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Viewing cable 09SANJOSE11, COSTA RICA CREEPS INTO CAFTA
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Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
09SANJOSE11 | 2009-01-09 22:35 | 2011-03-02 16:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy San Jose |
Appears in these articles: http://www.nacion.com/2011-03-02/Investigacion.aspx |
VZCZCXYZ0000
PP RUEHWEB
DE RUEHSJ #0011/01 0092235
ZNR UUUUU ZZH
P 092235Z JAN 09
FM AMEMBASSY SAN JOSE
TO RUEHC/SECSTATE WASHDC PRIORITY 0399
INFO RUEHZA/WHA CENTRAL AMERICAN COLLECTIVE PRIORITY
RUEHDG/AMEMBASSY SANTO DOMINGO PRIORITY 1616
RUEATRS/DEPT OF TREASURY WASHINGTON DC PRIORITY
RUEHRC/DEPT OF AGRICULTURE WASHINGTON DC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHINGTON DC PRIORITY
RHEHNSC/NSC WASHDC PRIORITY
UNCLAS SAN JOSE 000011
SENSITIVE
SIPDIS
DEPT FOR WHA, WHA/CEN, WHA/EPSC AND EEB; PLEASE PASS TO
USTR AMALITO AND DOLIVER; TREASURY FOR SSENECH
E.O. 12958: N/A
TAGS: CS EAGR ECON ETRD KIPR PGOV PINR PREL
SUBJECT: COSTA RICA CREEPS INTO CAFTA
REF: SAN JOSE 959 AND PREVIOUS (NOTAL)
¶1. (SBU) SUMMARY: Nearly six years after negotiations
began, CAFTA-DR entered into force for Costa Rica on January
1, achieving a major policy objective of the USG, the Arias
administration and the Embassy. Although the end-year
holidays muted the headlines, there was some
(characteristically) last-minute political drama, including
the legislature,s vote to approve the membership of the new
telecommunications board (SUTEL), and appeals from President
Arias (to the Ambassador) and Minister Arias (to the
Secretary) to forgo the 2010 tariff rate quota (TRQ) holdback
on sugar that will go into effect if the GOCR does not enact
an IPR technical corrections bill in 2009. Economically,
CAFTA EIF may have come just in time to help soften the
impact of the US financial crisis on Costa Rica.
Politically, EIF means the national legislature faces a
virtually CAFTA-free zone for the first time since October
2005, freeing the Arias administration (in theory) to
concentrate on other priorities such as fighting crime and
improving infrastructure. CAFTA,s completion should also
disarm the PAC-led opposition, which has focused almost
exclusively since 2006 on stopping CAFTA. The CAFTA
telenovela remains a case study in dysfunctional democracy;
the agreement required a national referendum and over three
years of on-again, off-again legislative action during two
Costa Rican administrations to come to fruition. END
SUMMARY.
----------------------------------
YES, IT IS REALLY OVER
----------------------------------
¶2. (U) It ended with a whimper, not a bang. On December 23,
as the USG began to shut down for the holidays, and after the
GOCR had already started its two-week holiday hiatus, POTUS
signed the requisite proclamation, the two sides quietly
exchanged diplomatic notes (in the Department cafeteria), and
the Costa Rican Embassy deposited the notes with the OAS in
Washington. In a statement issued the same day, USTR Schwab
was "pleased to celebrate the entry into force of this
important multi-country agreement," which marked "an
important milestone in our relationship with Costa Rica."
¶3. (U) GOCR statements were no less glowing. COMEX Minister
Ruiz noted that "finally, the Arias administration is
fulfilling the popular mandate given the government in the
referendum of October 7, 2007." He added that with CAFTA
EIF, Costa Rica was "in a strategic position to compete in
the international market." Minister of the Presidency
Rodrigo Arias expressed his "enormous satisfaction,"
stressing that "it is time to send positive signals to the
rest of the world about our capacity to work together," and
to "demonstrate our seriousness as a country to take
decisions, and our determination to participate in the
globalized world with excellence and success."
¶4. (U) The good news generated large headlines in leading
(and pro-CAFTA) daily La Nacion on December 24. Other
year-end coverage, although positive, reminded readers of the
length of this ordeal, which began with negotiations in
January 2003, moved to the Asamblea (national legislature) in
October 2005 (after five other CAFTA partners had already
ratified), witnessed the first national referendum on a trade
agreement (and the first-ever referendum in Costa Rica) in
October 2007, and required extensions in February and
September 2008 to reach completion. (COMMENT: For those
keeping score, since signing in August 2004, Costa Rica spent
more time "fighting" for CAFTA than the United States spent
fighting WWII. END COMMENT.) The media also noted the
financial cost; over USD 850,000 in overtime pay and copying
costs for the Asamblea alone (not to mention the cost to
exporters -- primarily in the beleaguered textile industry
--who lost opportunities and orders while waiting for EIF).
--------------------------------------------- ------
BUT NOT WITHOUT SOME (MORE) DRAMA
--------------------------------------------- ------
¶5. (SBU) There was plenty of last-minute political drama as
January 1 drew near, however. On December 10, Minister Arias
was a surprise participant in the Pathways to Prosperity
Summit in Panama, joining FM Bruno Stagno and Minister Ruiz
in their "pullaside" with the Secretary. His mission
(according to COMEX sources): to ask that their be no
"penalty" (i.e., no holdback) for Costa Rica,s completion of
a needed IPR technical corrections bill after the January
2009 EIF target. (COMEX and USTR had been discussing a
possible -- and generous -- TRQ holdback on sugar, which
would only go into effect if the GOCR could not complete the
last law by 2010.) In an interview upon his return from
Panama, Ruiz quickly (and incorrectly) characterized the
Secretary,s politely non-committal response as clearing the
way for a condition-free EIF.
¶6. (U) On December 12, the Asamblea rejected two of the four
names proposed for the new Superintendency for
Telecommunications (SUTEL), the oversight board required for
full CAFTA implementation. This ignited a political and
legal firefight which put EIF in question until the last day
of the legislative year, December 19. One of the two
candidates rejected was from the Arias administration,s PUSC
party pro-CAFTA allies. The dumped PUSC nominee challenged
the legislature,s actions in the Constitutional Court (who
rejected the case out of hand), but, backed by the Court,s
refusal to hear the case, the Asamblea leadership was able to
bend procedural rules enough to permit brief debate and swift
(but last-minute) approval of two replacement nominees.
(NOTE: The SUTEL board was sworn in on January 5.)
¶7. (SBU) Adding to the tension, the GOCR placed the IPR
technical corrections bill on the legislative agenda December
15, prompting multi-party criticism of COMEX for its lack of
transparency and for not launching the final bill sooner; a
few (mostly opposition) members even called for Minister Ruiz
to resign. For his part, Ruiz explained that the last bill
was not required for EIF (it would have never been approved
in time, anyway) and was intended simply to correct three
"material errors" in CAFTA-related IPR legislation. COMEX
staff confided to us that they would have launched the last
bill sooner, but were waiting for the SUTEL vote to be
completed. Miffed pro-CAFTA contacts in the legislature
confirmed to us that COMEX had told them nothing about the
last bill until it was placed on the agenda.
¶8. (SBU) The furor had faded by Christmas week, with the
SUTEL board approved, the final CAFTA-related regulations
promulgated and the agreement letters on insurance,
telecommunications spectrum allocation and the TRQ holdback
signed, but President Arias threw one last curveball. In a
call to the Ambassador on December 22, Arias claimed that the
planned TRQ holdback was a "surprise" to him, and he reprised
Minister Arias, request not to "penalize" Costa Rica for at
last entering into force with nearly all the implementation
requirements met. The Ambassador responded that the
proclamation which would mark EIF for Costa Rica was ready
for White House approval. The choice was thus to pull it
back, if that could be done at all, likely forcing the GOCR
to ask for yet another EIF extension, or to let things stand
and proceed to EIF as planned, with the holdback. Faced with
those options, Arias backed down.
--------------------------------------
THE DETAILS OF THE DEAL
--------------------------------------
¶9. (SBU) Once the SUTEL vote secured membership for the four
nominees, the "deal closing" narrowed to a commitment letter
and two side letters. The commitment letter described the
terms for the GOCR,s entry into force predicated on the
passing of the technical corrections bill (addressing the
three outstanding IP issues, see Reftel). The three
corrections represented USTR,s final position in a process
that started with 20 issues and ultimately focused on three,
all having material legal consequences counter to CAFTA. In
addition, we learned that USTR requested a small modification
to the technical corrections bill which will require an
amendment by a cooperative legislator in the national
assembly.
¶10. (SBU) The GOCR has until January 1, 2010 to pass the
technical corrections bill. If it does not, the USG can
exercise a condition to &withhold and/or suspend the
application of benefits under the CAFTA-DR to Costa Rica to
such extent as the United State deems appropriate.8 During
the drafting of the commitment letter, USTR and COMEX
discussed the holdback of tariff rate quotas for sugar
(though not specified in the letter itself). If the GOCR
passes the technical corrections bill (and it meets USTR,s
approval) prior to January 1, 2010, any withholding or
suspension of benefits becomes a moot point. The side
letters address Costa Rica,s state insurance guarantee
(pledging no competitive advantage for the state insurance
entity INS) and a schedule for allocating telecommunications
spectrum.
--------------------------------------------- --
THE GOCR: LOWER EXPECTATIONS; LOOK AHEAD
--------------------------------------------- --
¶11. (U) Despite the criticism against him, Ruiz was
comfortable enough (and the Arias team obviously comfortable
enough with him) to give in-depth interviews about the year
ahead which were published on New Year,s Day. Ruiz set out
to lower expectations. In light of the U.S. financial
crisis, he predicted that CAFTA would help Costa Rica keep
jobs and maintain exports, instead of generating major growth
in either. He noted that the export sector directly or
indirectly generated over a million jobs in Costa Rica, and
that even with the global and regional downturn, exports were
estimated to have grown five percent in 2008. CAFTA should
help that trend continue. Ruiz described CAFTA as but one
tool to help Costa Rica improve its competitiveness, and he
looked forward to building on CAFTA by completing
FTA/association negotiation agreements with the EU and China.
¶12. (U) Others in the export sector echoed Ruiz,s muted
optimism. Edgar Herrera, Executive Director of the LAICA
sugar cooperative lauded Costa Rica,s higher quota under
CAFTA, which would permit annual exports of over 13,000 MT at
preferential prices. Gabriela Llobet, Director of CINDE (a
quasi-governmental investment development entity), described
the growth in high-tech and service sector employment in
Costa Rica in pre-CAFTA 2008, despite the financial crisis.
With EIF, the outlook for those sectors should remain fairly
bright. CABEI chief economist Pablo Rodas cautioned in the
media that CAFTA would not produce "an economic miracle," but
coupled with the policies already in place, should continue
to attract (and perhaps increase) FDI to Costa Rica. La
Nacion editorialized on December 28 that although CAFTA
brought "undoubtedly positive potential" for development, it
was "just one more step" toward full development; much work
remains to be done.
--------------------------------------------- -----
THE OPPOSITION (AND THE COALITION): NOW WHAT?
--------------------------------------------- -----
¶13. (SBU) The biggest short-term changes generated by CAFTA
completion may not be economic, however, but political. Both
the GOCR and the opposition are facing a (virtually)
CAFTA-free political landscape in 2009. This should allow
the Arias administration to focus on other legislative
priorities set aside/slowed during the CAFTA epic, including
completing the pending domestic security and anti-organized
crime legislation, approving the USD 850 million IDB
infrastructure loan, overhauling concessions laws (which
should help with the infrastructure projects), and according
to Minister Arias, having a better dialogue between the GOCR
and the legislature. Without the centrifugal force of the
CAFTA fight, however, the Arias team may face increasing
distractions leading to legislative inertia as the
campaigning heats up for the 2010 national elections. The
SUTEL struggle and PUSC criticism of the organized crime bill
suggest that the fissures will continue to grow in the old
pro-CAFTA coalition. Both the PUSC and the Libertarian Party
(ML), another erstwhile coalition member, are already
describing themselves as &opposition8 parties going into
¶2009.
¶14. (SBU) And what about the PAC-led CAFTA opposition? They
begin 2009 with their primary platform OBE,d. Since
October, PAC leader Otton Solis has claimed to have
widespread Democratic support in the U.S. Congress (and in
the region) to "renegotiate" CAFTA, and he visited Washington
in November to make his case. However, backed by
well-informed sources such as STAFFDEL Meacham, who visited
Costa Rica in December, we have quietly made clear to
legislative contacts that the new U.S. administration is
likely to focus on many other, much higher-priority issues
before turning to CAFTA, if at all. The word may be
filtering back to Solis, who conceded to interviewers last
week that with CAFTA now a fact, his/PAC,s time might be
better spent focusing on the (so-called) CAFTA-complementary
agenda: improving education, infrastructure and
competitiveness. Solis is not likely to easily relinquish
his attacks on the Arias administration, however.
¶15. (SBU) Like their party leader, the PAC faction may also
be slow to truly back down. On December 18, the faction
wrote Speaker Pelosi to allege that three of the CAFTA
implementation laws (on telecom, trademarks and the UPOV
treaty) had been improperly approved by the Constitutional
Court, and to report that the PAC was consequently legally
challenging those laws on technical grounds. (COMMENT: A
more detailed report on this was emailed to WHA/CEN and H on
December 30. We do not expect this after-the-fact technical
challenge to go far, but it highlights that some in the PAC
have not yet given up. END COMMENT.) Meanwhile, the most
radical anti-CAFTA groups, who don,t necessarily support
Solis and the PAC, have been largely silenced by EIF,
although they still insist that the October 2007 referendum
(and even Oscar Arias, 2006 election victory) were "rigged".
--------------------------------------------- ---
COMMENT: LESSONS IN DYSFUNCTIONAL DEMOCRACY
--------------------------------------------- ---
¶16. (SBU) The Arias administration can look back at 2008 with
a sense of accomplishment and a sigh of relief. CAFTA, which
became the centerpiece of Arias, agenda, has finally entered
into force, and the once-sacred, state-run monopolies on
insurance and telecommunications will now be opened to
competition. If the GOCR could show enough discipline and
focus to enact 58 laws in 2008, including 13 to implement
CAFTA, they should be able to complete the single IPR
technical corrections bill fairly quickly. (On January 7, in
fact, Asamblea President Francisco Pacheco publicly
predicted smooth passage for the new law.) Completing CAFTA
did show what can be done here, with determination and focus.
We may point to the inordinate and repeated delays in
getting to EIF, but this was a Herculean task for the Tico
political system, and another historic accomplishment for an
Arias administration.
¶17. (SBU) The CAFTA saga has prompted more thoughtful
examination of Costa Rica,s hyper-legalistic and largely
dysfunctional democracy, which could eventually prompt some
badly-needed reform. Supreme Court President Luis Paulino
Mora acknowledged to the media at year,s end that the legal
framework which permits the Constitutional Court to review
thousands of issues each year (including the CAFTA laws and
CAFTA itself in 2007-2008) may require adjusting. "Political
problems should be solved according to political criteria,"
he said, and not always by legal and constitutional means.
Minister Arias himself ended 2008 floating the idea of a
constituent assembly to modernize Costa Rica,s archaic
political and legal system. Key legislators are again
talking of revising and streamlining parliamentary procedures
to avoid the mountains of motions which slowed CAFTA. We'll
see. Change of any sort does not come quickly or easily in
Costa Rica, and with national elections just 13 months away,
it will be tempting to toss any radical efforts to the next
administration (and beyond).
¶18. (SBU) And what will we do with all our "free time" now
that CAFTA is completed? EIF closes the major chapter, but
not the entire book; CAFTA "implementation management" will
also take time and energy. Working with the GOCR, we will
highlight the benefits of CAFTA, keep expectations realistic
and help U.S. companies take full advantage of the agreement.
We will also continue to work with the GOCR on the "next big
thing," the Merida Initiative, plus other aspects of domestic
security and law enforcement, and continued capacity-building
across ministries. There is plenty left to do as we help
Costa Rica,s democracy better deliver for its people.
CIANCHETTE