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Free Trade Agreements (FTAs)
The Mexico – Costa Rica Free trade agreement is a legal instrument that provided for the phase-out of tariff and non-tariff barriers to trade in goods and services between the two countries.
Free trade agreements such as this one establish clear and transparent rules that are of mutual benefit to both parties. The treaty provides certainty to economic sectors in each country by ensuring broad and secure access to both markets. In addition to this consideration, they incorporate rules governing investment, public sector procurement, and intellectual property protection.
Origins of the Mexico-Costa Rica Free Trade Agreement
The Mexico-Costa Rica Free Trade Agreement was signed in 1994. It entered into force on January 1, 1995. This was the first free trade agreement between Mexico and a Central American nation, and the 1st free trade agreement signed by the government of Costa Rica.
The Mexico-Costa Rica treaty was the first to be signed by Mexico after the North American Free Trade Agreement (NAFTA). Its provisions were based upon the main text and clauses of that agreement. Some of the similarities that can be found in the format of the parts of the accord include the rules of origin, intellectual property protections, investment rules, and the resolutions of disputes.
Trade Treaty Objectives
The Mexico-Costa Rica Free Trade Agreement was signed with the aim of creating a Free Trade Area by promoting the process of regional and continental integration between these two leading Latin American economies.
This agreement eliminated all tariffs on non-agricultural Mexican exports to Costa Rica; Additionally, rules were established that ensure national treatment of goods and services in both countries and mechanisms were put into place for the effective and gradual elimination of non-tariff barriers.
The objectives of this FTA follow the principals of national and most-favored-nation treatment and transparency, aim to do the following:
- Stimulate commercial expansion and diversification.
- Eliminate barriers to trade and facilitate the movement of goods and services.
- Promote conditions of fair competition in trade.
- Substantially increase investment opportunities.
- Protect and enforce, adequately and effectively, all intellectual property rights.
- Establish guidelines for further cooperation at the bilateral, regional, and multilateral levels, expanding and improving the benefits of the treaty.
- Create effective procedures for the implementation and compliance of the treaty, as well as its joint administration and dispute resolution.
Foreign trade structure incorporated into the Mexico-Costa Rica Free Trade Agreement
For the establishment of this free trade area, the Mexico–Costa Rica treaty determined that it would have to be in accordance with the General Agreement on Tariffs and Trade (GATT Article XXIV). This section of the international trade accord addresses issues such as territorial enforcement, border traffic, customs unions, and free trade areas.
Both countries confirm the rights and obligations in force under the GATT as well as other agreements and treaties to which they are a party. However, the treaty stipulates that if a case of inconsistency between the treaty and other agreements occurs, the provisions of the Mexico-Costa Rica FTA shall prevail in the face of this inconsistency.
Both Mexico and Costa Rica are responsible for ensuring compliance with the provisions of the treaty at the federal, state, and municipal levels, except as otherwise provided for in the treaty.
Both Mexico and Costa Rica reaffirm their rights and obligations related to standardization measures arising from the GATT and all other international treaties and laws relating to safety, protection of human, animal and plant life, protection of the environment, and practices that avoid misleading consumers, of which the two parties are in agreement.
Under the trade accord, Mexico and Costa Rica agree on harmonization in accordance with the provisions of the GATT Technical Barrier Code Organization and the guidelines of the International Organization for Standardization (ISO).
Treaty structure and its characteristics
The main feature of the Mexico–Costa Rica Free Trade Agreement is to form a free trade area with the aim of establishing guidelines to stimulate the economies of both parties. This is done by removing barriers to trade, promoting fair competition, protecting intellectual property, etc.
The treaty also has as its characteristic, a definition of the scopes of application of trade in goods between the Parties, the establishment of tariff rebates, the refund of customs tariffs and their restrictions, the establishment of import rates and non-tariff measures, import and export restrictions and country of origin marking.
Another feature of the Mexico-Costa Rica Free Trade Agreement is that it marks phytosanitary and animal health measures in the agricultural sector, export subsidies, as well as standardization and marketing measures in this sector. Emphasis is also placed on rules of origin, application, and the determination of originating goods.
In addition to the above, the treaty marks the structuring of customs procedures, import and export obligations, procedures for verifying origin, provisions on countervailing quotas and contains a specific part of the principles on trade in services, their application, and restrictions, as well as the principles regarding the temporary entry of business persons.
Finally, other features of the Mexico – Costa Rica Free Trade Agreement specify technical barriers to trade, obligations, and basic duties. A section on public sector procurement has also been included.
- Each Party shall afford, in accordance with Article III of the GATT, national treatment to the goods of the other Party.
- Increased existing tariffs or adopting new tariffs on originating products is prohibited.
- There is the possibility of accelerating the elimination of tariffs under the Tariff Rebate Program.
Situation before the signing of the FTA
Generally speaking, from the 1970s to the time of the Mexico – Costa Rica FTA’s entry into force in 1995, trade and investment relations between Mexico and Central American countries had four key characteristics:
- Trade and investment flows between these countries were especially limited, both in absolute and relative terms.
- These flows generated a constant trade balance in Mexico’s favor.
- Trade was not diversified and, since the 1980s, concentrated on a few categories of intermediate goods.
- The composition and behavior of trade between the two nations were very erratic. With the exception of oil from the 1980s on, no product was regularly exported or imported.
Despite the geographical proximity, trade and investment flows between Mexico and Central American countries were extremely limited. Between 1970 and 1993, Central America’s exports did not reach 0.4% of Mexico’s total imports. During this period, this percentage was comparable only to Mexico’s trade with African countries.
Situation after signing the FTA
Since the entry into force of the FTA, trade between Costa Rica and Mexico has shown a significant increase.
From the signing of the FTA:
- Bilateral trade has increased by 1400%
- The Mexican-origin investment in Costa Rica has accumulated $408 million in the FTA years.
- Mexico has registered 82 companies with Costa Rican capital, with investments of almost $23 million, making Costa Rica the main Central American investor in Mexico.
Trade sectors and more traded products
Key Trade Sectors
To better understand the trade relationship between Mexico and Costa Rica, here are the trade sectors with the most exchange between the two partner nations.
Most of Mexico’s Costa Rican imports are in the industrial sector, although their share of the country’s total industrial imports has not been particularly significant.
From the above, we can conclude that imports of Mexican products are concentrated in the industrial area. More than 90% of total imports from that country have been located in this sector for every year of the last decade.
Mexico is not a major supplier of agricultural products to Costa Rica and the impact of FTA on this sector has been small.
Main Trade Exchange Products
Having observed the sectors with the most trade movement some of the products that have been exchanged by the two parties after the signing of the Mexico – Costa Rica Free Trade Agreement include:
Exports: Mexico – Costa Rica:
- Electronic equipment
- Plastic and coated paper or cardboard
- Pharmaceutical products
- Essential oils, perfumes, cosmetics, toiletries
- Rubber products
- Optical, photo, technical, medical apparatus
- Miscellaneous edible preparations
Imports: Costa Rica – Mexico:
- Optical, technical, medical apparatus
- Fruits, nuts
- Miscellaneous food preparations
- Plastic articles
- Vegetable/fruit/nut preparations
- Coffee, tea, spices
- Rubber articles
The Mexico – Costa Rica Free Trade Agreement has been of great value to both countries. Its realization has given the two countries the opportunity to diversify their trading relationships, obtain a greater variety of products, and increase the number of buyers of their products. This treaty has also increased the level of investment in Mexico between the two Latin American nations.
This treaty has supported the economic and commercial development of signatories to the agreement and has proven to be a success throughout its 26 years of existence. It is clear that, despite differences in market size and volumes of bilateral trade, the Mexico-Costa Rica FTA has been, on the whole, positive for the economies of both countries.
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