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### Viewing cable 07SANJOSE1248, COSTA RICA INPUT - USITC BIENNIAL CARIBBEAN BASIN

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07SANJOSE1248 | 2007-06-28 12:12 | 2011-03-03 16:04 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy San Jose

Appears in these articles:
http://www.nacion.com/2011-03-03/Investigacion/NotasDestacadas/Investigacion2697430.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotaPrincipal/Investigacion2697496.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697489.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697532.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2697535.aspx
http://www.nacion.com/2011-03-03/Investigacion/NotasSecundarias/Investigacion2701964.aspx
http://www.nacion.com/2011-03-03/Investigacion/Relacionados/Investigacion2701965.aspx

`

    VZCZCXYZ0000
    RR RUEHWEB

    DE RUEHSJ #1248/01 1791213
    ZNR UUUUU ZZH
    R 281213Z JUN 07
    FM AMEMBASSY SAN JOSE
    TO RUEHC/SECSTATE WASHDC 8397
    INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE
    RUEATRS/DEPT OF TREASURY WASHINGTON DC

` `

    UNCLAS SAN JOSE 001248

    SIPDIS

    STATE PASS TO USITC FOR LSCHLITT
    STATE PASS TO OPIC
    STATE PASS TO USTR
    STATE PASS TO EXIMBANK FOR CREQUE
    STATE PASS TO FEDERAL RESERVE MIAMI BRANCH MANIERO
    TREASURY FOR OASIA/INC

    SENSITIVE

    SIPDIS

    E.O. 12958: N/A
    TAGS: ASEC ECON ETRD OTRA XL EFIN CS
    SUBJECT: COSTA RICA INPUT - USITC BIENNIAL CARIBBEAN BASIN
    INVESTMENT SURVEY

    REF: SECSTATE 065843

    ¶1.  (U) SUMMARY:  The Caribbean Basin Initiative (CBI/CBERA/CBTPA)
    has played a key role in the growth of the Costa Rican economy over
    the last 23 years, fueling Foreign Direct Investment (FDI), which
    has expanded the economy and diversified export opportunities.  In
    the past seven years, according to Government of Costa Rica
    statistics (from http://www.comex.go.cr/estadisticas/exportaci ones/
    Exportaciones 20Totales 20x 20destino 202006.pdf) total exports have
    increased 39.0 percent, from $5.897 billion in 2000, to $8.198
    billion in 2006.  According to the same source, exports to the U.S.,
    most of which enter under CBI/CBERA/CBTPA benefits, have increased
    3.4 percent, from $3.056 billion in 2000, to $3.161 billion in 2006.
     According to U.S. National Trade Data (from http://tse.export.gov/)
    Costa Rican exports to the U.S. increased 8.4 percent from $3.547
    billion in 2000 to $3.844 billion in 2006.  Costa Rica now has the
    opportunity to cement its trade relationship with the U.S. by
    ratifying and implementing CAFTA.  However, it is uncertain whether
    the country will do so before the March 1, 2008 deadline.  END
    SUMMARY.

    FOREIGN DIRECT INVESTMENT OVERVIEW
    ----------------------------------

    ¶2.  (U) Costa Rican FDI continues to increase each year.  The latest
    figures show that FDI totaled $1.410 billion in 2006.  The U.S.
    continues to make up the dominate share of FDI in Costa Rica,
    accounting for 80.4% of all FDI, with real estate excluded.  Real
    estate now constitutes a significant portion of Costa Rica's
    reported FDI, which was not the case in previous years.  The
    industrial sector represents 40.4 percent of total FDI (excluding
    real estate) in 2006, the financial services sector followed at 30.3
    percent, and the tourism sector was a distant third at 13.6 percent.
     In 2006 the Free Zones (FZ) remained the largest single recipient
    of FDI.  As of June 2007, there were 212 companies operating within
    the FZ, the vast majority U.S.-owned.  Fifty-nine percent of all
    Costa Rican exports to the U.S. are produced in FZ.  The ratio of
    FDI (ex. real estate) to GDP averaged approximately 3.6 percent
    between 2001 and 2006.

    ¶3.  (U) Industrial activities have been the most significant in
    attracting FDI since 1997, with the tourism and services industries
    typically ranking a distant second and third, respectively.  The
    sectors that averaged the largest share of FDI (ex. real estate)
    during the period between 1999 and 2006 were the industrial sector
    (57.9 percent) and the tourism sector (12.74 percent).  After
    several years of steady decline, in 2006 investment in the tourism
    sector had a record year for FDI inflows.

    ¶4.  (U) TABLE ONE

    FOREIGN DIRECT INVESTMENT BY SECTOR
    -----------------------------------
    (in millions of dollars, current)

                   2001   2002   2003   2004   2005   2006
                   ----   ----   ----   ----   ----   ----
    Industry      231.4  482.7  386.8  456.0  344.9   428.7
    Real Estate     0.0   21.0   31.0  178.4  234.6   350.0
    Financial      43.1   17.2    2.2   22.6   40.9   321.6
    Tourism       111.5   76.0   88.3   41.4   53.5   144.1
    Services       57.4   52.8   83.2   17.2   73.3    60.1
    Commercial      8.3   15.2    6.0   14.6   47.6    45.4
    Agriculture     1.0   -8.6  -36.3   14.0   37.1    37.6
    Agro-industry   5.2    2.8    8.4    7.6   29.6     9.4
    Other           2.4     .3    5.6   15.9   -0.5    13.9

    TOTAL         460.4  659.4  575.1  793.8  861.0  1410.8

    Ex Real Est.  460.4  638.4  544.1  615 4  626 4  1060.8
    (Source: BCCR, FDI in Costa Rica 2005-2006 July, 2006)

    ¶5. (U) It appears that in 2004 and 2005 the U.S. has significantly
    increased its FDI flows to Costa Rica relative to the rest of the
    world.  In 2005 alone 80.4 percent of FDI flows to Costa Rica
    (excluding real estate) originated from the U.S.  During the last
    six years, Canada, Mexico, The Netherlands, Panama, Colombia,
    Switzerland, Venezuela, Argentina and four other Central American
    countries (Guatemala, El Salvador, Honduras, and Nicaragua) have
    also continued to function as important sources of FDI.  (See Table
    Two for details.)  Reinvestment by foreign companies already
    operating in Costa Rica represents almost one-half of total FDI.

    ¶6.  (U) TABLE TWO

    FOREIGN DIRECT INVESTMENT
    BY COUNTRY OF ORIGIN
    -------------------------

    (Selected countries, not comprehensive, excluding real estate
    investment, in millions of dollars, current)

                    2000   2001   2002   2003   2004    2005
                    ----   ----   ----   ----   ----    ----
    United States   279.5  260.3  329.6  357.7  446.3   524.9
    Mexico           29.3   30.7   29.6   38.0   28.5    29.9
    Canada           -2.7   36.0   -9.6   17.5    3.7    26.5
    El Salvador      15.1   16.4   23.4   25.4   12.8    19.0
    Netherlands       0.0    2.5  229.2   29.7   17.5    18.7
    Panama           26.2   61.2   30.6   -1.1   17.3    10.5
    Spain            21.8   25.7    0.1    7.5    3.0    10.2
    Italy             6.6    5.4    5.8    4.7    4.1     8.7
    Venezuela         0.5    1.5    1.9   17.2    8.3     5.0
    Guatemala         2.4    4.6    1.8    0.0    0.1     4.9
    Colombia          1.0    6.4    3.5   -0.2   16.4     4.8
    Nicaragua         1.8    5.5    2.5    1.8    1.6     1.8
    Argentina         0.0    0.0    0.0    0.8    7.9     0.6
    Peru              0.0    0.0    0.0    0.0    3.0     0.6
    Taiwn            2.9    0.6    0.0    0.1   -0.2     0.2
    Honduras          0.0    0.0    0.0    0.0    1.7    -1.3
    Germany          10.3    3.3    1.3   57.8    9.7    -2.7
    Switzerland       2.2   -0.6    5.0    8.4   22.2    -8.2

    Central America* 36.0   19.4   26.4   27.7   27.2    24.4

    TOTAL FDI       408.6  458.5  658.4  574.2  617.3   653.2
    U.S. Share FDI   68.4%  56.8%  50.1%  62.3%  72.3%   80.4%

    * Central American FDI is the sum of the four countries (Guatemala,
    El Salvador, Honduras, and Nicaragua)
    (Source: BCCR, FDI in Costa Rica 1997-2005, July 2006)

    ¶7.  (U) According to many Free Zone U.S. operators, an end of CBI
    benefits along with the proposed 15 percent income tax included in
    the pending tax reform bill would force them to leave Costa Rica.
    The failure to ratify and implement CAFTA to date is already having
    negative effects in Costa Rica, particularly in the textile sector.
    With CBTPA set to expire on September 30, 2008 and uncertainty over
    Costa Rica's participation in CAFTA, textile shops have already
    begun searching for more stable investment environments where there
    is no question that access to the U.S. will continue unabated.

    LARGEST U.S. EXPORTERS IN COSTA RICA
    ------------------------------------

    ¶8.  (U) TABLE THREE

    Top Ten US Firms in Costa Rica
    based on Exports to US
    ------------------------------

    Rank   Company                           Exports ($ mn)
    ----   -----------------------           ----------------
    1      Intel                                      1,832.1
    2      Hospira (formerly Abbot Laboratorios)        315.9
    3      Del Monte                                    163.9
    4      Baxter Medical Products                      149.5
    5      Coca Cola                                    132.7
    6      Conducen Wire & Cable                        125.2
    7      Remec Inc.                                   106.4
    8      Trimpot Electronics                          104.0
    9      Scott Paper Company                          101.3
    10     Atlas Industrial                              92.8
                                                      -------
    Total Exports                                     3,123.8

    Other US Firms with Significant
    Investment in Costa Rica
    -------------------------------

    Babyliss (Costa Rica)
    Boston Scientific
    Bridgestone Firestone

    C&K Components
    Comercializadora Bananeros de Costa Rica
    Confecciones Bor Kar
    Confecciones H.D. Lee
    Confecciones V.F.
    Diversificados de Costa Rica (Dicor)
    Frutas Tropicales Venecia
    Gretex Manufacturera
    Inamed Costa Rica
    Melones del Pacifico
    Mundial Comercializadora Internacional
    Panduit de Costa Rica
    Rawlings de Costa Rica
    Compaa Bananera Atlntica
    Teradyne Costa Rica
    Ticofruit

    (Source: Procomer)

    IF COSTA RICA IS OUT OF CAFTA, WHAT NEXT?
    -----------------------------------------

    ¶9.  (U) Costa Rica currently faces an uncertain future regarding
    unilateral trade preferences granted under CBI/CBTPA.  The country
    is in the throes of a national debate about the Central American
    Free Trade Agreement that will culminate in a referendum tentatively
    scheduled for October 7 to ratify Costa Rica's participation in
    CAFTA.  Assuming the referendum results in approval of CAFTA, Costa
    Rica will have less than five months to pass the implementing
    legislation that must accompany the ratification to bring the
    country into compliance with its treaty obligations before a March
    1, 2008 deadline.  If this occurs, CAFTA will replace and expand the
    benefits of CBI, accelerate exports between the two countries, and
    attract even more foreign direct investment to Costa Rica.

    COMMENT
    -------

    ¶10.  (SBU) There are three things that have to happen between now
    and CAFTA's March 1, 2008 deadline for Entry Into Force: 1) a
    plurality of participating Costa Rican voters must approve CAFTA in
    the referendum scheduled for October 7; 2) this first-ever
    referendum must garner a minimum percentage of the eligible
    electorate (probably 40%) to be binding; and 3) the Costa Rican
    legislature (or Asamblea) must pass all legislation necessary to
    implement the agreement.  We think the first condition is likely to
    be met, and the second condition probably will be met.  The third
    condition remains extremely challenging, however, and will require
    more political discipline and stronger leadership in the Asamblea
    than the Arias administration and its pro-CAFTA coalition partners
    have exhibited to date.

    ¶11.  (SBU) If Costa Rica does not implement CAFTA before March 1,
    2008 and no new legislation is passed to extend CBTPA beyond its
    September 30, 2008 expiration, Costa Rica will lose, at a minimum,
    preferential access for what in 2006 amounted to $350 million in
    exports to the U.S.  Additionally, we believe that if Costa Rica
    rejects CAFTA, it would be difficult to certify that Costa Rica was
    in compliance with several of the conditions of CBI.  These include:
    that it was providing equitable and reasonable access to its
    markets, that the trade policies of Costa Rica were contributing to
    the revitalization of the region, and that Costa Rica was
    undertaking self-help measures to promote its own economic
    development.  If the referendum rejects CAFTA or the GOCR fails to
    implement by March 1, 2008, we recommend a mid-term review of Costa
    Rica's CBI eligibility.
    LANGDALE

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