THE CASE OF COSTA RICA

Anabel GonzálezMinister of Foreign Trade, Costa Rica

WTO Public ForumSeptember 19, 2011

Agriculture and natural resources dominate most LA countries’ export basket (minimum transformation, low unitary values, little differentiation)

• Driven by surging Asian demand

THE LATIN AMERICAN CONTEXT

Source: COMEX, using data from the WTO Statistics Database.

52%22%

39%28%

19%35%

40%24%

48%30%

7%88%

85%89%

24%74%

24%

14%71%

22%60%

52%2%

51%4%

9%4%

16%2%

6%1%

59%2%

97%32%

33%6%

39%12%

29%63%

9%72%

43%66%

77%10%9%

11%16%

24%3%

45%

ArgentinaBolivia

BrazilChile

ColombiaCosta Rica

EcuadorEl SalvadorGuatemala

HondurasMexico

NicaraguaPanama

ParaguayPeru

UruguayVenezuela

Total LatAm

Latin America: Export Basket by Country (2009)

Agriculture

Natural Resources

Manufacturing

THE LATIN AMERICAN CONTEXT

Some participation in low-value GVC (eg. Apparel)

• Impacted by China et al and by greater trade exposure toindustrialized markets

Source: COMEX, using data from the WTO Statistics Database.

52%22%

39%28%

19%35%

40%24%

48%30%

7%88%

85%89%

24%74%

24%

14%71%

22%60%

52%

51%4%

9%4%

16%

6%

59%

97%32%

4%

41%17%

51%

7%

33%5%

38%12%

25%60%

7%31%

26%15%

74%10%8%9%9%

22%

42%

ArgentinaBolivia

BrazilChile

ColombiaCosta Rica

EcuadorEl SalvadorGuatemala

HondurasMexico

NicaraguaPanama

ParaguayPeru

UruguayVenezuela

Total LatAm

Latin America: Export Basket by Country (2009)

Agriculture

Natural Resources

Textile and Clothing

Rest of Manufacturing

THE LATIN AMERICAN CONTEXT

Limited participation –by few countries- in GVC with higher technological content

• The case of Costa Rica

0.00%

5.00%

10.00%

15.00%

20.00%

25.00%

30.00%

35.00%

40.00%

45.00%

50.00%

Kore

aCh

ina

Irela

nd USA

Finl

and

OEC

DLA

CSp

ain

Cost

a Ri

caM

exic

oBr

azil

Barb

ados

Arge

ntin

aCh

ileEc

uado

rSu

rinam

ePa

ragu

ayBo

livia

El S

alva

dor

Nic

arag

uaCo

lom

bia

Guat

emal

aU

rugu

ayVe

nezu

ela

Jam

aica

Peru

Trin

& T

obHo

ndur

as

Share of High-Tech Exports in Manufactured Exports

2007

1997

Source: COMEX, with data fromthe World Bank

COSTA RICA: EXPORTS AND FDI

Source: COMEX, using data from PROCOMER. Source: COMEX, using data from BCCR.

Source: COMEX, using data from PROCOMER and BCCR.

1.899

9,371

0

2,000

4,000

6,000

8,000

10,000

12,00019

9119

9219

9319

9419

9519

9619

9719

9819

9920

0020

0120

0220

0320

0420

0520

0620

0720

0820

0920

10

Mill

ion

US$

Costa Rica: Merchandise Exports(1991-2010)

178

1,450

0

500

1000

1500

2000

2500

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Mill

ion

US$

Costa Rica: FDI Inflows(1991-2010)

01,0002,0003,0004,0005,0006,0007,0008,0009,00010,000

0

500

1,000

1,500

2,000

2,500

1991 1993 1995 1997 1999 2001 2003 2005 2007 2009

Expo

rts

FDI

Costa Rica: Relationship between FDI Inflows and Merchandise Exports, US$ million (1991-2010)

FDI Exports

COSTA RICA: EXPORTS AND EPZ

Source: COMEX, using data from BCCR.

Source: COMEX, using data from BCCR and PROCOMER.

Sour

ce: M

onge

-Ariñ

o (2

011)

.

41%

42%

12%5%

Costa Rica: Structure of Exports (2010)

Raw Materials &Intermediate Goods

Final ConsumptionGoods

Capital Goods

Other

Source: COMEX, using data from BCCR.

36%

22%

59%

39%

71%

00.10.20.30.40.50.60.70.80.9

1

Costa Rica: Domestic Component of GVC Exports (DCE), by chain (2009)

51%

20%

16%13%

Costa Rica: Structure of Imports (2010)

Raw Materials &Intermediate Goods

Final ConsumptionGoods

Capital Goods

Other

0%10%20%30%40%50%60%70%80%90%

100%

1991

1992

1993

1994

1995

1996

1997

1998

1999

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

Costa Rica: Share of EPZ Exports (1991-2010)

Other Exports

EPZ Exports

Source: COMEX, using data from BCCR and PROCOMER.

COSTA RICA: COMPOSITION OF EXPORTS

1994: Top 10 Export Products

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%

2010: Top 10 Export Products

Computer microchips 10%

Computer parts 9%

Bananas 8%

Pineapple 7%

Serum infusion and transfusion equipment

5%

Medical prosthesis 3%

Pharmaceuticals 3%

Food preparations 3%

Coffee 3%

Textiles and apparel 2%

Other 46%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: PROCOMER.

Low cost labor

Access to highly Skilled labor pool

Sub-assembly

•Parts and components assembly

•Sub-assembly of components

Assembly

•Textile maquila

•Devices class I

•Product assembly

Manufacturing and

Assembly

• Extrusion

•Injection

•Thermoforming

•Precision engineering

•Product assembly

•Packaging

Design and

Engineering

•Re-design of products

•Devices class II and III

•Product validation

•Re-design of processes

•Automatization

Research & Development

•New products design

•Design of new processes (BTCa/)

•Prototype testing

•Pre-clinical and clinical studies

Source: CINDE, 2011. Notes: a/Business Transformation Center.

COSTA RICA: TOWARDS INCREASED SOPHISTICATION OF PRODUCTION PROCESS

Source: CINDE

Agroindustrial Sector

Pioneer of the Industrial

Sector

Contact Centers started to arrive

Blue-Chip companies

CR was consolidated as one of the

main FDI locations in Latin America

CR 1st high-tech exporter in Latin

America

1960 1982 1986 1990 1995 2000 2004 2010

COSTA RICA: EVOLUTION OF FDI

1st Leading Medical Devices

Company

COSTA RICA: PARTICIPATION IN GVCGVC Total

FirmsFirmsin EPZ

Averageemployees

per firm

Main Products Exports 2009 (US$ million)

Share in Total

Exports*

Maindestination

Share in GVC

Exports

Electronics 10 90% 571 - Computer parts and accesories- Digital microprocessors- Electrical switches- Electronic filters for TV sets

2.196,6 25,5% China 35%

Medicaldevices

25 80% 475 -Needles, catheters and equipment for serum infusionand transfusion

- Other medical divices- Devices for electro-diagnose-Medicaments put up for retail

sale

1.268,8 14,7% USA 60%

Automotive 9 89% 273 - Tires-Shock-absorbing systems for cars- Incandescent lamps and

electric tubes-Seats for vehicles and their parts- Lubricant or fuel filters-Plastic manufactures forinjection equipment

-Film and foil of polymers of vinyl chloride

- Parts for vehicles’ seats

180,0 2,1% USA 75%

GVC Total Firms

Firmsin EPZ

Averageemployees

per firm

Main Products Exports 2009 (US$ million)

Share in Total

Exports*

Maindestination

Share in GVC

Exports

Aeronautic/Aeroespace

16 69% 137 - Design of turbines for airplanes-Design and testing of electronicdevices for airplanes

- Machined parts for airplanes-Printed circuit boards for

airplanes- Thermostats-Repair of mother boards for

airplanes- Maintenance for helicopters- Metal coatings for airplane parts- Wire hamesses for airplane parts- Turbines for airplanes- Lasers for airplanes- Circuit protection gas tubes-Design of plasma engines for

space shuttles

21,9 0.3% USA 34%

Film/BroadcastingDevices

1 0% N/A -Tripods for videocameras 20,4 0.2% USA 53%

Sub-total 60 80% -- -- 3.687,8 42,8% -- --

Total -- -- -- -- 8.611,3 100,0% -- --

Source: Monge-Ariño (2011)*Includes only exports of goods. The Aeronautic/Aerospace GVC has in addition exports of services that were worth US$41,7 million in 2009.

COSTA RICA: PARTICIPATION IN GVC

COSTA RICA’S PARTICIPATION IN GVC: KEY DRIVERS

• Attraction of FDI• Interagency execution

Strategic visionProactive and coordinated

approach

• Political and economic stability• Export processing zone regime

Sound business environment

• WTO + 12 PTAs• Robust air transportation networkSolid export platform

• Quality of educational system -1st in LA (WEF)• Cost competitiveEducated work force

• Middle of the Americas• Proximity to US market

Privileged geographical location

COSTA RICA: WHAT NEXT IN GVC?

Diversify

Participate in more GVC

Increase tasks performed

Expand number of firms

Strengthen

Increase local content

Promote backward

linkages to local suppliers

Upgrade

The role of innovation, science and technology

Increased focus on high-skilled tasks

OPPORTUNITIES AND CHALLENGES AHEAD

•How to increase participation in GVC in the absence of a regional production system?

•What growth potential for US-centered GVC?

•What role for Costa Rica in GVC centered in Asia?

•What role for Costa Rica in GVC producing for emerging markets?

chal

leng

es

•• Increased linksbetween Asia and Latin America

• Expansion of GVC

• Off-shoring services

• Growth dynamics of emerging markets

oppo

rtun

ities

THE DOMESTIC AGENDA•Securing preferential access to international markets and deepening trade liberalization

•Reducing the cost and time to trade at the border and securing trade flows

•Simplification, rationalization and digitalization of customs and trade-related regulations and procedures•Improved logistics

•Enhancing and expanding the human •resource base

•Technical education•Engineering and science-based careers •Language skills

THE DOMESTIC AGENDA• Moving towards an innovation-driven economy

• Increased investment in innovation• Enhancing indigenous capacity• Promoting innovation-based FDI

• Upgrading infrastructure• Improving physical and communication

infrastructure

• Feeding the manufacturing base• Guarantee capacity, cost and security

of energy supply

• Better understanding Costa Rica’s participation in GVC• Joint study with IDE-Jetro

• Trade liberalization• The role of PTAs• Removal of non-tariff barriers• Increased competition in trade-related services• Exploring new ideas

• Eg. an International Digital Economy Agreement?

• Trade facilitation• Simplification and harmonization of trade regulations and

procedures• Other

• Protection of IPRs• A multilateral investment framework?

WHAT ROLE FOR TRADE POLICY IN ENHANCING COSTA RICA’S PARTICIPATION IN GVC?

THE CASE OF COSTA RICA

Anabel GonzálezMinister of Foreign Trade, Costa Rica

WTO Public ForumSeptember 19, 2011

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