[NYTr] Costa Rican Trade & CAFTA's Oct Referendum (COHA)

[All the News That Doesn't Fit]

Council on Hemispheric Affairs - Aug 14, 2007
http://www.coha.org/2007/08/14/cafta%e2%80%99s-october-referendum-a-death-sentence-for-costa-rican-foreign-investment/


CAFTA’s October Referendum: 

A Death Sentence for Costa Rican Trade &
Foreign Investment?

 by COHA Research Associate Martha Lauer 

With a little under two months until the October referendum on the
Dominican Republic-Central American Free Trade Agreement (DR-CAFTA) is
staged, time is quickly running out for Costa Rican president Óscar
Arias, elected for a second time in 2006, to gain the necessary public
support to pass CAFTA. The trade pact is strongly opposed by those who
believe that it will not help the Costa Rican economy, while being
significantly beneficial to the U.S. CAFTA is likely to supply Costa
Rica with availabilities that it does not necessarily need, nor even
seek, in the meantime, threatening the Central American country’s
fundamental business interests. Its opponents insist that the danger in
implementing CAFTA not only may threaten the future of Costa Rica’s
commercial sector which has been growing in recent years. With the fate
of CAFTA resting on public perceptions as well as massive efforts being
carried out by advocates on its behalf coming from agro-industrial
sectors and large-scale financial interests with big business, big
agriculture and the U.S. and the other industrial nations in avid
support of the pact. It is up to the opponents of CAFTA to marshal
their forces in order to convince the public that CAFTA does not serve
Costa Rica’s national interests. President Arias is a strong supporter
of CAFTA, although he is permitting his people determine its fate, as
opposed to pushing through his own agenda. He is well aware that his
own standing has been significantly hurt after he narrowly won an
election that had been largely focused on the issue.

CAFTA: NAFTA For Central America

DR-CAFTA is the Central American version of the North American Free
Trade Agreement (NAFTA); it embraces the countries of Central America,
the Dominican Republic and the U.S. CAFTA’s aim, similar to that of
NAFTA, is to “liberalize U.S. and Central American markets, creating a
free trade zone,” by eliminating tariffs on basic grains such as rice,
beans and corn.

A Troubled Beginning to CAFTA

CAFTA is perhaps unique since it is one of the few pacts signed by such
assymetrical signatories. Currently CAFTA does not include Belize, and
Costa Rica has yet to ratify the document. CAFTA’s current member
countries include the U.S., Guatemala, El Salvador, Honduras, Nicaragua
and the Dominican Republic. In spite of President Arias’ strong
deference to the Bush White House, his efforts to have his legislature
ratify CAFTA have been thwarted by opposition from important sectors of
civil society. Costa Rica has until March 1, 2008 to ratify the
agreement. When the pact goes into effect, 80 percent of U.S.
industrial and commercial goods will enter Costa Rica duty-free, with
the remaining tariffs to be eliminated entirely after 10 years. In
order for CAFTA to be successful, it requires “transparency and
efficiency in administering customs procedures,” as stated the U.S.
Government Export Portal. With its ratification and implementation in
the six current member countries, CAFTA would be the “second-largest
free trade zone in Latin America for US exports,” claims International
Information Programs.

At the onset of deliberations over CAFTA, only El Salvador was ready to
join, with the other member countries having to modify legislation in
order to bring themselves into agreement with the draft proposal. The
March 2, 2006 New York Times article, “Central American Trade Deal Is
Being Delayed by Partners,” noted that “[w]hile the delay is in part a
sign of how complex the negotiations have been, it also reflects the
extent of the concerns about the agreement in the tiny economics it
will affect.” It was at this time that domestic Costa Rican realities
were beginning to delay the ratification of the agreement. According to
the U.S. Chamber of Commerce hype, CAFTA gives “American businesses,
workers, and farmers greater access to 44 million Central American
consumers,” showing positive exports for the U.S. but not explicitly
pledging itself what benefits Central American economies are likely to
receive, or at what cost.

The Debate Brought to the U.S.

On July 25, the Economic Policy Institute (EPI) welcomed John G.
Murphy, Vice President of the International Affairs of the U.S. Chamber
of Commerce, and Ottón Solis, Costa Rica’s left-leaning presidential
candidate and staunch opponent to CAFTA, to engage in a debate over the
potential utility or detrimental effect that CAFTA would have on Costa
Rica. The proposed agreement covers virtually every category of trade
and commercial exchange among the affected countries. For Central
America, CAFTA would require market liberalization for the majority of
its goods and services, such as agriculture, manufacturing, public
services and government procurements. For the U.S., it would supply
increased market access to most economic sectors in Central America,
including textiles and a limited increase in sugar quotas.

The Vote: Uncertainty Reigns

The Costa Rican mindset appears to be ever changing regarding CAFTA.
According to a poll conducted by Universidad de Costa, as published by
Angus Reid Global Monitor on August 7, 2007, 56.7 percent of decided
voters say that CAFTA should not be ratified. This is a change from the
results published in the August 3, 2007 issue of La Nación, which
showed that the 52 percent majority would vote yes while the 42 percent
minority would vote no on CAFTA. There needs to be a minimum of 40
percent of registered voters participating in the referendum to make it
valid, and “53 percent plan to cast their ballot, which means the
outcome of the referendum will be a definite one, in either direction.”
But what these two polls show is that the population is not entirely
certain which way it will vote, with the majority shifting, but when
the referendum takes place, there will be a winner, but probably by a
very narrow margin.

Washington: Unabashedly Pro-CAFTA

Eva Carazo Vargas said in his March 8, 2007 article, “Costa Rica: Why
We Reject CAFTA,” for the Americas Program Citizen Action Focus, that
the “pro-CAFTA camp goes between promises of new opportunities and a
fear campaign- saying there will be commercial repercussions from the
United States if the agreement isn’t ratified, despite the fact that
U.S. congress members have indicated, and reiterated, that cutting off
current trade benefits is not a possible course of action.”

John G. Murphysays that CAFTA offers Costa Rica “unparalleled
opportunities” and looks to other CAFTA-approved countries as purported
evidence to prove this. El Salvador, since implementing CAFTA, has seen
its economic growth increase 68 percent, and in 2006, the economic
growth rate (including trade and investment) increased by six percent
among CAFTA members. He notes the need to create new textile apparel
markets in order to remain competitive with Asia, acknowledging that
the Caribbean Basin Initiative (CBI) is inadequate in today’s market.
According to the Office of the U.S. Trade Representative, the CBI “is
intended to facilitate the economic development and export
diversification of the Caribbean Basin economies.” The CBI provides
duty-free access to the U.S. for the 24 Caribbean Basin countries,
including the Dominican Republic, Honduras, Nicaragua, El Salvador,
Guatemala and Costa Rica.

Those Against CAFTA, Make Yourselves Known

CAFTA could have a markedly deleterious effect on Costa Rica’s
agricultural sector because relatively small-scale farmers will not be
able to compete with subsidized agricultural imports from the U.S.,
which could, it is argued, destroy Costa Rica’s rice industry. Oscar
Camps, head of the CONARROZ rice federation stated that rice is “the
only product that continues to be regulated by law.” By allowing a more
internationalized market to have access to Costa Rican products, local
farmers would be competing against U.S. producers, and CAFTA could lead
to “privatization of the state-run telephone company and hurt the
social security system,” thus losing domestic control of production.
According to The Economist’s July 12, 2007, “Trading Arguments: Costa
Rica’s Referendum on CAFTA,” “unions oppose a requirement to open up to
competition the country’s telecommunications and insurance industries,
both of which are state monopolies.” Maintaining local control over
telecommunications, though inefficient, has kept costs low, and if
international multinationals had power over the industry, this would
certainly not have been the case. What Murphy failed to stress is that
the telecommunication industry is the vehicle of choice for the deluge
of bribes to one Costa Rican president after another for recalling
kickback from foreigners controlling cell-phone and related contracts.

In order to launch CAFTA, “13 implementation bills, of which the most
controversial bills would dismantle the telecommunications monopoly and
dismantle the insurance monopoly,” would have to be put into effect,
according to Global Exchange article, “CAFTA Faces New Uncertainty in
Costa Rica with Public Referendum.” That act alone would open markets
where privately held companies would have to compete with state
monopolies, a situation that the country has been trying to shun for
many years.

Ottón Solis, founder and president of the Costa Rican Citizen’s Action
Party and who was narrowly outflanked by Arias in the last election,
heads the opposition to CAFTA. During the EPI debate, Solis stated that
the agreement is not a bilateral one and while Costa Rica, in
principle, does not object to such an agreement, he believes that it
deserves a better deal. His reasons for opposing CAFTA include the
possible lack of transparency in negotiations and failed past political
promises, insufficient parliamentary discussion and oversight and his
belief that Costa Rica will lose something substantial through CAFTA’s
implementation. Solis affirms that the substantive issue of the
international labor market is not advantageous to Costa Rica. Market
forces are performing poorly, there often are very few openings, and
the idea of liberalized immigration is not an option with CAFTA. He
believes that the U.S. places capital above all else in importance and
that CAFTA forbids performance criteria, something that Costa Rica
would like to see. Solis has declared that, while there may be
universal rules regarding some topics, in terms of economics,
“countries must be allowed to design and agree upon their own strategy
and apply it.”

The Threat of Failing to Ratify CAFTA

While CAFTA is viewed as aiding Costa Rica’s economy, both within an
international as well as domestic venue, it is being faulted for not
taking into account the fate of workers that will be adversely affected
by it. Albino Vargas, Secretary of the National Association of Public
and Private Employees (ANEP), says that, “not only will this free trade
agreement fail to generate employment, but we have shown in various
studies that it actually threatens up to 200,000 service, agriculture
and manufacturing jobs.” That is not to say that all trade unions
object to CAFTA, but rather, that they want “another kind of
deal—preferably bilateral.” This would take into account the natural
advantages that Costa Rica has over its neighbors, including its
average minimum wage of $250 per month, which is significantly higher
than that of its largely impoverished neighbors. Nevertheless, this
high minimum wage could be a potential competitive liability.

If Costa Rica rejects CAFTA, the country faces the possible migration
of the companies now housed there to CAFTA-ratified countries, as well
as the future disappearance of corporations looking to establish
Central American headquarters in Costa Rica. Without CAFTA, goods
exported by the country to the U.S. can look forward to being subject
to 35 percent tariffs. Shirley Saborío, executive director of the Union
of Private Sector Chambers and Associations (UCCAEP), which represents
Costa Rica’s private business sector in Costa Rica, stated that if
Costa Rica failed to ratify the pact, the country would be at a
competitive disadvantage in global markets. There is no alternative to
CAFTA and its indecisiveness places Costa Rica’s development at stake.
Saborío says, “what we have now is a worst-case scenario, where every
country except ours has ratified CAFTA. The pressure to cut off
unilateral benefits for a country that negotiated but did not ratify
CAFTA will be tremendous.” Furthermore, according to Murphy and other
CAFTA militants, failure to sanction CAFTA would place 73,000 jobs and
$1 billion dollars in exports at risk in Costa Rica.

Costa Rica: The Strongest Central American Democracy

Costa Rica can be seen as the most successful Central American country,
economically and socially speaking. It has the area’s highest minimum
wage and it also has the most foreign investment within the CAFTA
group. Cesar Trujillo, in the Latin Business Chronicle article “Costa
Rica Awaits CAFTA,” wrote “Costa Rica continues to be a major hot-spot
for multinational companies looking to establish their operations
centers in Central America.” Unlike other area countries, Costa Rica is
a constitutional social state that invests in healthcare, insurance,
education, energy and telecommunications and has a much more balanced
and successful society than the CAFTA-ratified countries. The October
referendum “opens the possibility that Costa Rica might well reject the
deal altogether,” which Costa Rican President Arias is allowing the
people to debate so that the country could decide its future. This
referendum makes Costa Rica the first country to hold a popular vote on
the issue rather than having a legislative body approve or reject the
trade pact.

Other CAFTA-ratified countries, such as El Salvador, have done so
because of what theu hope to achieve through the pact with respect to
broader relations with the U.S. But Costa Rica has a better constituted
economy than the area’s other countries and is widely considered to be
Central America’s oldest and strongest democracy. While Costa Rica is
currently more economically secure than the other member countries,
which would make it appear to be better positioned to deal with these
various problems as well as the beneficent prospects of an expanded
CAFTA-DR, many fear that the country’s social security and health care
system could still be undermined through CAFTA. Solis has stated that
rejection of the pact, rather than signing onto CAFTA, would strengthen
Costa Rica’s position rather than weakening it.

What Ratifying CAFTA Would Signify To Other Democracies in the World
Murphy states that many countries want to be part of an FTA and that
Costa Rica’s rejection of CAFTA will not change the desire of some
developing economies to join them. But if Costa Rica backs away from
adhering to CAFTA, it will “set off warning bells,” seeing that it had
previously been one of the initial countries seeking an FTA with the
U.S. and because it was an active participant all along in the CAFTA
discussions. While Peru and the U.S. renegotiated their FTA, it did not
set a precedent, because the U.S. amended the agreement before it was
passed. But in the case of CAFTA and Costa Rica, other countries
already have implemented CAFTA, and Costa Rica now insists upon further
discussion it to make the agreement more amenable to its basic
interests, an act which would be a violation of CAFTA’s ground rules
regarding the negotiation process.

What Murphy failed to state in the July 25 debate, Is CAFTA Good For
Costa Rica?, were concrete reasons how CAFTA would be able to help
Costa Rica. He brought up past examples of what CAFTA has done for
other countries, such as El Salvador, but he failed to mention that
economically, as of now, that El Salvador falls far behind Costa Rica.
If Costa Rica were in a position where it was in pressing need of help
to attract more foreign investment and to expand its economy, CAFTA
would be a sensible next step, but as a country not particularly in
need of such help, Costa Rica might better serve its cause by
continuing to act independently and waiting for certain CAFTA
provisions to be more usefully renegotiated.

However, Murphy did insinuate that Costa Rica should be less apathetic
about adhering to CAFTA, because of the fact that it could lose the
physical presence of current and potential new international companies
if it rejects the agreement. But, if Costa Rica accepts CAFTA due to a
fear of losing business, it would set a worrisome precedent for
U.S.-Costa Rican relations. In the two years between the initial
drafting of CAFTA and its implementation, Costa Rica’s economy has
boomed and it would be unwise for its planners to settle for an
agreement that may not be mutually beneficial. If Costa Rica ratifies
CAFTA as it currently stands, it shows that the U.S. is able to
intimidate a small, less developed country through pressure and bully
tactics that lead to decisions that are not necessarily in the
country’s best interests.

Current Legislative Conflicts with CAFTA

The Supreme Elections Tribunal (TSE) has decided, with regards to
CAFTA, that instead of voting in the National Assembly where pro-CAFTA
members have a majority, there will be a nationwide referendum. The TSE
postponed the national referendum from September 23, 2007 to October 7,
2007. The high court will want to examine whether the assembly violated
its procedures in its handling of legislation in relation to the pact
and whether CAFTA violates the country’s constitution. If the justices
of the Constitutional Chamber of the Supreme Court (Sala IV) find
errors in procedure, the Tribunal would have to call off the referendum
and, in that eventuality. The country would not have the opportunity to
approve CAFTA in its present shape.