Services: The Other Side of Exports in the Free Trade Zone Regime and the Challenges Involved

In Costa Rica, we usually associate the free trade zone (FTZ) with the export of goods, most often medical devices. However, according to COMEX statistics, the country’s export of services has had an annual growth rate of 6%, reaching a staggering $11.79 billion in 2022, with a substantial portion of such exports centered on technology.

Costa Rica broadened its focus to fortify the services sector while actively promoting foreign investments from manufacturing companies dedicated to technology and medical devices. This success was made possible by leveraging the country’s bilingual workforce and its strategic regional positioning. Milestones facilitating this transformation include: i) the introduction of high-tech services, ii) the training of a highly qualified workforce, iii) strategic geographical positioning, and iv) the diversification of services to encourage high-tech companies to invest in Costa Rica.

However, Costa Rica’s evolution into service-focused free zones is not without its challenges. On November 16, during the BLP Free Trade Zone Leaders Forum conference, challenges currently affecting companies under the regime were discussed with members from both the public and private sectors. Noteworthy highlights include:

1. Talent Retention: With the service sector expanding, securing qualified labor has become an intensive task for new investors. The country’s ability to provide this talent consistently is a challenge, earning the government’s attention as a major concern. The government is seeking influential alliances in the private sector to address this issue collectively, emphasizing the need for collaboration between the two sectors to create an action plan.
2. Global Minimum Tax: The global minimum tax’s implementation in some countries raises uncertainties about how Costa Rica will apply this rule and its impact on the FTZ. Public sector comments align with the need for reforms and a new direction for Costa Rica’s free zone market, with the goal of collaborative decision-making with the private sector. It’s crucial to note that new changes are on the horizon, potentially bringing new opportunities.
3. Education of the Specialized Workforce: Talent retention aligns with creating a specialized workforce. The country needs to continue building diversified curricula to help train qualified employees. The government aims to transform workforce education, recognizing the vital investment made by service companies in training their workers. Collaboration between both sectors is crucial for a successful training process. The government acknowledges the pivotal role companies play in this area, contributing significantly to the country’s workforce growth.

These challenges are significant, given the substantial benefits Costa Rica has reaped through the growth of the service sector. According to PROCOMER studies, free zones generated approximately 164,000 direct jobs in 2021, with an estimated 49% employed by service companies. Service exports from the free zone have become a vital source of foreign exchange earnings. Additionally, Costa Rica’s success in attracting foreign investment has propelled economic growth and strengthened international relations. Evidence of this is the United States’ decision to partner with Costa Rica to promote and strengthen the country’s semiconductor industry.

Costa Rica’s shift from a manufacturing oriented FTZ to an innovative, highly skilled service sector exemplifies the country’s ability to transform and pursue economic growth. Capitalizing on strengths, such as investing in education, developing the workforce, and creating investment-friendly conditions, has enabled Costa Rica to become competitive in the global services industry. However, as the country and the world evolve, challenges lie ahead. Therefore, the government’s commitment to investing in this sector is prudent, aiming to maintain its competitive advantage.