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### Viewing cable 07SANJOSE63, 2007 INVESTMENT CLIMATE REPORT - COSTA RICA

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Reference ID | Created | Released | Classification | Origin
--- | --- | --- | --- | ---
07SANJOSE63 | 2007-01-12 15:03 | 2011-03-03 16:04 | UNCLASSIFIED | 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 #0063/01 0121539
    ZNR UUUUU ZZH
    R 121539Z JAN 07
    FM AMEMBASSY SAN JOSE
    TO RUEHC/SECSTATE WASHDC 6978
    INFO RUEATRS/DEPT OF TREASURY WASHINGTON DC
    RUCPDOC/USDOC WASHDC
    RUCPCIM/CIMS NTDB WASHDC
    RUEHRC/USDA FAS WASHDC 1891

` `

    UNCLAS SAN JOSE 000063

    SIPDIS

    DEPT FOR EB/IFD/OIA
    USDA FAS PLEASE PASS TO US TRADE REPRESENTATIVE

    SIPDIS

    E.O. 12958: N/A
    TAGS: EINV EFIN ETRD ELAB KTDB PGOV OPIC USTR
    SUBJECT:  2007 INVESTMENT CLIMATE REPORT - COSTA RICA

    REF: STATE 178303

    ¶1.  The 2007 Investment Climate Report requested in reftel
    follows.  As instructed the following report has also been
    submitted via unclassified email.

    2007 Investment Climate Statement for Costa Rica

    A.1. OPENESS TO FOREIGN DIRECT 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.  Two high profile
    parastatals will lose their monopolies if the U.S.-Central
    America-Dominican Republic Free Trade Agreement (CAFTA-DR)
    is ratified and implemented.  For several years, the
    government of Costa Rica has campaigned at senior levels to
    attract high quality foreign investment to Costa Rica, a
    policy which is a high priority for the administration of
    President Oscar Arias that took office in May 2006.  The
    Costa Rican investment and development board (CINDE) leads
    these investment promotion efforts through offices in Costa
    Rica, the United States, Europe, and the Far East.  The
    country's 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 judicial system generally upholds contracts, but
    caution should be exercised when making investments in
    sectors reserved or protected by the constitution or by
    laws for public operation.  Investments in state-protected
    sectors under concession mechanisms can be especially
    complex due to regular challenges in the constitutional
    court of contracts permitting private participation in
    state enterprise activities.

    The Arias administration has stated an interest in using
    the 1998 concessions law to build infrastructure and manage
    public works projects.  One new concession agreement for
    the operation of the country's principal Pacific port
    commenced successful operation in the latter half of 2006.
    However, several earlier concession agreements negotiated
    under the l998 law have encountered and continue to face
    very serious difficulties, including cancellations, when
    these agreements have been reviewed by the GOCR comptroller
    general and supreme court. The administration has proposed
    legislative changes to remedy defects in the l998 law,
    changes which are expected to become law in early 2007.

    Industry surveys by CINDE and the Costa Rican foreign trade
    corporation (PROCOMER) suggest that investors are most
    attracted by Costa Rica's economic and political stability
    and a well educated workforce.  On August 5, 2004, Costa
    Rica, together with El Salvador, Guatemala, Honduras,
    Nicaragua, and the Dominican Republic, signed the U.S.-
    Central America - Dominican Republic Free Trade Agreement
    (CAFTA-DR) with the United States.  Although Costa Rica is
    the only signatory that has not ratified the agreement  it
    is generally believed that a majority of the full
    legislature favor ratification of the treaty which is
    expected to occur in mid-2007.  To bring the treaty into
    force several laws and regulations must be changed to
    conform with treaty provisions. Especially difficult will
    be laws opening the telecommunications and insurance
    sectors to competition.

    While the government focuses on promoting foreign
    investment in export industries, foreign franchises have
    prospered in the domestic market for the past thirty years.
    Investments have been made in a wide array of sectors,
    including fast food (such as Taco Bell, Kentucky Fried
    Chicken, Pizza Hut, Domino's Pizza, Papa John's Pizza,
    McDonald's, Burger King, Subway, and TCBY Yogurt), car
    rentals (including Hertz, Avis, Dollar, and Budget), hotels
    (such as Marriott, Intercontinental, Regents, Hampton Inn,
    and Best Western,), and designer clothing boutiques
    (including Tommy Hilfiger and Liz Claiborne).  Price Smart
    (formerly Price Club in the U.S.) has opened four Costa
    E
    Rican stores since mid-1999.  In March 2006, Wal-Mart
    acquired a 51% interest in a local grocery-store holding
    company and brought it under the aegis of Wal-Mart Central
    America.  Wal-Mart Central America is the region's largest
    retailer, with 394 supermarkets and 23,000 associates in
    Costa Rica, Guatemala, El Salvador, Honduras, and
    Nicaragua.

    A.2.  CONVERSION AND TRANSFER POLICIES

    There are no restrictions on receiving, holding or
    transferring foreign exchange.  There are no delays for
    foreign exchange, which is readily available at market
    clearing rates and readily transferable through the banking
    system.  Costa Rica had maintained a crawling peg exchange
    regime with the U.S. dollar since 1983, but in October 2006
    transitioned to a crawling band regime designed to better
    control inflation, a persistent problem.  While in 2005
    Costa Rica had the second highest inflation rate in the
    western hemisphere, in 2006 the country posted its lowest
    inflation in over fourteen years, albeit at over nine
    percent.  Dollar bonds and other dollar instruments may be
    traded legally.  No restrictions are imposed on
    reinvestments or on the repatriation of earnings,
    royalties, or capital except when these rights are
    otherwise stipulated in contractual agreements with the
    government of Costa Rica.  Royalties are taxed in
    accordance with Title IV of the Income Tax Law, No. 7092,
    extensively reformed in October 1988, at rates varying from
    10 to 25 percent.

    A.3.  EXPROPRIATION AND COMPENSATION

    Expropriation of private land by the government without
    prompt or adequate compensation has hurt some Costa Rican
    and foreign investors in the past.  These incidents usually
    involved land expropriated to create national parks,
    indigenous reserves, or agricultural projects for poor
    farmers.  One long-standing case involving a U.S. citizen
    still awaits settlement in the courts.

    Article 45 of Costa Rica's constitution stipulates that no
    property can be expropriated from a Costa Rican or
    foreigner without prior payment and demonstrable proof of
    public interest.  The 1995 Law 7495 on expropriations
    further stipulates that expropriations can take place only
    after full and prior payment is made.  Foreigners and Costa
    Ricans are supposed to receive equal treatment.  Provisions
    include: a) return of the property to the original owner if
    it is not used for the intended purpose within ten years
    or, if the owner was compensated, right of first refusal to
    repurchase the property back at its current value; b) a
    requirement that the expropriating institution complete
    registration of the property within six months; c) a one-
    month period during which the tax office must appraise the
    affected property; d) a requirement that the tax office
    itemize crops, buildings, rental income, commercial rights,
    mineral exploitation rights, and other goods and rights,
    separately and in addition to the value of the land itself;
    and e) provisions providing for both local and
    international arbitration in the event of a dispute.  The
    expropriations law was amended in 1998 to expedite some
    procedures, particularly those necessary for acquiring land
    for the construction of new roads.

    Invasion and occupation of private property by squatters,
    who are often organized and sometimes violent, has occurred
    in Costa Rica.  The squatters seek to take advantage of
    adverse possession devices in laws permitting occupants to
    receive title to unused farmland.  The Costa Rican police
    and judicial system have at times failed to deter or to
    peacefully resolve such invasions.  It is not uncommon for
    squatters to return to the parcels of land from which they
    have been evicted, requiring expensive and potentially
    dangerous vigilance over the land.

    A.4.  DISPUTE SETTLEMENT

    Costa Rica uses the Roman civil law system rather than
    common law.  The jury system is not used, although judicial
    reform efforts currently include testing the use of juries
    in some cases.  The fundamental law is the country's
    political constitution of 1949, which grants the unicameral
    legislature a particularly strong role.  The civil and
    commercial codes govern commercial transactions.  The
    courts are independent, and their authority is respected.
    Judgments of foreign courts are generally accepted and
    enforced.  The Constitution specifically prohibits
    discriminatory treatment of foreign nationals.

    Monetary judgments are usually made in Costa Rican Colones.
    However, if the dispute involves a dollar-denominated
    transaction, the award may first be calculated in dollars
    and then converted to Colones for payment.

    Litigation can be long and costly.  The legal system is
    significantly backlogged, and civil suits take over five
    years on average from start to finish.  Some U.S. firms and
    citizens have satisfactorily resolved their cases through
    the courts, while others have seen proceedings drawn out
    over a decade without a final ruling.  The process to
    resolve squatter cases through the courts can be especially
    cumbersome.  The legal owner of land can be at a
    disadvantage in a system that has recognized adverse
    possession rights acquired by squatters, especially when
    the disputed land is rural and is not being actively
    worked.  Also, civil archives recording land title are at
    times incomplete or contradictory.  These records should be
    carefully researched by potential buyers to avoid disputes
    over conflicting claims.

    Arbitration

    Arbitration has long been possible under the civil and
    commercial codes; U.S. investors have experienced mixed
    results from such proceedings organized by local attorneys.
    A 1998 law governing alternative conflict resolution (Law
    7727) sought to encourage arbitration and simplify the
    procedures under which arbitration takes place.  Several
    arbitration centers have since been established, including
    one at the Costa Rican - American Chamber of Commerce.  A
    few cases reportedly have been successfully and quickly
    resolved under the new law.

    Costa Rica has been a member of the U.N.'s International
    Center for the Settlement of Investment Disputes (ICSID)
    since 1993, when it acceded to the Washington Convention.
    One land expropriation case was successfully resolved in
    that forum.  Costa Rica is also a member of the World Bank
    Multilateral Investment Guarantee Agency (MIGA), which
    provides a forum for international arbitration in
    investment disputes, as well as investment guarantees.
    Private energy producers have included international
    arbitration clauses in their contracts.  Costa Rica has not
    joined the United Nations Protocol for the Compulsory
    Settlement of Disputes between Countries or the New York
    Convention of 1958 on the Recognition and Enforcement of
    Foreign Arbitral Awards.

    Bankruptcy

    The Costa Rican bankruptcy law, addressed in both the
    commercial code and the civil procedures code, is similar
    to corresponding U.S. law.  Title V of the civil procedure
    code outlines creditors' rights and the processes available
    to register outstanding credits, administer the liquidation
    of the bankrupt company's assets, and pay creditors
    according to their preferential status  Compared to other
    countries in the region, Costa Rican bankruptcy laws
    function less agilely, and affected creditors recover
    proportionally less from judgments, according to World Bank
    analysis.

    A.5.  PERFORMANCE REQUIREMENTS/INCENTIVES

    Three investment incentive programs operate in Costa Rica:
    the free trade zone system, a so-called 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.  Presently, 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.  In addition to those benefits, companies operating
    in FTZs 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 of
    Costa Rica 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.  Finally, the drawback procedure provides for
    rebates of duties or other taxes that have been paid by an
    iporter for goods subsequently incorporated into an
    exported good.

    A.6.  RIGHT TO PRIVATE OWNERSHP AND ESTABLISHMENT

    All private entities and pesons, domestic or foreign may
    establish and own businesses and engag in all but a few
    forms of remunerative activity.  The exceptions are in
    sectors that are reserved for the state (legal monopolies)
    or that require participation of at least a certain
    percentage of Costa Rican citizens or residents (electrical
    power generation, broadcasting, professional services, and
    wholesale distribution).  Many state-owned companies are
    monopolies, such as insurance, telecommunications, and
    energy.  Under CAFTA-DR the first two monopolies will be
    phased out.  In other activities, such as medical services,
    state firms operate, but do not preclude private sector
    competition, which generally receives equal treatment to
    state companies.  Three banks owned by the state receive
    some advantages over their 15 private competitors, namely
    that they can not be forced into bankruptcy, a guarantee
    not afforded to private banks.

    A.7.  PROTECTION OF PROPERTY RIGHTS

    Secured interests in both chattel and real property are
    recognized and enforced, and mortgage and title recording
    is mandatory.  The laws governing investments in land,
    buildings and mortgages are generally transparent.
    However, there are continuing problems of overlapping title
    to real property and fraudulent filings with the national
    registry, the government entity that records property
    titles.  The Costa Rican government does not prevent
    foreign title companies from operating.  U.S. title firms
    have established operations in Costa Rica, including
    Stewart Title Company and First American Corp., which
    operates a subsidiary (First Costa Rican Title and Trust).
    Other U.S. title companies have announced plans to enter
    the Costa Rican market.

    Investment in real estate requires care; some past
    investors have experienced problems with title and adverse
    possession by squatters.  In the latter case, this often
    occurs where absentee owners of undeveloped or vacant rural
    properties confront a Costa Rican agrarian law regime that
    is relatively quick to confer title to occupants of land
    considered "abandoned."  Landowners thus should be sure to
    demonstrate a continuing presence on and control over their
    land.

    Investment in beachfront property in Costa Rica faces a
    unique set of circumstances. 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.

    Intellectual Property Rights (IPR)

    Costa Rica is a signatory of many major international
    agreements and conventions regarding intellectual property.
    It ratified the GATT agreement on Trade Related Aspects of
    Intellectual Property (TRIPS), which took effect in Costa
    Rica on January 1, 2000.  Eight bills to implement the
    TRIPS agreement were passed by the Legislative Assembly in
    1999 and 2000.  One of these bills extended Costa Rica's
    patent protection to twenty years.  CAFTA-DR requires
    significant strengthening of Costa Rica's IPR laws.

    While the legal framework governing intellectual property
    is basically in place, enforcement is often ineffective.
    At the beginning of 2002, the Costa Rican Government
    announced steps to improve intellectual property protection
    through a government strategy for improving the enforcement
    of IPR.  Since then, the government has taken minor steps
    to increase enforcement efforts and to increase IPR
    training for judges and prosecutors.  However, the current
    attorney general has publicly stated that given limited
    resources IPR enforcement is a low priority.  In 2002 the
    United States Trade Representative (USTR) moved Costa Rica
    from the Priority Watch List to the Watch List in its
    annual Special 301 Report.  In 2006 Costa Rica remained on
    the Watch List.  According to the USTR, there remain
    deficiencies in Costa Rican intellectual property
    protection that have not been addressed.  The USTR noted
    that significant delays in judicial proceedings and a lack
    of official investigators, public prosecutors and criminal
    and civil judges specializing in intellectual property
    continue to hamper effective enforcement.  Since 2005 the
    U.S. Embassy in Costa Rica has actively recruited
    candidates for various IPR training seminars offered and
    funded by the United States Patent and Trade Office
    (USPTO).  In late 2006, the U.S. Chamber of Commerce and
    the local American Chamber of Commerce announced an attempt
    to assess the scope of the piracy problem in Costa Rica
    using a polling technique the U.S. Chamber developed in
    Brazil.

    A.8.  TRANSPARENCY OF THE REGULATORY SYSTEM

    Costa Rican laws, regulations and practices are generally
    transparent and foster competition, except in state
    monopoly sectors where competition is explicitly excluded.
    Tax, labor, health and safety laws are not considered to
    interfere with investment decisions.  Environmental
    regulations and the Costa Rican organization that reviews
    environmental impact statements have caused problems for
    investors resulting in delays for completing projects.
    There are several independent avenues for appealing
    regulatory decisions, and these are frequently pursued by
    persons or organizations opposed to a public sector
    contract or regulatory decision.  The avenues include the
    comptroller general (Contraloria General de la Republica),
    the ombudsman (Defensor de los Habitantes), the public
    services regulatory agency (ARESEP), and the constitutional
    chamber of the supreme court when constitutional rights
    appear to be affected.  The attorney general's office
    (Procurador General de la Republica) is frequently a
    participant in its role as the government's attorney.  The
    process has kept the regulatory system relatively
    transparent and free of abuse, but it has also rendered the
    system for public sector contract approval exceptionally
    slow and litigious.  There have been several cases in which
    these review bodies have overturned contracts, thereby
    interjecting uncertainty into the process.  Bureaucratic
    procedures are frequently long, involved and can be
    discouraging to new investors.

    A.9.  EFFICIENT CAPITAL MARKETS AND PORTFOLIO INVESTMENT

    There are no controls on capital flows in or out of Costa
    Rica or on portfolio investment in publicly traded
    companies.  Larger investors arrange their financing abroad
    where rates tend to be lower and lending limits are higher.
    Foreign investors are able to borrow in the local market,
    but they are also free to borrow from abroad.

    Within Costa Rica, long-term capital is scarce.  Dollar-
    denominated mortgage financing is popular and common, even
    for Costa Ricans who do not earn their income in dollars
    because of more favorable lending terms for dollar-
    denominated vs. Colon-denominated loans.  There is a small
    secondary market in commercial paper and repurchase
    agreements.  The securities exchange (Bolsa Nacional de
    Valores) is small and is dominated by trading in government
    bonds.  Stock trading is of limited significance and
    involves only a dozen of the country's larger companies.
    Volume traded is often in the range of $ 1 million per
    week.  Stock ownership must be registered in the owner's
    name.  Bonds may not be issued in bearer form.

    Credit is allocated on market terms, although the state-
    owned banks are sometimes obliged to act as development
    banks for activities deemed to be of public interest.
    Credit is currently not available for intangible and or
    movable property such as future crops and equipment because
    such items can not be used as collateral under current law.
    The three state-owned commercial banks accounted for 60
    percent of the banking system?s assets in December 2005.
    The fifteen private commercial banks had been steadily
    increasing their share of the market, but private banks are
    disadvantaged by the existence of implicit state guarantees
    for deposits in state-owned banks.  Entreaties by private
    banks to establish deposit insurance for private deposits
    have so far been rejected by the state monopoly insurance
    provider.

    Consolidated total assets of the country's public
    commercial banks were approximately USD 6.6 billion in July
    2004, while consolidated total assets of the private banks
    were approximately USD 3.1 billion.  The combined assets of
    all bank groups (including affiliated pension funds and
    brokerage houses) are approximately USD 14 billion.

    Costa Rica's national council for the supervision of the
    financial system (CONASSIF) oversees Costa Rica's financial
    sector and consists of two principal components.  The
    country's general superintendent of financial institutions
    (SUGEF) regulates banks and other financial institutions.
    The general superintendent of securities markets (SUGEVAL)
    oversees the securities exchange.  The Costa Rican
    government is working to strengthen supervision of the
    financial sector with assistance from international donors.

    Legal and accounting systems are transparent and consistent
    with international norms.  Many well-known accounting firms
    in Costa Rica are affiliated with large U.S. firms.

    A.10.  POLITICAL VIOLENCE

    Costa Rica has not experienced significant domestic
    political violence since 1948.  There are no indigenous or
    external movements likely to produce political or social
    instability.  In October 2006 public unions opposed to
    CAFTA-DR organized a two day national strike designed to
    disrupt normal business activity.  Although they had
    threatened to bring the country to a halt, the unions were
    unable to mobilize the masses and at best the street
    demonstrations were an annoyance.  These same groups have
    threatened similar actions in 2007.

    A.11.a  CORRUPTION

    Costa Rica has laws, regulations, and penalties to combat
    corruption, though the resources available to enforce those
    laws have been limited.  Corruption became a major issue in
    2004, when two former presidents were placed in
    preventative detention on corruption charges; allegations
    of lower-level corruption are common, and some prosecutions
    have resulted.  Amendments to make anti-corruption laws
    easier to interpret and apply, which had languished in the
    legislative assembly for years, were quickly passed in late
    ¶2004.

    Costa Rica ratified the Inter-American Convention Against
    Corruption in February 1997.  This initiative of the
    Organization for Economic Cooperation and Development
    (OECD) and the Organization of American States (OAS)
    obligates subscribing nations to implement criminal
    sanctions for corruption.  The attorney general
    (Procuraduria General de la Republica), comptroller general
    (Contraloria General de la Republica) and ombudsman
    (Defensoria de los Habitantes) have mounted a common effort
    to combat corruption.  The comptroller general, the
    organization of judicial investigation (OIJ), and the
    public prosecutors' office investigate allegations of
    corruption.  The comptroller general is responsible for
    approving or rejecting auditing public contracts and
    detecting instances of corruption.

    While most U.S. firms have not identified corruption as a
    major obstacle to doing business in Costa Rica, some have
    made allegations of corruption in the administration of
    public tenders.  Developers of tourism facilities
    periodically cite municipal-level corruption as a problem.

    Acts of bribery, including those directed against
    government officials, are criminal acts punishable by
    imprisonment.  Public officials convicted of receiving
    bribes are subject to prison sentences from two to six
    years, according to the Costa Rican Criminal Code (Articles
    314-315, and 338-339).  Entrepreneurs may not deduct the
    proceeds of bribes or any other criminal activity as
    business expenses.

    b.  BILATERAL INVESTMENT AGREEMENTS

    Costa Rica has Bilateral Investment Treaties (BITs) with
    Argentina, Canada, Chile, the Czech Republic, France,
    Germany, Great Britain, Korea, the Netherlands, Paraguay,
    Spain, Switzerland, Taiwan and Venezuela.  Awaiting
    ratification in the legislative assembly are BITs with
    Belgium, Ecuador, Finland, and Luxembourg.  Negotiation a
    bilateral investment treaty with the United States was
    suspended in 1990, restarted in 1996, and suspended again
    in 1997.  The investment chapter of CAFTA-DR includes all
    aspects of a BIT thereby making the negotiation of a
    separate BIT unnecessary.

    c.  OPIC AND OTHER INVESTMENT INSURANCE PROGRAMS

    The Overseas Private Investment Corporation (OPIC) offers
    both financing and insurance coverage against
    expropriation, war, revolution, insurrection and
    inconvertibility for eligible U.S. investors in Costa Rica.
    OPIC can insure up to $200 million per project for U.S.
    investors, contractors, exporters and financial
    institutions.  Financing is available for overseas
    investments that are wholly owned by U.S. companies or that
    are joint ventures in which the U.S. firm is a participant.
    OPIC holds a diversified portfolio of more than 300
    clients.

    U.S. investors should be aware that OPIC, in accordance
    with statutory requirements, may not offer insurance to
    projects with a detrimental effect on the U.S. balance of
    payments or employment.  These statutory requirements have
    led OPIC to offer only limited insurance coverage for
    textile and citrus investments.  The Government of Costa
    Rica approves prospective OPIC-insured projects taking into
    account possible balance of payments or labor problems.
    Costa Rica became a member of the Multilateral Investment
    Guarantee Agency, a member of the World Bank group, in
    ¶1993.

    d.  LABOR

    The Costa Rican labor force is relatively well educated,
    skilled and easily trained, largely due to long-term
    government investment in public education.  The country
    claims a literacy rate of 95 percent, and many workers seek
    and receive additional specialized training.  Costa Rica's
    national vocational training institute (INA) and private
    sector groups provide technical and vocational training.

    The rapid growth of Costa Rica's service and tourism
    sectors has created such demand for English-language
    speakers that foreign investors have recently been facing a
    shortage of workers with sufficient English language
    skills.  The arrival of companies such as Intel, Procter
    and Gamble, Western Union, and various call center
    operators has drawn down the supply of speakers of fluent
    business and technical English.  The Costa Rican Government
    has made English language and computer literacy a national
    priority at all levels of education.  Several public and
    private institutions are attempting to meet the demand for
    English-language speakers, including the 50-year-old U.S.-
    Costa Rican binational center (the Centro Cultural
    Costarricense Norteamericano), which offers general and
    business English courses to as many as 5,000 students year
    round.

    Costa Rican law guarantees the right of workers to join
    labor unions of their choosing without prior authorization.
    Unions operate independently of government control and may
    form federations and confederations and affiliate
    internationally.  Many Costa Rican workers join "solidarity
    associations," under which employers provide easy access to
    saving plans, low-interest loans, health clinics,
    recreation centers, and other benefits.  Both solidarity
    associations and labor unions coexist at some workplaces,
    primarily in the public sector.  Business groups claim that
    solidarity associations provide for better labor relations
    than exist in firms where unions represent workers and
    there are no solidarity associations.  However, labor
    unions allege that private businesses use solidarity
    associations to hinder union organization in contravention
    of International Labor Organization rules.

    The constitution protects the right of workers to organize.
    The Labor Code enacted in 1943 provides protection from
    dismissal for union organizers and members and requires
    employers found guilty of anti-union discrimination to
    reinstate workers fired for union activities.  However, the
    labor courts are backlogged and the legal process can be
    lengthy.

    e.  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.  The benefits, primarily
    fiscal, are described in Section A.5.

    f.  FOREIGN DIRECT INVESTMENT STATISTICS

    Total Foreign Direct Investment Flows into Costa Rica
    --------------------------------------------- --------
                   Amount
    Year        (USD million)    Percent of GDP
    ----        -------------    --------------
    2005            861               4.3%
    2004            794               4.3%
    2003            577               3.4%
    2002            662               4.1%
    2001            454               2.8%
    2000            409               2.6%

    2005 Foreign Direct Investment by Country
    of Origin, Percent of Total
    -----------------------------------------
    Country             Percent
    -------             -------
    USA                   69.7
    Canada                 5.2
    Mexico                 4.2
    Central America        2.8
    Panama                 4.3
    Netherlands            1.0
    Germany                0.6
    Italy                  0.4
    Spain                  1.9
    Japan                  0.0
    Other                  3.9
    -----                -----
    Total                100.0

    2005 Foreign Direct Investment, by Sector
    -----------------------------------------
                       Amount
    Sector          (USD million)
    ------          -------------
    Industry            345.0
    Real Estate         235.0
    Services             73.3
    Tourism              53.5
    Commercial

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