claimed in the beginning, “Accepting it would boost Costa Rica’s exports by half a billion dollars from the first year”

However,  no one predicted the Word-wide economic downfall, particularly the US.  Last month, Costa Rica university students and anti-CAFTA activists continue to protest as they did in early 2007.

Ask just about any business in Costa Rica “Is it working?” and the answer is, “We sure have not seen it …”

And it is very evident with the sports fishing industry, where  in Nov, 2007 (the height of the fishing season) by 8:00 am, 80-90% of the boats would be out with tourism anglers. Now you look at harbors, piers, and marinas, only 20% of the boats are out. Fishing Charter services are down as much as 80% in some areas and many of the local captains are being forced to sell their boats.

In 1994, NAFTA agreement with US and Mexico pretty much opened the doors in imports and greatly reduced import fees and caused a labor market in Mexico. This was something Costa Ricans supporters were also counting on [with FTA] was a major reduction of import fees the government charges for such items as cars and electronics to make products more reasonable to buy.  In the past importing a car and/or major appliance, into Costa Rica, the duty fees can cost one double of what that item was originally bought for in the US.

Unfortunately that has not changed, a $800 US bought laptop still cost  $1200 (if not more) in Costa Rica, or importing a $20,000 car, will cost over $10,000 in duties!

In general, Costa Rica’s labor force is highly literate, hard working, receive better wages then their Central and South American neighbors and is the most prosperous nation in both technology and advancement. It is no longer a 3rd World country.   With that said, the government now fears that with FTA, whose main assets such as the countries monopolies of the public telecom (phone, internet services)  and insurance would be contracted out to foreign companies, thus jeopardizing revenue that otherwise they would be getting from tourism and general taxes.

And NOW unions are saying “I told you so!” when more business have shifted to cheap and under-the-table labor to poor neighboring countries such as Nicaragua and Honduras. Obviously this has changed the tide, and has increased the need for more illegal work forces to keep owners in business due to this economical turmoil, such as the US has been doing with illegal aliens’ working in restaurants, farms and lower income jobs as they have been doing for years.

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