COSTA RICA: Trade and investment support excellent social services
Thomas Cromwell

Kanat Saudabayev

F. Tomas Dueñas took up his post as Costa Rica's ambassador to Washington late last year with a clear sense of mission. With a background as a minister of economy and trade, and as the former vice chairman of the Ministerial Committee for the WTO summit in Doha, he has been intimately involved in international trade negotiations for his country, and knows how trade has emerged as the linchpin of international relations, tying countries together in everything from customs agreements to security arrangements.

Costa Rica is a small Central American country of four million people which has no army and offers its citizens excellent social services. However, to pay for its largesse in recent years it has increasingly looked to boosting industry and trade to generate revenue for the state coffers. Through this focus on trade it now exports 3,500 products to 130 countries, the ambassador said, putting it on a par with much larger Chile. "The local and Central American markets are not large enough to absorb Costa Rica's exports, he said.

Central to its trade enhancement policy, for the past eight years Costa Rica has made efforts to forge free trade agreements with other countries or regional groups of countries. It has pursued these with countries big and small. For example, in 2001 it signed an FTA with Canada and last year joined fellow Central American countries in negotiating CAFTA (Central American Free Trade Agreement) with the United States, which will be up for Senate approval this spring. As trade minister, Ambassador Dueñas said he was, "extremely fortunate to be at the right place at the right time" to negotiate free trade agreements for his country.

CAFTA is undoubtedly of great importance to Costa Rica. Over 50 percent of its trade is with the United States, while two thirds of all direct foreign investment and over half of all tourists are American. The ambassador explained that while Costa Rica has enjoyed largely free access to the United States through the Caribbean Basin Initiative, the CBI is a unilateral (US) program and hence subject to change by Washington at its whim. CAFTA, by contrast, works in both directions, giving privileged access to US markets for Central American products and services, but also privileged access for US goods and services to Central America on a permanent basis. CAFTA also provides structures for business relations, including the direct settlement of trade disputes. And, "from our side we have committed to reforms" mandated by CAFTA, the ambassador said.

The ambassador went so far as to say, "The FTA is not about trade. We are looking for a political commitment to create the conditions for investment and a better climate for life, including health and education."

The Bush administration clearly sees free trade agreements as serving multiple purposes. On one level they open markets for American goods. In addition they cultivate strong mutual interests in improving economic, political and social relations between the trade partners.  They also provide an excellent platform for negotiating everything from investment protocols to security agreements. Thus countries that are bound to the United States through free trade agreements are viewed by Washington as reliable partners, with both sides receiving clear benefits from the relationship.

"It seems that trade is considered part of the US security policy agenda," said Ambassador Dueñas. "It is clear that during its second term the Bush administration will push several programs as part of this policy, including passage of CAFTA." The ambassador said the Central American members of CAFTA "must support the Bush administration" in selling CAFTA to Congress. "We are partners in this effort." He said they had to explain to the Congress and US constituencies why CAFTA makes sense for America. For one thing, he said, the producers of CAFTA countries will not compete with US producers, and therefore should not be feared. "I think the CAFTA economies can be complementary to the US economy and even make the latter more competitive," the ambassador said. For example, many of the agricultural products in CAFTA countries are not produced in America because of climate and life-style. At the same time, Costa Rica imports American products, such as yarn, steel and aluminum, for its own production of goods. For American exporters, CAFTA is a larger market than France, Brazil or Italy, he said. What's more, as the trade figures show, "We like American products."

In fact Costa Rica counts as a good American ally in general. "We consider ourselves allies of the United States in all good causes," the ambassador said. "We are strong defenders of human rights, the rule of law, etc. We also support the war on terror and drug interdiction. We look forward to a lasting relationship with the United States."

Costa Rica has for several years been working to improve its investment climate. In some cases, the spur for this process was specific interest expressed by a potential investor, the ambassador said. For example, US chipmaker Intel chose Costa Rica for its only plant in Latin America. Intel invested $600 million in a plant that employs 3,000 and exports $1 billion a year. But before Intel would put in all that money, Costa Rica had to adopt "major changes" in its investment laws and business climate, the ambassador said.  Today, "As a foreign investor you have the same rights as a Costa Rican," he added. "Except the right to vote!" Ambassador Dueñas said the Intel investment marked a milestone in that it showed that by creating a business-friendly environment and assuring the rule of law a lot of new investment could be attracted to the country. Since then, assuring an excellent business environment has been a commitment of government.

The ambassador pointed out that although on the books Costa Rica is running a trade deficit, when you add foreign direct investment, including services, and especially the $1.5 billion in tourism revenues, the trade equation favors Costa Rica. Interestingly, there are more Americans in Costa Rica (100,000) than Costa Ricans in the United States.

Costa Rica has done well economically and in providing services to its people, but it has gone heavily into debt to get there, and now, the ambassador said, the government has recognized that it has to revamp the tax system, especially for corporations that have enjoyed tax concessions created to help attract investment in certain sectors. The government offers its people generous education and health benefits and 98 percent of the country has electricity and telephone service, the highest level in the world.

The government can no longer afford to borrow to cover the gap between the cost of services it offers and the income it earns from taxes, in particular when many companies now enjoy tax breaks. The ambassador said, "The government is now saying 'You have what you need [to do business], now you will have to pay for it."' A fiscal reform bill is currently making its way through the Congress and should be voted into law by June this year, the ambassador said. And while all companies will have to pay taxes on profits, the maximum corporate rate will be cut from 35 to 20 percent. Also having to pay taxes for the first time will be professionals, such as doctors and lawyers.  

Asked what the impact has been of abolishing its army more than 50 years ago, the ambassador said, "We get recognition, not criticism." He pointed out that Costa Rica took its step during the heyday of military dictatorships in Latin America. He said, "We survived all revolutions and expansionist attempts in the region." A security umbrella is provided by Europe and the United States, but, he said, "in a way you become untouchable." At the same time, he said, his country always tries to avoid making enemies. "We have no physical enemies. The only enemy we have is one that sometimes lies in ourselves, which hinders our path towards progress and development. However, in tackling this, Costa Rica can also be a "powerhouse" when its citizens put "their minds and hearts into a goal", he said.


Biography of F. Tomas Dueñas, Ambassador of Costa Rica to the United States

Ambassador Dueñas has served as the Chief Executive Officer of ESCO InterAmerica LTD., a regional leader in the design, rental and sale of construction systems.  He also served as the Chairman of the Board of Directors and Executive Committee of the Costa Rica Investment and Development Bank (CINDE).  He is also a fellow at the ASPEN Institute Leadership Program and he has served as Chairman of Directors of PROCOMER.

Ambassador Dueñas has been an active participant in the Costa Rican Government society.  In 2000, he served as the country's Minister of Economics.  Additionally, from 2000 until 2002, Ambassador Dueñas was the country's Minister of Foreign Trade.  He also contributed as a member of the Economic Council of the Costa Rican Government during that time period.  He is a member of the Board of Directors of La Nación, Costa Rica's largest newspaper and publishing group.  Finally, he has served as Chairman of the Board of Trustees of the Costa Rican Central Bank Museums.

In addition to his domestic service, Ambassador Dueñas has been a staunch proponent of Costa Rica's political and economic openness to the international community. He served as Vice Chairman of the WTO Ministerial Meeting at Doha, 2001.  Ambassador Dueñas further served as Costa Rica's chief negotiating Minister in the talks for the Free Trade Agreement of the Americas (FTAA).  Additionally, he played an active role in the negotiations and enactment of various other Free Trade Agreements, including those between Costa Rica and Canada, Chile, the Dominican Republic, Trinidad and Tobago, and CARICOM.  He is also credited with having initiated the process that led to the Central American Free Trade Agreement with the United States (CAFTA).

Ambassador Dueñas was educated at the University of Miami, where he earned a degree in Business Administration.  After graduating, he pursued further education at the University of Columbia, Stanford, and Pennsylvania.  Ambassador Dueñas is married to Diana Chavarría, a graduate of the University of Costa Rica's Law School.