Costa Rica v. El Salvador: Outcome of the First Treaty Arbitration under CAFTA-DR

by Aracelly López

 

When Costa Rica requested El Salvador to honor the customs benefits -tariff reduction program- agreed under the CAFTA-DR Treaty for goods originated in Costa Rica, including those produced under special exportation regimes (such as corporations operating under a Free Trade Zone Regime), El Salvador argued that these benefits applied only to the United States of America since, for Central American countries, the General Treaty on Central American Economic Integration (The Guatemala Protocol) applied, and refused Costa Rica’s request.

According to Chapter 3, Article 3.3 of the CAFTA-DR Treaty, the signatory countries had to apply a tariff reduction program to goods both originated in a signatory country and produced by corporations operating under special exportation regimes. Section 2 of this Article states that each party shall progressively eliminate its customs duties on originating goods, however, El Salvador failed to do so. The dispute arose when El Salvador taxed products such as tires and fruit juice concentrates imported from Costa Rica at a 10% and 15% rate, respectively, although both countries had agreed that these products would be taxed at 0% under the CAFTA-DR.

 

Costa Rica requested arbitration in January 2014, pursuant to Chapter 20, Articles 20.5 and 20.6, of the CAFTA-DR Treaty, after both parties had unsuccessfully attempted to conciliate the matter amicably through the proceeding established in Article 20.4.

 

The arbitral process was swift and efficient – in April 2014, the arbitral panel was constituted, the parties filed their written arguments in May, and the arbitral panel rendered its award in November 2014 (the award can be found, in Spanish, at: www.comex.go.cr/tratados/vigentes/cafta/Casos/2014-11-18%20Informe%20Final%20.pdf).

 

The arbitral panel ruled in favor of the Costa Rican Government, finding that the customs privileges under the CAFTA-DR treaty must benefit not only American corporations, but also corporations incorporated in all signatory countries, thus promoting free trade between all the countries in the region.

 

This award demonstrates not only the far-reaching effects of the CAFTA-DR Treaty, but also the efficacy through which arbitration can resolve State-to-State disputes.

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