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Costa Rica Requests DR-CAFTA Talks with U.S. on Elimination of Ethanol TRQs

Monday, April 07, 2014
Sandler, Travis & Rosenberg Trade Report

The government of Costa Rica has requested formal talks with the U.S. on its elimination of a tariff-rate quota providing preferential access to the U.S. market for fuel-grade dehydrated ethanol from Costa Rica.

A March 31 letter from Costa Rica’s foreign trade ministry to U.S. Trade Representative Mike Froman asserts that under DR-CAFTA the U.S. guaranteed allocations under this TRQ “for the exclusive use of Costa Rica and El Salvador.” Specifically, the U.S. in Annex 3.3 agreed to extend to these two countries the ethanol import tariff and quota benefits granted to beneficiaries under the Caribbean Basin Economic Recovery Act. Costa Rica claims that Annex 3.3 “locks in” TRQ allocations for itself and El Salvador as part of a trade agreement and that Annex 4.1 codifies the CBERA rule of origin for quota-eligible dehydrated ethanol.

Costa Rica is charging the U.S. with violating its commitments under DR-CAFTA by (a) construing the guaranteed benefits as unilaterally terminable by the expiration of CBERA, (b) failing to renew the tariff schedule provision providing for the ethanol TRQ without consulting Costa Rica or other DR-CAFTA parties, (c) unilaterally changing the rules of origin for previously eligible dehydrated ethanol exports to receive duty-free treatment, and (d) imposing a 2.5% duty when foreign feedstock is used in ethanol production. The letter claims that these actions “have clearly nullified or impaired” benefits that Costa Rica reasonably expected would continue, are inconsistent with DR-CAFTA’s promise of a “predictable commercial framework for business planning and investment,” and are continuing to cause financial harm to Costa Rica.

Under the DR-CAFTA dispute resolution procedures, the U.S. and Costa Rica will now have 60 days to hold consultations, which any party with a substantial trade interest in this dispute may ask to join. If those talks are unsuccessful, Costa Rica may request a meeting of the Free Trade Commission, which is composed of cabinet-level representatives of the two sides. If the Commission also is unable to reach an agreement, Costa Rica could request the establishment of an arbitral panel made up of three panelists selected from a roster created by the two sides.

Costa Rica has engaged Sandler, Travis & Rosenberg, P.A., to assist it in this dispute.

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