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ITA: a key ingredient for integrating Costa Rica in Global Value Chains
Consistent trade liberalization FDI attraction: cornerstone of development strategy Costa Rica and the ITA INTEL: turning point for FDI attraction performance Diversification and sophistication of exports Integration in GVCs What next? Summary
Outline
Consistent trade liberalization
Robust export platform provides for security and predictability to trade and investment:
9 FTAs in force and 3 forthcoming (Singapore, Peru and EU-CA EPA)
1990 1995 1997 2009 2011
Accession to the GATT
WTO Member
First bilateral FTA (with Mexico)
ITA Signatory
CAFTA-DR enters into
force
FTA with China enters
into force
80´s
Unilateral trade liberalization started in the mid 80s
Consistent trade liberalization
Source: own elaboration, using data from COMEX.
46.3%
15.6%
10.5%
6.2% 5.9%
1982 1986 1995 2000 2011
Costa Rica: Average tariff (1982-2011)
Consistent trade liberalization
67% 73%
19% 8%
14% 19%
0%
20%
40%
60%
80%
100%
Exports Imports
Costa Rica: Trade covered by FTAs (2011)
FTAs in force FTAs negotiated Not covered yet
Source: own elaboration, using data from PROCOMER and BCCR.
Source: own elaboration, using data from BCCR.
FDI attraction: cornerstone of development strategy
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Perc
en
tag
e
Year
Costa Rica: FDI as a share of GDP (1981-2011)
FDI / GDP Average Trend
Unilateral Trade
Opening GATT
Accession
WTO and
PTAs GVCs and
PTAs
Source: own elaboration, using data from PROCOMER and BCCR.
FDI attraction: cornerstone of development strategy
-1,000
1,000
3,000
5,000
7,000
9,000
11,000
0
500
1,000
1,500
2,000
2,500
1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011
Exp
ort
s
FD
I
Year
Costa Rica: Exports of goods and FDI (1991-2011)
FDI Exports
• Agricultural exports accounted for 53% of Costa Rica’s total exports by 1995 • Nevertheless, Costa Rica was an early supporter and signatory of the ITA • The entry into force of the ITA coincided with the time in which INTEL and other leading high-tech firms were considering Costa Rica as a potential destination for their investments • Costa Rica’s early support and membership to ITA signaled the country’s commitment to shift its export supply towards the knowledge economy • Such shift has taken place through the diversification and sophistication of the country’s exports, which are now integrated in GVCs
Costa Rica and the ITA - Why?
Source: own elaboration, using data from PROCOMER.
Costa Rica and the ITA
3%
22%
5%
34%
0%
5%
10%
15%
20%
25%
30%
35%
40%
1996 2011
Costa Rica: share of ITA products in exports
Total exports Manufactured exports
Source: own elaboration, using data from PROCOMER.
U.S.A. 35%
Hong Kong 22%
EU-27 18%
Malaysia 8%
China 7%
Chinese Taipei 3%
Japan 3%
Other 4%
Costa Rica: Destination markets for ITA exports (2011)
Costa Rica and the ITA
INTEL: turning point for FDI attraction performance
Agroindustrial Sector
First contact centers
Blue-Chip companies
Consolidation of CR as one of the main FDI locations in Latin America
1st leading medical devices company
19
60
19
82
19
86
19
90
19
95
20
00
20
04
20
11
Pioneer of the industrial
sector
CR ranks 1st among high-tech exporters in Lat.Am
16.3% 14.9% 19.6%
23.5%
12.9% 4.0%
36.2%
20.4% 25.9%
15.5%
12.8% 14.2%
8.5%
39.0% 36.3%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1994 2001 2010
Costa Rica: Structure of Industrial Exports by Intensity in the Use
of Factors of Production
Differentiated product Labor-intensive (L)
Natural resources-intensive Scale-intensive (K)
Science-based
Source: COMEX, using data from BCCR and PROCOMER.
1994: Top 10 Exports
Bananas 22%
Coffee 12%
Pineapple 2%
Jewelry 2%
Cotton panties 2%
Hair dryers 2%
Melons 2%
Boned beef 1%
Shrimp 1%
Ornamental plants 1%
Other 53%
2011: Top 10 Exports
Electronic integrated circuits 18%
Bananas 8%
Pineapple 7%
Serum infusion and transfusion equipment 6%
Coffee 4%
Food preparations 3%
Other medical devices 3%
Medical prosthesis 2%
Pharmaceuticals 2%
Crude palm oil 2%
Other 47%
Diversification and sophistication of exports
Diversification and sophistication of exports
Source: CINDE, using data from the World Bank.
0%
10%
20%
30%
40%
50%
Kore
a
Ch
ina
Irela
nd
US
A
Me
xic
o
OE
CD
Surin
am
e
Barb
ad
os
Bra
zil
LA
C
Fin
land
Boliv
ia
Ecu
ado
r
Arg
entina
Para
gu
ay
Peru
Spain
Uru
guay
El S
alv
ador
Gua
tem
ala
Ch
ile
Co
lom
bia
Vene
zu
ela
Nic
ara
gua
Ho
ndu
ras
Jam
aic
a
Trin
& T
ob
Share of high-tech exports in manufactured exports
2010
1997
GVC-related exports 37%
Other exports 63%
Costa Rica: Average share of GVC-related exports in total exports (2009-2011)
Source: own elaboration, using data from COMEX.
Integration in GVCs
Integration in GVCs
Source: own elaboration, using data from PROCOMER.
Electronics 55%
Medical devices 36%
Automotive 7%
Film & Broadcasting 1%
Aeronautic /Aerospace
1%
Costa Rica: GVC-related exports by industry (2011)
• Attraction of FDI • Interagency execution
Strategic vision Proactive and coordinated
approach
• Political and economic stability • Export processing zone regime
Sound business environment
• WTO (incl. ITA) + 12 PTAs • Robust air transportation network
Solid export platform
• Quality of educational system -1st in Latin America (WEF) • Cost competitive
Educated work force
• Middle of the Americas • Proximity to US market
Privileged geographical location
Integration in GVCs: key drivers
• Trade liberalization
• The role of PTAs
• Removal of non-tariff barriers
• Increased competition in trade-related services
• Exploring new ideas
• Eg. expansion of the ITA
• Trade facilitation
• Simplification and harmonization of trade regulations and procedures
• Other
• Protection of IPRs
• A multilateral investment framework?
What next? Role for trade policy in enhancing Costa Rica’s participation in GVC?
What next? Prospects for expanding ITA
• Substantial transformation occurred in IT over the years calls for an expansion of the Agreement
• Coverage of ITA should be expanded to respond to the needs of IT-trading agents and to contribute to global economic recovery
• Need for new signatories: non-signatory IT producers should be brought on board
• Broader product coverage: as technology advances and becomes more important in everyday life, more IT products should benefit from ITA
Costa Rica is supportive of the prompt beginning of
negotiations to expand the coverage of the ITA
Summary
• Costa Rica has pursued a significant diversification and sophistication of its exports through trade liberalization and FDI attraction
• The ITA has contributed to the diversification and sophistication of Costa Rica’s exports
• Costa Rica ranks 1st in Latin America (and 4th worldwide) on the share of high-tech exports in manufactured exports
• A significant share of Costa Rica’s total exports is integrated in GVCs
• Costa Rica is supportive of the prompt beginning of negotiations to expand the coverage (signatories and products) of the ITA, which has been a key ingredient for integrating in GVCs
/comexcr
The experience of developing ITA participants: the case of Costa Rica