BizCLIR

A. THE FOUR-PART ANALYSIS

The four-part analysis of the 13 subject-matter areas addressed in this report not only allows for a multidimensional understanding of specific CLIR and trade-related challenges but also creates the basis for certain general themes to emerge. The analysis consists of the following:

• Legal Framework. The assessment first examines the laws and regulations that a country has in place that serve as the structural basis for its ability to achieve market-based development. Often discovered through this review are opportunities to make relatively small changes that may result in significant openings for business development and expansion.
• Implementing Institutions. Next, the assessment examines the administrative bodies with primary responsibility for implementation and enforcement of the legal framework and subsidiary laws, regulations, and policies governing one or more areas addressed in this report. For example, courts are usually a crucial institution in the examination of CLIR. Here, problems uncovered often relate to bureaucratic inefficiency, lack of resources and training, and real or perceived corruption. With respect to the flow of goods, services, and people, Customs and Immigration authorities are the chief implementing institutions.
• Supporting Institutions. The assessment then considers the environment of firms, individuals, or activities without which the legal framework or policy agenda cannot be fully or efficiently developed, implemented, or enforced. Examples include notaries, bailiffs, trustees, banks, consumers groups, business support organizations, professional associations, and other similar ancillary service providers. Of particular interest with respect to supporting institutions is whether they have any meaningful involvement in what the law says. Where a “buy-in” from affected constituencies has occurred, a law is more likely to be understood, to be used properly, and to achieve its purpose.
• Social Dynamics. Although the first three dimensions of the assessment examine what is present or lacking in the CLIR and Trade environment, this fourth area for review looks at why. Studying social dynamics entails asking whether the affected constituencies of a law or policy perceive a need for change, and, if so, how they are demonstrating this need. Are they effectively lobbying those institutions that can make a change? Is the media seizing the issue as a topic of public concern? Are individuals speaking out? Or, have social dynamics taken a less positive approach—for example, is the “gray economy” growing as a response to over-burdensome conditions for market entry? Are companies and individuals simply paying the bribes, large or small, that are asked of them rather than seeking action from higher authorities? Analysis of social dynamics may affect how an assistance project is ultimately designed. Where outside participation is strong and public understanding high, a reform program may simply involve a relatively small number of government officials who are capable of meeting the demands. In contrast, where mistrust and misunderstanding are abundant, an approach that involves significant engagement of “end users” will likely be necessary.

B. NEEDED: IMPROVED PROFESSIONALISM, BETTER INFORMATION, AND MORE ACCOUNTABILITY THROUGH TECHNOLOGY

Against this backdrop, certain cross-cutting themes emerged with respect to CLIR and Trade in Costa Rica. It is important to consider and incorporate these themes, but not necessarily through stand-alone initiatives. Rather, it would be prudent to address these cross-cutting themes within the context of any legal reform undertaken, as further detailed below.

1. Professionalism
Although there is no shortage in Costa Rica of trained, competent professionals, it is clear that individuals in positions of authority must be better challenged to make a more meaningful professional contribution. Common sense dictates that situations that are misguided, inept, or inappropriate should not be defended; they should be changed.
For example, in the areas of bankruptcy and collateral law, it was observed that case decisions written by judges regularly exhibit a rigid adherence to procedural formalism that ultimately complicates or obscures the framework for commercial activity, rather than clarifying or assisting it. Although the judges in these instances may succeed in dutifully expounding on the letter of the law, they often have failed to account for the laws’ purpose, which—with respect to collateral and bankruptcy, in particular—is to guide individuals through various phases of their business. Although judges obviously cannot assume the law-making role of legislators, it is well within the international legal tradition for cases to solve problems rather than create new ones. At the very least, Costa Rican judges could be more mindful of calling attention to legislative deficiencies when they are forced to render a decision that obstructs future economic activity for prompt resolution by the Legislative Assembly.

Similarly, a degree of bureaucratic stagnation has emerged in certain institutions that are quite clearly capable of performing better. SUGEF, the institution responsible for managing insolvent lending institutions, has a policy of restricting “interventors” who oversee banks on the edge of bankruptcy to its own personnel. Yet, SUGEF has an undistinguished record of saving banks from liquidation or using creative means (e.g., combining institutions through “shotgun marriages”) to make new, improved lending institutions. Without the challenge of identifying qualified people who might handle the problem better, the mediocrity of this system is preserved.

In another instance, it is widely agreed that the Commercial Registry is badly in need of restructuring and technological improvements. Lack of financial resources is constantly mentioned as a cause for the Registry’s problems. However, according to knowledgeable sources interviewed during the assessment, the Registry has funds in excess of $1 million that are available and can be used to undertake reforms. An absence of leadership by people who are capable of doing more seems to be at the crux of the problem.

The Customs Service holds another example of bureaucratic inefficiency that warrants prompt attention and meaningful action. As a result of interviews conducted during the assessment it was learned that sixty Customs officers are assigned to Puerto Limón, including technical and administrative personnel, whereas 120 officers staff the airport. Yet 80 percent of international trade transits through Limón. To demonstrate the impact of staffing inequalities, import cargo at the northern land border post of Peñas Blancas is usually released within 1 hour after presentation of the documents to Customs, whereas the standard for Limón is two days. To the extent that labor union influence is at the heart of this problem, those unions must be drawn into the national conversation about trade promotion in Costa Rica.

Moreover, throughout the assessment process, corruption was cited not as an overwhelming, systemic problem that permeates all levels of commercial activity but as a more subtle aspect of the business process that persists at a low but constant and pernicious level. Effective efforts to root out speed money or unsanctioned processing fees in certain institutions (e.g., Registries, the Customs Agency, or even the courts) should be launched. Costa Rica has the capacity to identify and prosecute individuals engaged in corruption; more aggressiveness in doing so at the lower levels would send a message to all affected groups that such interference with the business process will not be tolerated.

Why do people and institutions stagnate, procrastinate, avoid confrontation, or obstruct? Often, the answer lies in either fear of proposing and standing behind meaningful change or fear that the proposed change might fail. Or, resentment over a perceived overabundance of foreigners or other reservations about foreign influence might be the issue. Costa Rica’s failure to effectively prosecute widespread fraud against foreigners is an example of how ambivalence over foreign investment may undermine the national economy and in fact drive investment away. Programs of assistance should directly speak to these issues and examine what can be done to alleviate them.
There are various means that reform programs can use to confront and address tendencies toward stagnation or institutional ambivalence, including programs that underscore the true meaning of professionalism. Namely, professionals from all dimensions of the CLIR and Trade communities could be encouraged to view their work as not simply a series of procedures to follow but as an opportunity to solve problems, serve the public, and make a difference. Through strengthened professional organizations, improved access to and quality of continuing education, collective development of codes of conduct, and increased public understanding of what they are entitled to expect, Costa Ricans in positions of authority can be encouraged to do better. Similarly, in the private sector, successful business leaders should be challenged to set an example for improved systems of corporate governance through better accounting practices, more efforts at transparency, and stronger protections of minority shareholders.

Although Costa Rica boasts a highly competent workforce, there is significant room for improvements that would increase the knowledge base of professionals and therefore guide them toward better service and stronger performance. As detailed in this report, the system of educating lawyers is in great need of reform. Increasing the standards for entering the profession would likely result in fewer lawyers but, in turn, more effective and efficient representation. Judges require significant continuing education in areas pertaining to commercial activity, particularly with respect to modern types of commerce and newer laws, such as the competition law, potential laws pertaining to modern contracts or electronic commerce, and laws concerning money laundering. In addition, within almost all of the implementing agencies related to CLIR and Trade, such as the Customs office or the consumer protection agency, more and better training was identified as a need.

2. Information
There is a severe shortage in Costa Rica of the kind of information needed for facilitating rapid, trustworthy economic activity. Because of the virtual absence of principles of sound corporate governance, the available information specifically pertaining to businesses and investment in Costa Rica is perilously opaque. In addition, sources of information that state institutions should supply with reliability are not effectively maintained.

Examples of the poor supply of information are as follows:
• For the majority of corporations, which are closely held, an accountant trained in International Accounting Standards is not responsible for the substance of the information included in the company’s accounting records. Rather, the accountant typically sets forth the information as provided by the company’s administrators with no independent judgment. Thus, investors rightly lack confidence in most of the financial information available from the companies.
• The National Registry of Costa Rica maintains databases of information such as debtors’ defaults, company insolvency, and adverse lawsuits. Although the National Registry has sold its data to private firms in the past, it has suspended such sales until the Congress enacts a law determining the lawful uses of this information. In the meantime, access to this important information is difficult.
• With respect to the property regime, there is significant inconsistency between the legal information found in the Real Property Registry and the Cadastre. This creates numerous problems, such as difficulties determining the size, value, and boundaries of property and double title.
• Because no integrated IT system exists for all the regulating public agencies to track performance of either a company or product, reliable traders with a history of compliance cannot be identified for expedited treatment by the Customs agency.
The dearth of reliable information pertaining to the soundness of business enterprises and the authenticity of economic opportunities is a serious problem in Costa Rica. The opportunity for fraud against investors is significant. The chances of economic downturn when realities that had previously been concealed are revealed are increased. Thus, the law and legal institutions should be used in Costa Rica to improve information reliability and availability.

3. Accountability Through Technology
Certain of Costa Rica’s trade-related institutions, including the banks and the Immigration Agency, use technology in a relatively up-to-date manner. Electronic money transfers and machine-readable passport machines are examples of important electronic updates that facilitate trade. The Customs Agency, though behind in its use of technology, seems at least to hold an understanding of what it needs to do to become current and anticipates improvements in the near term. Significantly, Customs officers reported that donating agencies have assisted by providing necessary technology but have failed to ensure that Customs officers receive the proper training on how to use the new systems.
Technology seems to be dramatically underutilized and misunderstood, on the other hand, in the commercial legal and institutional sectors. Although websites are proliferating as an information source, many government institutions that could provide helpful information to citizens, companies, and investors have fallen behind in the use of technologies that should be well within their grasp. For example, the Commercial Registry is partially automated; however, a significant amount of information is contained in written folders, and the process for transferring this information into computer databases is poorly managed and slow.

In particular, technology should be part of an overall strategic change in all courts. Access to legal information by court officials should be enhanced by automated mechanisms. The public should have access to updated information on existing cases, existing laws, and previous decisions. With better technology, accountability of all institutions will be improved. Opportunities for corruption are necessarily diminished when individuals have less opportunity for discretion over what is given and what is received.