Costa Rica FY2000

By Patricia Darrow
Industry Canada

October 13 1999

A. DISTRIBUTION AND SALES CHANNELS

The Commercial Code of Costa Rica, in its Chapter related to representation of foreign companies (Agents, Distributors, and other forms of representation), states the following:

All foreign companies may freely do business in Costa Rica through distributors, concessionaires, by proxy or agents and through representatives of foreign companies, excepting agencies and branches of foreign companies whose products are manufactured in our country (Costa Rica) and, as such, may exercise directly and freely the distribution and representation of their lines of products, as well as those of Central American origin, having been duly verified. While the representative may be either a Costa Rican citizen or a resident alien, he/she must have resided in Costa Rica for at least ten continuous years and must have done business in Costa Rica for three years.

To market aggressively, U.S. firms should establish local representation or a local sales office. Although a U.S. firm may export directly to Costa Rican companies, the use of a qualified representative is strongly recommended in order to participate in Costa Rica's government procurement system, as well as to market successfully within the private sector. Because Costa Rica is a small country, most U.S. companies will find that identifying one distributor or representative is sufficient to cover all of Costa Rica.

B. USE OF AGENTS/DISTRIBUTORS: FINDING A PARTNER

Industrial Sectors

The U.S. Department of Commerce, which manages the Commercial Section of the U.S. Embassy in San Jose, offers U.S. companies a range of assistance in identifying potential business partners in Costa Rica. Help is provided by telephone, fax, e-mail, and through direct appointments.

The Commercial Section encourages U.S. firms to first make contact with their nearest U.S. Export Assistance Center (U.S.-based offices of the U.S. Department of Commerce, located in one hundred U.S. cities).

If a U.S. business person is unsure of the location of the nearest U.S. Export Assistance Center, help is available centrally through the Department of Commerce’s Trade Information Center by calling 1-800-USA-TRADE (872-8723). The Trade Information Center can answer basic questions and identify the most convenient U.S. Export Assistance Center for direct help. U.S.-based Department of Commerce Trade Specialists can assist with information about markets worldwide, help in identifying the most promising markets for a given product or service, and work as a partner in developing a marketing strategy consistent with a firm’s objectives and resources. Each U.S. Export Assistance Center has direct access by e-mail with other U.S. Department of Commerce offices worldwide. It also maintains a current data base of market research reports that are keyed to many of the best export prospects in each market overseas.

Among the more popular export marketing services of the Department of Commerce is the Gold Key Service. The Gold Key Service, which is designed to introduce U.S. businesses to potential business partners/representatives and includes a nominal fee, consists of a carefully tailored schedule of pre-screened, pre-arranged appointments with reliable local firms. The Gold Key Service includes an interpreter, as well as a personal market briefing prior to beginning the appointment schedule. This convenient, inexpensive program assists firms in compressing the time frame for identifying local business partners in target markets overseas.

For U.S. firms seeking foreign representation which are not able to travel immediately to Costa Rica, the U.S. Department of Commerce offers the Agent/Distributor Service (ADS). The ADS is initiated through the stateside U.S. Export Assistance Center that is most convenient for the U.S. exporter. The ADS is somewhat similar to the Gold Key Service in that it identifies Costa Rican businesses that are potential local representatives and who have expressed an interest in communicating further with the U.S. business, based on a review of the U.S. firm’s product literature. The results of the ADS search are communicated to the U.S. firm through its nearest U.S. Export Assistance Center. Again, there is a nominal fee to firms for this service.

According to the Costa Rican Commercial Code, when a company breaks an agreement with an agent/distributor, that company must compensate the agent or distributor according to a formula based on the history of sales made or commissions earned by the Costa Rican company. The compensation formula is affected by the terms of any written agreement between the parties; thus, for fairness to all parties, it is important to have a written agreement in place and to have that agreement reviewed, prior to signature, by a competent, qualified attorney familiar with Costa Rican law.

Another recent change in the Costa Rican Commercial Code permits a U.S. company wishing to participate in a public tender the opportunity to do so directly and without a local Costa Rican representative. The only requirement is that the official representing the U.S. company must have a Power of Attorney which must be certified by a Costa Rican Consulate in the United States. However, the process of bidding on public tenders is usually a tedious process, best accomplished through the employment of a qualified Costa Rican representative.

Costa Rican firms wishing to represent U.S. companies may request that they be named the exclusive representative in the market. However, local attorneys familiar with the Costa Rican Commercial Code and the dynamics of this small, competitive market recommend against exclusive representation contracts, retaining for the U.S. firm the right to sell to other representatives/importers in the market.

For the latest changes in Costa Rica's commercial mercantile code, we recommend strongly that U.S. companies employ the services of a qualified Costa Rican attorney. Lists can be obtained from the Commercial Section and from the Consular Section of the Embassy.

Both the Costa Rican Chamber of Commerce and the Costa Rican-American Chamber of Commerce (AmCham) have established International Arbitration Centers for alternative dispute resolution. For contact information for these two chambers, see Chapter XI, Appendix E.

Agricultural Sector

Distribution channels do not vary significantly among the different food products. Some products (e.g., fresh fruits) require technical handling knowledge due to the fact that they are more sensitive to environmental conditions and require refrigerated warehouses.

Imports of consumer foods are made by private firms. There are several wholesalers dedicated to the food import business with distribution of products to supermarkets and to medium and small stores. Some of the larger supermarket chains import directly.

A list of the most important Costa Rican importers of consumer oriented foods can be obtained by contacting the Office of Agricultural Affairs.

The United States is the single most important commercial agricultural partner of Costa Rica due to its geographical proximity, high quality, and wide selection of competitively-priced products.

Costa Rica is negotiating a free trade agreement with Chile, which is expected to be signed by the end of 1999. Although the market access part of the agreement has not been negotiated so far, it is expected that Chilean fruits (fresh and canned), candies, and other food products will receive preferential treatment, resulting in stronger competition for U.S. products.

Because most grains are imported in bulk, the import market is limited to a few major players. There are two wheat mills (Molinos de Costa Rica and Fabrica de Harinas de Centroamerica), which account for all the wheat imports. Two purchasing groups of private sector importers make almost all yellow corn and soybean imports. Rice is generally imported by a group of millers associated under the name Granos Basicos de Centroamerica. During the past two years, however, imports have also been made by independent millers and this year by a supermarket chain as well.

Since December 1994, no import permits (other than phytosanitary and zoosanitary) are required for imports of grains, poultry, meat, dairy products or any other agricultural product, per the terms of Costa Rica’s GATT accession agreement.

As a result of the Uruguay Round Agreements, Costa Rica has implemented tariff-rate quotas for poultry and dairy products, allowing a specific volume of these products to enter the country at a lower tariff. Outside the tariff-rate quota, Costa Rica also reduced the tariff on these sensitive products from 266 percent to 170 percent for poultry and from 106 percent to 96 percent for dairy products. The tariff rate for these products is scheduled to decline to a maximum of 150 percent for poultry and of 65 percent for dairy by 2001.

C. FRANCHISING

The current growth of franchising is slowing as the fast food sector becomes saturated and matures. The first franchise to enter the market was McDonald's in 1970, and others quickly followed. Pizza Hut entered the market in 1972 and now has 36 stores with six mobile units.

Other American pizza franchises have followed but have entered into the market with little success. Because Pizza Hut entered the market first, they were able to develop brand recognition and customer loyalty, giving Pizza Hut a competitive advantage.

Very recently, one local newspaper devoted to business related articles announced the opening of three new fast food franchises (Denny’s, Friday’s and Wendy’s) to start operations this year and in the first months of the year 2000. Denny’s will start operations in September of this year with an investment of US$2.1 million. Their plans are to open five restaurants in a period of seven years. T.G.I. Friday’s will open its first restaurant in early 2000. Wendy’s is in the process of brand registration in Costa Rica and expects to open operation in the year 2000.

Price, as in any market, is a major competitive factor. Costa Ricans are very price conscious and savvy shoppers. They are generally aware of what items cost in the U.S., and how the same or similar items are priced in Costa Rica. While they are willing to pay slightly more for the perceived quality of an American product, they will not pay too much more, as most Costa Ricans are on tight budgets and know value.

A key success factor for franchisers considering entry into the Costa Rican market is careful selection of franchisees. The right franchisee must have the financial resources to enter and develop the market, as well as local business contacts and an understanding of the intricacies of the local market. In Costa Rica, business contacts can greatly affect the success of a project. This can come into play, for example, in developing local sources of supplies, expediting government approval and licensing, and in gaining access to prime locations for establishing a franchise site. One local franchisee claimed, for example, that a competitor was able, through his personal business contacts, to prevent his franchise from entering a major mall for two years.

Another reason for care in selecting franchisees relates to Costa Rican law. Costa Rican Law 6209, which protects distributors and agents, is viewed by the courts as protecting franchisees as well. This law tends to favor the local franchisee and can make it very expensive for a foreign franchiser to end a relationship with a local franchisee for reasons other than nonpayment of royalties.

There are continuing opportunities for growth and expansion of franchising in Costa Rica and the Latin American market. Entrepreneurs here, corporate and individual, appreciate the mature business systems and proven track record that selective franchises offer. Franchise marketing requires sensitivity to the need to adapt to the Latin culture, such as adding local foods to the menu or translating manuals/catalogs into Spanish. Because of Costa Rica's small size, an exclusive territorial contract is often preferred by those marketing franchises, as well as by interested investors. Some successful franchise operations involve investor groups who have purchased master franchise rights for the entire Central American region. Many times a franchisee will own several different types of franchises in different industry sectors as a way to diversify their investments. For example, a businessman may own clothing, fast food, and retail technology franchises.

A new group of investors that is emerging includes young professionals who are very familiar with the U.S. and who are looking to break away from their family businesses in order to start something of their own. They also view franchising as a way to enter into a market without having a great deal of knowledge of an industry. This is why they view quality, dedicated franchiser support as critical to success.

The typical franchisee also does not attend franchise shows. The Internet is the number one source of information for local franchisees on potential new franchises. Potential franchisees will usually analyze the local market themselves, determine what franchise concepts are most attractive for the local market, using their personal knowledge of popular and successful franchises in the U.S. market. They will then typically contact ten or so different franchise companies in that market segment for comparison purposes.

The second most popular way potential franchisees make contact with franchisers is when a particular franchiser comes to Costa Rica looking for investors/franchisees and contacts them directly. Though it is often difficult to identify business people who have the interest, business experience and resources to develop and manage new franchise concepts, the Commercial Section of the U.S. Embassy can assist with introductions and information on tactics used to reach potential franchisees.

The franchise market in Costa Rica is developing at a steady pace, dominated by the fast food sector. There are approximately thirty franchise retail businesses operating in Costa Rica, with nearly half of them fast food/specialty food enterprises. Franchises in Costa Rica employ approximately 4,000 Costa Ricans. It is estimated that less than twenty percent of these franchises are locally-owned, and the remaining eighty percent are foreign-owned (of this percentage, ninety percent are U.S. franchises). Following are the U.S. companies with franchise operations in Costa Rica.

FRANCHISOR FRANCHISE TYPE

Comp USA Technology retailer
Century 21 Real Estate
Remax Real Estate
Cinemark Movie Theaters
Marriott Hotel
Aurola Holiday Inn Hotel
Aurola Playa Flamingo Hotel
Best Western Jaco Beach Hotel
Best Western Tamarindo Hotel
Best Western San Jose Hotel
Best Western Irazu Hotel
Camino Real Inter-Continental Hotel
Hampton Inn Hotel
Melia Playa Conchal Hotel
Melia Confort Corobici Hotel
Melia El Tucano Resort Hotel
Quality Centro Colon Hotel
Radisson Europa Hotel
Ace Home Mart/Cemaco Hardware
TCBY Frozen Dessert
Taco Bell Fast Food
Subway Fast Food
Pizza Hut Fast Food
McDonald’s Fast Food
Kentucky Fried Chicken Fast Food
Hardee’s Fast Food
Domino’s Pizza Fast Food
Burger King Fast Food
Papa John’s Fast Food
Radio Shack Electronic Retailer
Dry Cleaners USA Dry Cleaning
Martinizing Dry Cleaning
Liz Claiborne Clothing
EcoLab Cleaning supplies
Denny’s Casual Dining
Hallmark Cards & Gifts
Avis Car Rental
Budget Car Rental
Dollar Car Rental
Economy Car Rental
Hertz Car Rental
National Car Rental
Thrifty Car Rental
Deloitte & Touche Business Services
Dun & Bradstreet Business Services
Peat Marwick Business Services
Price Waterhouse Business Services
Sir Speedy Printing Business Services
New Horizons Business Services
Shell Gas Station
Texaco Gas Station

Franchise royalties are taxed a 25 percent withholding tax, but the U.S. does give a foreign tax credit for this expense. Import taxes vary as to the item; the trend is toward lower import taxes. The following are approximate:

Value Added (sales) Tax -- 13 percent
Ad valorem (import duty) Tax -- 1-50 percent, depending
on item
Special one percent import tax -- 1 percent

D. DIRECT MARKETING

Direct marketing is a relatively new concept in Costa Rica. Since the country does not enjoy a postal/mailing system with defined street names and numbers, it is difficult to obtain client lists or reliable addresses.

There is no law that regulates direct marketing. In the absence of a specific law, direct marketing as a method of selling is presently regulated by the general law that applies to publicity and publicity agencies.

E. JOINT VENTURES/LICENSING

Licensing is not widespread in Costa Rica. Traditionally, foreign companies have exported to Costa Rica, or set up manufacturing/assembly operations in the country, either independently or through joint venture arrangements. Foreigners may legally own Costa Rican companies, or equity therein, and may invest in all areas not expressly reserved for state or parastatal entities. Foreign corporations may be organized legally in several ways: as branches (except for banks), joint ventures, wholly owned subsidiaries or locally incorporated companies. Bona fide investments are encouraged and promoted actively by the Costa Rican government.

F. STEPS TO ESTABLISHING AN OFFICE

The most important provisions affecting business law are contained in the Costa Rican Mercantile and Civil Codes.

The first step in establishing a business in Costa Rica is to obtain the assistance of a Notary Public, the only professional authorized by law to register a company.

Companies must be recorded in the Costa Rican Mercantile Registry in order to be a legal, authorized entity. At registration all information related to the new company and the persons who will administer the company must be submitted, including the full name, nationality, occupation, civil status, domicile, the legal form of the business being organized, purpose of the company, amount of capital and the manner in which this capital is to be paid, time limits for payments, domicile of the company, and any other agreements made by the founders.

An extract of the registration is then published in "La Gaceta" (the official legal journal). Payment on initial equity (usually nominal) must be expressed in local currency and deposited with a local bank of the Costa Rican National System until registration is completed. Initial equity payment is generally $100 to $1,000.

Depending on the type of business, the company may have to acquire a municipal patent or permit. A foreign enterprise that has, or intends to open, branches in Costa Rica must appoint and retain a legal representative with full Power of Attorney concerning the business or the branch.

Similar to U.S. law, foreigners must become residents in order to work in Costa Rica.

Individuals interested in establishing a business in Costa Rica are encouraged to contact CINDE (Costa Rican Coalition for Development Initiatives) and/or PROCOMER (Costa Rican Foreign Trade Corporation). Both organizations are involved in providing support and information for prospective investors to Costa Rica. Each organization maintains extensive information data bases that are useful to potential investors in evaluating operating costs, taxation issues, availability of employees and related investment questions. Please see Appendix E for full contact information for representatives of these organizations in Costa Rica and in the U.S.

G. SELLING FACTORS/TECHNIQUES

As in the U.S., purchase decisions by Costa Ricans are based generally on comparisons of price, quality, technical specifications, convenience and the availability of local product support or after-sale service. U.S. exporters to Costa Rica must be willing to make smaller sales than those to which they may be accustomed in larger markets (Costa Rica’s GDP is roughly US$10 billion, with a population of approximately 3.5 million people).

Sales catalogs and brochures should be translated into Spanish. Products must be price-competitive. Terms of payment for purchases above four thousand dollars are generally transacted through irrevocable letters of credit. Open account payment terms are reserved generally for well known and well established customers. Insurance on accounts receivable is available through the Export-Import Bank of the U.S. Payment for small purchases is usually direct.

Business in Costa Rica, as in other Latin American countries, is conducted and based on the establishment of personal relationships. The Costa Rican business community places great importance on personal contacts with foreign suppliers. New U.S. suppliers/exporters should be prepared to travel to Costa Rica periodically and follow-up with customers regularly through contacts by fax, telephone and/or e-mail. A patient sales approach is preferred to a hard sell approach. Again, U.S. firms can maximize their export sales possibilities and longevity in the Costa Rican market through a local representative.

H. ADVERTISING AND TRADE PROMOTION: LISTING OF MAJOR NEWSPAPERS AND BUSINESS JOURNALS

Advertising:

Costa Rican newspapers are among the best ways to promote sales of products or services. Depending on the target market, advertising is also effective in magazines produced by organizations like the Costa Rican-American Chamber of Commerce (AmCham), the Chamber of Commerce of Costa Rica, and other specialized chambers/business associations.

Major Costa Rican newspapers (in order of circulation) include:

La Nacion
Apartado 10138
1000 San Jose, Costa Rica
Tel: (506)247-4747 Switchboard / (506) 247-4949 Advertising
Fax: (506)247-4849
Web Site: www.nacion.co.cr

Al Dia
Apartado 7-0270
1000 San Jose, Costa Rica
Tel: (506) 247-4666
Fax: (506) 247-4669

La Republica
Apartado 2130
1000 San Jose, Costa Rica
Tel: (506)223-0266
Fax: (506)222-7665 (Administration) or 257-0401 or 255-4049
(Advertising)
Web Site: www.larepublica.net

La Prensa Libre
Apartado 177-1009
1000 San Jose, Costa Rica
Tel: (506)223-6666
Fax: (506)222-8938
Web Site: www.prensalibre.co.cr

The Tico Times (the nation's most popular English-language
newspaper)
Apartado 4632
1000 San Jose, Costa Rica
Tel: (506)258-1558
Fax: (506)233-6378
E-mail: ttimes@racsa.co.cr
Web Site: www.ticotimes.co.cr

Partial list of specialized, industry-specific and other commercial
publications:

Actualidad Economica (Chamber of Commerce of Costa Rica)
Apartado 10096-1000
San Jose, Costa Rica
Tel: (506)224-2411 ext. 228
Fax: (506)225-7365
E-mail: entretenimiento@trejos.co.cr
Web Site: www.actualidad.co.cr

Business Costa Rica
(Costa Rican-American Chamber of Commerce)
Aerocasillas
AMCHAM Costa Rica
SJO 1576
P.O.Box. 025216
Miami, FL 33102-5216
Tel: (506)220-2200 (Costa Rica)
Fax: (506)220-2300 (Costa Rica)
E-mail: asibaja@amcham.co.cr
Web Site: www.amcham.co.cr

Alimentaria (Chamber of Food Industry of Costa Rica)
Apartado 7097-1000
San Jose, Costa Rica
Tel: (506)234-1127
Fax: (506)234-6783
E-mail: caciali@sol.racsa.co.cr

Oportunidades Comerciales (Chamber of Representatives of Foreign Firms - CRECEX)
Apartado 3738
1000 San Jose, Costa Rica
Tel: (506)253-0126
Fax: (506)234-2557
E-mail: crecex@sol.racsa.co.cr
Web Site: www.infoweb.co.cr/crecex

Camara Costarricense de la Construccion (Chamber of Construction)
Apartado 5260 -1000
1000 San Jose, Costa Rica
Tel: (506) 253-5757 or 381-3614
Fa: (506) 221-7952

La Industria (Chamber of Industry of Costa Rica)
Apartado 10003 - 1000
San Jose, Costa Rica
Tel: (506)285-3779
Fax: (506)222-1007
E-mail:camind@sol.racsa.co.cr
Web Site: www.cicr.or.cr

Especiales Revista Rumbo (published by Newspaper La Nación)
Apartado 1517-1100
San Jose, Costa Rica
Tel: (506)247-4402
Fax: (506)247-4477

El Financiero (Business, Finance and Economy themes)
Apartado 185 - 2120 Guadalupe
San Jose, Costa Rica
Tel: (506) 256-3956
Fax: (506) 256-3955

U.S. firms with representation in Costa Rica can broaden their promotional efforts by advertising selectively in these newspapers and commercial publications.

TRADE PROMOTION:

In addition to the traditional range of U.S. Department of Commerce export promotion services provided to U.S. firms in Costa Rica through partnership with the U.S.-based network of U.S. Export Assistance Centers, the Department’s Commercial Section in San Jose can assist U.S. firms through trade missions, participation in local trade shows, matchmaker events, seminars, conferences, catalog shows and business receptions, all of which are conducted periodically on a cost-recovery basis with pre-approved budgets.

There is a limited number of privately organized trade promotion events in Costa Rica. The private trade fair organizer, FERCORI, has at least one international trade fair every two years. The next international trade fair is scheduled for March 2000. For further information contact:

FERIAS INTERNACIONALES, S.A. (FERCORI)
Apartado 1843 - 1000
San Jose, Costa Rica
Contact: Lic. Flor Carreras - President
Tel: (506)233-6990 or 233-6631
Fax: (506)233-5791
Web Site: http://www.fercori.co.cr/fercori/html

There is a computer-oriented event, FERCOMPUTO, organized by a private
enterprise "Sistema Empresarial", which invites international participation and
is scheduled for February 2000. For more information contact:

FERCOMPUTO
Apdo 2219- 1000
San Jose, Costa Rica
Tel: (506) 273-4545 xt 105
Fax: (506) 273-1010
Contact: Ms. Marta Sancho, General Manager
Email: sercsa@sol.racsa.co.cr

There is a Hotel trade event, EXPO-HOTEL, organized by the Costa Rican Chamber of Hotels. This exposition is open to trade representatives as well to the general public and is scheduled for the first week of April, 2000. For further information contact:

EXPO-HOTEL
Camara Costarricense de Hoteles (CCH)
Apdo 8422-1000
San Jose, Costa Rica
Tel: (506) 290-4757
Fax: (506) 290-5434
E-mail: info@costaricanhotels.com
Web Site: costaricanhotels.com
Contact: Ms. Ana Gabriela Alfaro, Executive Director

The Costa Rican Association of Professionals in the Tourism Sector organizes the international show Expotur. The main purpose of the show is to promote Costa Rican tourism, facilities and sites among foreign wholesalers and travel agents. The next show is scheduled for May 21-26, 2000. For more information contact:

EXPOTUR
SJO 3445
P.O.Box 025216
Miami, Florida
33102-5216
Att: Ms. Xiomara Murillo M.
Mr. Pablo Solano, Event Director
Tel/ Fax: (506) 280-5375
Toll free USA only: 1-888-EXPOTUR (397-6887)
Fax:(510) 792-5249
E-mail: acoprot@sol.racsa.co.cr
Web Site: http:www.acoprot.org

The private organization, VISIT USA Costa Rica, promotes travel and tourism to the U.S. and hosts a trade event each year. The next show is scheduled for April, 2000. For more information contact:

VISIT USA COSTA RICA
Apdo 11631-1000
San Jose, Costa Rica
Tel: (506) 257-4782 or 233-9600
Fax: (506) 223-2703
Contact: Ms. Alicia Lines, President
E-mail: visitusa@sol.racsa.co.cr
P.O.Box Account Nbr. 305
P.O.Box 025369,
Miami, FL 33102

I. PRICING PRODUCTS

Prices of products imported into Costa Rica are typically based on:

- the CIF value plus importation taxes,
- customs agent fees,
- in-country transportation costs, and
- other product-related costs.

Product prices are not regulated by the Costa Rican government.

The Costa Rican government has, however, established a "Canasta Basica" (market basket of consumer products) considered essential for the traditional household -- foods; household consumables; school uniforms, shoes and school supplies; basic construction products; agricultural chemicals; and tools and medicines -- the prices of which are monitored to judge if price increases are reasonable.

U.S. export pricing is generally minus the U.S. domestic marketing cost component, allowing a base price that is morecompetitive and providing more latitude for negotiating margins that motivate Costa Rican distributors, while maintaining attractive pricing in the market.

J. SALES SERVICE/CUSTOMER SUPPORT

Product support and after-sale service, provided usually through a local representative with the support of the U.S. exporter, is extremely important for both Costa Rican government institutions and private purchasers.

Availability of maintenance contracts, identification of convenient repair facilities, as well as any required technical support, are expected by buyers. Service literature and contracts should be provided in Spanish. The proximity of the U.S. to Costa Rica provides U.S. exporters with added flexibility in determining the most cost-effective and efficient product support arrangements.

K. SELLING TO THE GOVERNMENT

The Costa Rican Government procurement system is governed by the Costa Rican Finance Administration Law.

Government entities generally acquire their goods and services through public tenders which are published in the official newspaper (La Gaceta) and major newspapers. Some purchases are made directly from suppliers that have pre-qualified and pre-registered with government entities.

Foreign companies may establish a representative through a Power of Attorney for a specific tender. This representative can be a Costa Rican citizen/company, alien or resident of the country. A general Power of Attorney can also be given to an individual or company to represent the foreign company in various tenders for a specified period of time.

The local representative should be able to translate tender documents from Spanish into English, and assist in preparing bid offers in Spanish. Some large projects may require the presence of U.S. company officials in Costa Rica in order to better evaluate the requirements and prepare a competitive offer to the Costa Rican government entity.

When competing for government contracts, the value of a strong local partner or representative cannot be over-stressed. The local representative should be well established, reputable, well known and respected in business circles, and knowledgeable about Costa Rican business culture and process. This is especially true when competing for and executing government tenders. As noted earlier, the Gold Key Service of the U.S. Department of Commerce, available directly through the Commercial Section in San Jose, or through the U.S.-based partner network of U.S. Export Assistance Centers, is an excellent, economical strategy for identifying a potential partner or representative in Costa Rica.

In June 1995, the Government of Costa Rica enacted Law No. 7494 which established new procedures for public procurement. The regulations associated with this law were also approved and published in the official newspaper "La Gaceta" in October 1995. This new law and its regulations came into effect in May 1996.

The law establishes that government entities or ministries with a regular annual budget of more than US$200 million will be allowed to issue public tenders only if purchases are above US$2.3 million. The entity will be able to perform purchases between US$2.3 million and US$130 thousand through tenders circulated amongst a registered suppliers list. Below this amount the entity will also be able to make purchases among pre-selected bidders.

Five important government entities will follow the above- mentioned guidelines: the Costa Rican Institute of Electricity (ICE), the Costa Rican Petroleum Refinery (RECOPE), the Costa Rican Institute of Social Security (CCSS), the National Insurance Institute (INS) and the Government's National Procurement Department (Proveeduria Nacional). These five entities constitute the most important Costa Rican buyers and contractors to foreign companies and have been traditionally the largest generators of public tenders in Costa Rica.

Motivating the procurement changes was the desire of the Central Government to achieve a more expeditious and agile procurement system that could reduce the time gap between the publication of a public tender and the effective date of the procurement, also reducing somewhat the losses incurred through the gradual decline in value of the local currency, the 'colon.' The former procurement system was considered to be obsolete, cumbersome, burdensome and subject to countless appeals to the Comptroller's Office that in many cases delayed important projects for years. In some cases, tenders had to be annulled and the tender process had to be executed two or three times. According to government officials, the country lost millions of colones every year due to delays in the procurement process.

With this new tender schedule the government is attempting to avoid unnecessary delays in the bidding process and to avoid the payment of interest charges on undisbursed loans provided by international lenders. The new system exempts tenders (of US$2.3 million and less) made to registered suppliers from the possibility of appealing to the Comptroller's Office. The procuring entity itself must handle any complaint from the bidders.

The Commercial Service of the U.S. Embassy in San Jose encourages U.S. manufacturers and exporters of products and services required by the entities mentioned above to register their firms with the relevant Costa Rican government institutions. More importantly, we recommend that U.S. companies interested in exporting to Costa Rica contract with a local representative who can proceed with the registration process at the government entities requiring such a registration. Registration will allow the procurement departments of government institutions to invite registered foreign firms to bid on tenders and to be considered for direct purchases.

L. PROTECTING YOUR PRODUCT FROM INTELLECTUAL PROPERTY RIGHTS (IPR) INFRINGEMENT

Protecting a product from IPR infringement in Costa Rica is sometimes significantly more difficult than in the U.S. Patent protection, especially for pharmaceutical and agrochemical products, is seriously inadequate. In order to assure maximum IPR protection for any valuable product, it is advisable to obtain the services of an experienced intellectual property attorney familiar with local IPR laws and with the procedures of the Costa Rican National Registry. A brief summary of local IPR laws and international agreements to which Costa Rica is a signatory may be found in Part VII Investment Climate Statement), in this Country Commercial Guide.

In recent years, businesses dependent upon a reliable IPR regime (e.g., software distributors, music composers, cable TV entities, authorized video distributors) have tried to encourage the Government of Costa Rica to step up its enforcement efforts against serious violations of local intellectual property laws.

M. NEED FOR A LOCAL ATTORNEY

Obtaining competent, local, legal representation is critical when one is planning to begin a business, buy or sell real estate, apply for resident status or make any type of significant investment in Costa Rica.

Not only is Costa Rica's legal system (based on Roman law) considerably different than that of the United States (with its roots in English common law), but language differences present opportunities for serious miscommunications and misunderstandings, sometimes with grave consequences. It is strongly advisable to retain theservices of an attorney who is completely bilingual to avoid potential communication failures.

Frequent communication and effective oversight of local legal representatives are also important to ensure that steps are completed in a relatively timely manner.

While the U.S. government cannot recommend specific attorneys, a referral list of lawyers can be obtained from the Commercial Section, as well as from the Consular Section.

N. PERFORMING DUE DILIGENCE/CHECKING BONA FIDES OF BANKS/AGENTS/CUSTOMERS

Before finalizing any contract, whether it be for a sale or representation, U.S. companies are urged to obtain information on the bona fides of the foreign firm, including reliable business and financial references. The U.S. Department of Commerce offers a service known as an International Company Profile (ICP). The ICP is a confidential report on a foreign firm, providing a commercial and financial profile, including business and financial references. Well known private sector credit-reporting services also provide credit reports in Costa Rica and the Commercial Section can provide contact information to interested firms.

Copyright 1999

Note: The above information is not to be used for any other purpose other than private study, research, criticism or review. Thank you.