Costa Rica’s trade minister on small economies shaping global trade

Key Concepts

• Future of Investment and Trade (FIT) Partnership: A grouping of 14 small and medium-sized World Trade Organization (WTO) members aimed at strengthening trading links and addressing the erosion of the multilateral trading system.
• Multilateral Trading System: The international framework of trade rules and agreements, primarily governed by the WTO, that aims to promote free and fair trade among its members.
• Trade Facilitation: Measures and processes designed to simplify, modernize, and harmonize trade procedures, reducing costs and increasing efficiency.
• Digital Economy: Economic activities that rely on digital technologies, including e-commerce, digital services, and data.
• Supply Chain Resilience: The ability of supply chains to withstand and recover from disruptions, such as pandemics or geopolitical crises.
• Trade Diversification: Expanding trade relationships to include a wider range of countries and markets to reduce reliance on a single partner.
• Medical Technology (Medtech) Sector: Industries involved in the development, manufacturing, and distribution of medical devices and related technologies.
• Semiconductors: Electronic components that are essential for modern technology, including microchips.
• Global Value Chains (GVCs): The full range of activities required to bring a product or service from conception to final use and disposal.
• OCED Countries: Member countries of the Organisation for Economic Co-operation and Development, a group of developed economies.
• Agile and Informal Non-Binding Agreements: Partnerships or agreements that are flexible, less formal, and do not create legally binding obligations, allowing for easier adaptation and collaboration.

FIT Partnership: Singapore Hosts Inaugural Ministerial Meeting

Singapore is set to host the first ministerial meeting of the Future of Investment and Trade (FIT) Partnership. This initiative, formed in September, comprises 14 small and medium-sized members of the World Trade Organization (WTO). The primary objective of FIT is to strengthen the trading links among these nations, particularly at a time when the existing rules-based global trading system is facing significant strain. Costa Rica is a founding member of this partnership and is actively seeking to expand trade dialogue through this platform.

Costa Rica's Perspective on FIT and Trade Diversification

Manuel Tovar Rivera, Costa Rica's Foreign Trade Minister and a key architect of the FIT partnership, highlighted the initiative's significance. He described FIT as a "mayor initiative" launched by a group of "small and open economies" to counter the "erosion of a multilateral trade system." Rivera emphasized that international trade is highly susceptible to disruptions from events like the COVID-19 pandemic and geopolitical crises. The FIT partnership is envisioned as a "coalition of the willing of the like-minded" to foster trade through dialogue and collaboration in areas such as trade facilitation, the digital economy, and supply chain resilience.

Rivera explained how FIT will help Costa Rica reposition itself beyond conventional trade relationships and mitigate over-reliance on the United States. He stated that "trade diversification is precisely a tool to risk manage." Costa Rica, while maintaining a strong historical partnership with the US and actively addressing tariff issues, recognizes the need to "expand our footprint elsewhere in the world," with a particular focus on the Asia-Pacific region. The country already has an existing Free Trade Agreement (FTA) with Singapore and is engaged in the Digital Economy Partnership Agreement (DEPA). Costa Rica is also close to becoming a party to the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP). FIT is seen as an additional initiative to develop "innovative approaches to the current challenges that international trade faces."

Costa Rica's Readiness for Emerging Technologies and Digital Trade

The FIT partnership places a strong emphasis on emerging technologies and digital trade. Costa Rica has demonstrated significant progress in this area over the past 20-25 years. Thirty years ago, its economy was primarily based on four agricultural commodities: bananas, coffee, pineapple, and sugar. Today, Costa Rica exports 4,500 products globally, many of which are highly sophisticated, thanks to its "very qualified workforce, the most productive in Latin America."

The medical technology (medtech) sector now represents Costa Rica's highest and most successful export product, accounting for around 40% of its exports. Semiconductors are also a significant export. Furthermore, Costa Rica has developed into a sophisticated services economy, excelling in areas such as backup services, corporate services, IT software development, and cybersecurity. These are the domains that Costa Rica aims to bring to the FIT partnership table and continue to embrace, fostering economic activities both within and beyond the member countries. Rivera expressed optimism for FIT's growth, stating, "This is just the beginning. We're 14 countries but we hopefully will continue to grow through time."

Evolution of Costa Rica's Economy and Benefits for Farmers

Regarding the impact of economic evolution on traditional sectors like banana farming, Rivera clarified that Costa Rica remains a significant player, being the third-largest exporter of bananas and the largest exporter of pineapple. While coffee exports have decreased in volume, they are now focused on high-quality, "boutique coffee." The country's development path has shifted from exporting "planting chips to exporting microchips." Costa Rica has actively fostered greenfield investments in the semiconductor and medical device sectors, attracting around 100 world-leading companies. This economic transformation has been evident in its global standing, with Costa Rica being the "fastest growing economy among OECD countries" for three consecutive years. Rivera hopes to share these examples with other FIT members to help them evolve their participation in global value chains.

FIT as a Catalyst for Latin American Integration

The FIT partnership includes neighboring Latin American countries such as Chile, Panama, and Uruguay. Rivera sees significant potential for FIT to evolve into a stronger Latin American trade and innovation block for small and open economies. He described FIT as a "space for collaboration" where countries can "mirror ourselves to learn from each other, to adopt the best practices." Costa Rica views Singapore as a model to emulate. However, Rivera also pointed out the historical lack of integration among Latin American countries, noting that they trade more with the Far East, North America, or Europe than among themselves. FIT presents an opportunity to overcome logistical and regulatory challenges and foster greater intra-regional integration.

FIT's Agile and Informal Approach vs. Traditional Agreements

Rivera contrasted FIT's "agile and informal, non-binding" nature with traditional treaty-based agreements. He explained that FIT does not impose a "straight jacket" and allows for evolution over time. He highlighted the difficulty of reaching consensus within the WTO, a 160+ member organization with diverse interests and geopolitical complexities. FIT's approach of forming smaller coalitions with like-minded countries allows for the pursuit of "predictable and open trade under transparency rules."

Concrete Measures for FIT Alignment

When asked about concrete measures Costa Rica might adopt to align with FIT's agenda, Rivera emphasized the importance of investing in human capital. He stated, "If you invest in people, at the end of the day, you invest in your economy, you create high value added jobs, high value added industry." Costa Rica's success in developing its workforce has enabled it to attract sophisticated companies and create well-paid jobs, a model it wishes to share with other FIT members. He concluded by reiterating that this approach, exemplified by Singapore, is "the way to go."