The free trade agreement between Costa Rica and China has produced mixed results

Located in the Metropolitan Park of Sabana, in San José, the National Stadium of Costa Rica is the most important sporting facility in the country and one of the most modern in Central America. It has approximately 367,000 square feet of space to practice fencing, athletics, or chess. However, the most popular activity that fills its 34,762 seats is soccer.

“This National Stadium is the heart of Costa Rica, beating to the pulse of the dreams and illusions of a people who deserve the joy of sport,” reads the commemorative plaque installed on the facility. It is a reminder of China’s gift to Costa Rica at beginning of the development of bilateral relations in 2007 when Costa Rica cut diplomatic ties with Taiwan.

Inaugurated in January 2011, it has already been 11 years since this important piece of Costa Rican infrastructure was constructed. The Government of Costa Rica has confirmed that it was built entirely with Chinese labor. Approximately 800 Chinese nationals worked to construct the edifice.

Like the San José stadium, the Beijing government has built over 80 replicas worldwide. They have been mainly gifted in Africa, Asia, and Oceania.

They have been built “to show friendship,” according to a statement by the Chinese Ministry of Foreign Affairs published on March 26, 2022. The nations that are recipients of these new sports stadiums are comprised of those countries that have cut diplomatic relations with Taiwan and disassociated themselves from the foreign policy towards that county of, the United States.

Costa Rica was no exception. Coinciding with the inauguration of the National Stadium, on August 1, 2011, under the mandate of President Laura Chinchilla, the Free Trade Agreement between Costa Rica and China entered into force. This was at a time when China had few diplomatic relations with the countries of the region.

The free trade agreement between Costa Rica and China: Mixed Results

A bit more than a decade later, commerce between the two countries has not been as dynamic as expected, according to the current Costa Rican government.

“So far, the free trade agreement between Costa Rica and China has not been as commercially successful as we would have liked,” Deputy Minister of Multilateral Affairs Christian Guillermet recently observed.

According to data from the Ministry of Foreign Trade of Costa Rica (COMEX), from 2011 to 2019, the trade balance with China, in percentage terms, had a deficit of 91.16%.

Taking 2019 as a reference, the value of exports from Costa Rica to China reached 121.6 million dollars, while Costa Rican imports from the Asian nation reached 2.1 billion dollars.

Although Costa Rica’s sales to China increased from 37.8 million dollars in 2011 to 121.6 million in 2019, they still do not approximate the volume of imports from the Asian giant. “Logically, both parties to the agreement should now review those numbers. They should be scrutinized and examined in the context of developing a new strategy for Costa Rican goods to impact themselves in the Chinese market. Much of this has to do with our export capacity. Therefore, we have to find the niches to which we are sending our goods abroad,” Guillermet assured.

“Under the free trade agreement between Costa Rica and China, frozen boneless beef, medical devices, cuts of beef, bananas, and edible offal of the bovine species are the most exported products to the Asian Nation. Four of the five main export products from Costa Rica to China belong to the primary sector, according to COMEX statistics.

“One of the options being considered is opening Costa Rica to Chinese tourism. That would be a very interesting way to reverse the negative balance,” stated Guillermet.

However, despite the political and commercial rapprochement between the governments of Beijing and San José, Costa Rica’s largest trading partner is still the United States, followed by the European Union and China in the third instance. This is according to the Costa Rican Ministry of Foreign Trade data.

When comparing the trade balances of Costa Rica with the US and China since the signing of the FTA with Beijing, interested parties can observe that exports with the US are greater in volume, and the trade deficit is not only significantly less but has been declining over the years.

Taking 2019 as a reference, the last year for which records are available, Costa Rica’s deficit with the US reached its lowest figure. It was reduced to 12.41 percent, with the value of exports being 4.8 billion dollars.

Unlike China, medical devices are mainly exported from Costa Rica to the US. Sales of these items made up 45.3% of the total exports to the United States in 2019.

The free trade agreement between Costa Rica and China: A US perspective

Currently, only three countries in Latin America have free trade agreements with China. They are Chile, Peru, and Costa Rica. Several other Western Hemisphere nations have initiated economic and diplomatic relations with the Asian giant.

This situation worries the US authorities and is a source of diplomatic tension, even with historically allied countries such as Costa Rica.

According to the Vice Minister of Multilateral Affairs, the free trade agreement between Costa Rica and China “has been a topic of conversation within the US government. It was emphasized more during the Trump administration than under the Biden regime. So the evolution of US foreign policy vis-à-vis China has had a certain impact on us. But the relations between Costa Rica and the US are so strong that it doesn’t damage our relations.”

Unkept promises

In 2021, on the tenth anniversary of the implementation of the free trade agreement between Costa Rica and China, the headlines of the Costa Rican press expressed disappointment with the accord: “FTA with Costa Rica and China celebrates ten years of being the great incomplete promise.” This headline appeared in La Nación newspaper on June 24 that year.

“The Free Trade Agreement (FTA) between Costa Rica and China remains today, after being implemented ten years ago, a great incomplete promise for exports of goods, services and the attraction of investment to the country,” stated La Nación

It is not only the balance of trade that has yet to meet the expectations of the Costa Rican government. The same is the case with expected investments, such as the construction of free zones.

“There have been no agreements stating where these free zones are going to be developed,” communicated the Vice Minister of Multilateral Affairs when asked about the matter.

Government sources assert that constructing these free zones would have boosted exports for a country like Costa Rica, which exports products principally from the primary sector.

“Our products cannot arrive on time and in the quality we would like. So we have to solve the technical problems that impede our reaching the Chinese market with fresh fruit,” says Víctor Umaña, an economist, professor, and researcher in trade and agricultural policies.

The list of unfulfilled, incomplete, or delayed Chinese investments is long. One of the most controversial issues is the expansion by the Chinese of the highway that connects the country’s capital, San José, with the coastal town of Limón. China’s Harbor Engineering Company (CHEC) began in 2017 and has yet to complete the work. This is according to the Costa Rican newspaper La Nación.

According to Umaña, “We assumed that the highway would be built at less expense with the Chinese. At the end of the day, Chinese companies are state-owned and subject to state interference. The times are not the same, and the practices are not the same. It is one thing to have commercial relations under the free trade agreement between China and Costa Rica with commercial, export, and import companies. It is quite another to receive investment from China in important sectors. The experiences of Chinese investment in Latin America, particularly in my country, Costa Rica, have been a disaster.”

China: Central America target

Beyond Costa Rica, Chinese companies are currently involved in infrastructure works in Honduras, Nicaragua, and Panama. Additionally, there are investment plans for El Salvador and Guatemala. Although only two of the countries mentioned above have had diplomatic relations with the Beijing government, Panama, since 2017, and El Salvador, since 2018.

China’s interest in establishing links with relatively small countries is for political and strategic reasons, beyond economic interests, according to experts.

“They are small countries that do not represent a profit in economic matters, neither for the Chinese Communist Party nor its state-owned companies. From a geopolitical point of view, a vote in the United Nations does not matter if it is from Mexico, Costa Rica, Cuba, or Brazil.”   This is an observation that has been made by Parsifal D’Sola, director of the Sino-American Research Center of the Andrés Bello Foundation,

“In that aspect, maintaining a good relationship, whether economically or maintaining political ties, is something that benefits the Chinese government,” he added.

Source: VOA