INTERNATIONAL COPYRIGHT, U.S. & FOREIGN COMMERCIAL SERVICE AND U.S. DEPARTMENT OF STATE, 2008. ALL RIGHTS RESERVED OUTSIDE OF THE UNITED STATES.

Market Overview

The United States is Costa Rica’s main trading partner, accounting for over half of Costa Rica’s total imports. According to U.S. Census Bureau trade data, the U.S. had a US$1.744 billion trade surplus with Costa Rica in 2008, as compared with surpluses of $637 million in 2007, $288 million in 2006, $183 million in 2005, and a deficit of $27 million in 2004.  

New foreign direct investment in Costa Rica from all countries was just under $2 billion in 2008, $1.885 billion in 2007, $1.469 billion in 2006, and $861 million in 2005, with the United States accounting for just under half of the total.

U.S. companies like Intel, Procter & Gamble, Hewlett-Packard, Baxter Labs, and a number of franchising and service companies have invested in facilities in Costa Rica. The Central Bank of Costa Rica, does, however, project a substantial decrease in foreign direct investment in 2009 to $1.334 billion, as many real estate development projects have slowed significantly, due in large part to the economic situation in the United States and beyond.

 During 2008, Costa Rica’s economic indicators did show positive growth. 2008 GDP grew at about 4.7 percent, slightly higher than 2007’s 4.2 percent. GDP growth for 2009, on the other hand, is expected to decline to around 2 percent due to world economic conditions. Also during 2008, the poverty rate increased from 16.7 percent to 17.7 percent; the unemployment rate increased from 4.6 percent to 4.9 percent; and external debt increased from $30.5 billion to an estimated $36 billion. The Government recently announced a Social Economic Stimulus Plan to avoid major impact to the Costa Rican economy brought about by external macroeconomic conditions. Imports of goods are expected to decrease by 3 percent in 2009. Inflation, while remaining high at 13.9 percent, is expected to decrease to 9 percent in 2009.

Market Challenges

While Costa Rica’s close trading and investment relationship with the United States has long benefited both nations, it is also expected that the current recession in the U.S. will be felt in Costa Rica after some lag time, and could tend to diminish the level of bilateral trade and investment activity. Already, U.S. tourism to Costa Rica, for example, which drives both local employment and U.S. exports to build and supply the tourist resorts, has fallen off substantially in 2008.

Countering that trend, however, is the important fact that the Central America-Dominican Republic-United States Free Trade Agreement (CAFTA-DR) entered into force on January 1, 2009, bringing new interest and opportunity in trade. Although the overall investment picture is relatively bright, the Costa Rican Government has not enjoyed great success with many of its concession schemes for its public works projects, including the Juan Santamaria Airport in San Jose, which now is in process of transferring its management to a new entity. Infrastructure, in an overall sense (e.g., roads and bridges, water/wastewater, electricity generation, airports and ports) is in substantial need of improvement. This represents both challenges and opportunities. In many instances, deteriorated infrastructure will need to be improved if Costa Rica is to remain competitive in the regional and world economy.

Enforcement of intellectual property laws has been lacking in many cases, due to insufficient resources and training, and weaknesses in the country’s criminal code. This is expected to improve as CAFTA-based commitments begin to take hold. The legal process in general is often sluggish, making binding arbitration an attractive option.

Costa Rica recognized the People’s Republic of China in 2007 and was visited with great fanfare by the President of China in 2008. The intensified relationship between these two countries gives greater impetus to competition for U.S. exports from products originating in China. Costa Rica is also part of the Central American effort to negotiate a Free Trade Agreement with the European Union.

Market Opportunities

CAFTA-DR’s entry into force on January 1, 2009, represents a major step forward in the trade and investment relationship between Costa Rica and the United States, opening opportunities in the wireless telecommunications, Internet, and insurance markets that previously had not existed.

Costa Rica’s accession to the agreement also means that more than 80 percent of all non-agricultural goods and more than 50 percent of agricultural products became duty-free immediately, on January 1, 2009. Furthermore, CAFTA-DR’s entry into force eliminates Costa Rica’s dealer protection regimes, allows non-discriminatory treatment for U.S. firms in government procurement bids, and provides stronger protection for investors.

Market prospects are excellent in the following sectors: auto parts, audiovisual equipment, hand/power tools, hardware, medical and dental equipment, and security equipment. Prospects are also good in the travel and tourism services, hotel and restaurant equipment, and construction equipment sectors, although they may be somewhat diminished from recent years’ high growth.

Market Entry Strategy

U.S. products enjoy an excellent reputation for quality and price-competitiveness. This inherent value will only be improved as CAFTA-DR is implemented and landed prices of U.S. exported goods drop. If and as this lower cost of goods is passed along through the distribution chain, it should drive an acceleration of trade and greater market share for U.S. products.

Proximity to the Costa Rican market is also a major advantage for U.S. exporters who wish to visit or communicate with potential customers. The proximity facilitates close contacts and strong relationships with clients, both before and after the sale. The same holds true for agents and distributors, who typically represent U.S. exporters in the national market.

With Costa Rica’s accession to the CAFTA-DR Free Trade Agreement, it is important to remember that the free trade regime is region-wide, i.e., for the countries of Honduras, Guatemala, Nicaragua, El Salvador, and the Dominican Republic, as well as for the United States and Costa Rica.  This presents the opportunity to consider these markets from a regional perspective and to design a regional marketing approach, given the lowered barriers and relative proximity, particularly for those signatories in Central America. In 2007, U.S. exports to the CAFTA-DR countries exceeded $22 billion, making the region the 14th largest trading partner of the United States, worldwide.

The U.S. Commercial Service Costa Rica advises U.S. companies to consult with local market research companies and law firms to conduct the necessary due diligence before entering into contracts with local firms. These partners can be instrumental in helping to penetrate and expand the market for a company’s exports. With CAFTA-DR now in force in Costa Rica, trade should be further facilitated with the market access improvements and tariff reductions listed above.

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U.S. exporters seeking general export information/assistance or country-specific commercial information should consult with their nearest Export Assistance Center or the U.S. Department of Commerce's Trade Information Center at (800) USA-TRADE, or go to the following website: http://www.export.gov
For a complete copy of the Country Commercial guide (2009) please go to: http://buyusainfo.net/docs/x_7381593.pdf

To the best of our knowledge, the information contained in this report is accurate as of the date published. However, The Department of Commerce does not take responsibility for actions readers may take based on the information contained herein. Readers should always conduct their own due diligence before entering into business ventures or other commercial arrangements. The Department of Commerce can assist companies in these endeavors.