US embassy cable - 05SANJOSE2231

UNCLAS SECTION 01 OF 04 SAN JOSE 002231 
 
SIPDIS 
 
SENSITIVE 
 
WHA/CEN 
EB FOR WCRAFT, BLAMPRON 
E FOR DEDWARDS 
WHA/EPSC FOR KURS, LGUMBINER 
STATE PASS TO USTR FOR RVARGO, NMOORJANI, AMALITO 
 
E.O. 12958: N/A 
TAGS: ETRD, ECPS, ECON, PREL, PGOV, SOCI, CS 
SUBJECT: COSTA RICA: THE COMMISSION OF EMINENT PERSONS 
REPORT 
 
REF: SAN JOSE 2202 
 
1.  (SBU) Summary: On September 20 the presidential-appointed 
Commission of Eminent Persons (the &Notables8) exited the 
stage in a notable way; after 60 days of analyzing CAFTA-DR, 
they made no judgment about whether or not the treaty should 
be approved.  The Commission, however, appeared to be 
unconvinced of the intrinsic merits of CAFTA-DR, stating that 
the agreement will only be positive if the country is able to 
make &profound8 structural changes in political, social, 
and administrative areas.  The initial reaction in the press 
is well summarized by the headline in La Prensa Libre: 
&Doubts About CAFTA-DR Continue8.  Our pro-CAFTA-DR 
contacts were disappointed.  End Summary. 
 
------------------- 
Decidedly Undecided 
------------------- 
 
2.  (SBU) The commission appeared to be unconvinced of the 
merits of CAFTA-DR stating that the agreement will only be 
positive if the country is able to make &profound8 
structural changes in political, social, and administrative 
areas.  The 69-page report is emphatic on the need for the 
GOCR to bring to fruition a strong complementary agenda and 
CAFTA-DR-implementing legislation.  (Note:  Doing this is no 
small task as it will require many legislative projects 
(time) and resources (human and money). 
 
3.  (SBU) Costa Rican themes of solidarity, universality, and 
egalitarianism are woven throughout the report.  The document 
is also heavy on reminding the reader that Costa Rica is NOT 
a developed country and should not be held to higher 
standards in certain areas such as intellectual property 
rights (IPR).  The asymmetry between the economies of the 
U.S. and Costa Rica thus is also a theme and is used to 
strengthen the argument that Costa Rica needs to make 
profound changes in order to prosper under CAFTA-DR. 
 
4.  (SBU) The report, with a few exceptions, gives equal time 
to both sides and resolves little.  However, the report does 
give clear guidance on the same three points that Antillon 
covered in the news conference (reftel), namely: 
 
- It doesn,t matter if CAFTA-DR is referred to as a treaty 
or an agreement, the results are the same.  Additionally, as 
one of the Commission members stated in the September 20 
press conference, it is clear that the U.S. Congress,s 
approval of the CAFTA-DR implementing legislation meets the 
Vienna Convention requirements regarding international 
agreements. 
 
- Costa Rica is able to withdraw from the agreement if it 
desires. 
 
- Renegotiation is not possible since several countries have 
already approved CAFTA-DR.  However, the report does mention 
two possible means to effect changes after implementing 
CAFTA-DR -- by amendment via Article 22.2 of CAFTA-DR and the 
other utilizing Article 31 of the Vienna Convention. 
 
This last point plays into the hands of presidential 
candidate Otton Solis by creating a false hope that the Costa 
Rican Legislative Assembly can make unilateral 
interpretations on some of its commitments that could correct 
&errors8 made by the negotiators. 
 
5.  (SBU) A good example of the report,s ambiguity is when 
it recognizes the importance of trade in attracting foreign 
direct investment (FDI) from the U.S. but also draws 
attention to the importance of production for local use.  The 
report questions how many jobs U.S. FDI actually sustains. 
The report clearly points out the advantages of access to the 
world,s largest market but fears the crushing of the small 
Costa Rican farmer by U.S.-subsidized products. 
 
6.  (SBU) The report states that &CAFTA-DR proposes that 
Costa Rica adopt obligations in the areas of intellectual 
property rights (IPR), services, and investments that are 
only now being reviewed and renegotiated at the World Trade 
Organization (WTO), and that were the very contentious 
disagreements during the talks of the Free Trade Area of the 
Americas (FTAA).8  The report notes that requirements made 
under CAFTA-DR, as compared to those proposed in the FTAA, 
are more onerous and says that until these issues have been 
resolved on a more global scale that they should not be 
imposed by the U.S. in CAFTA-DR (IPR is the clearest 
example). 
 
7.  (SBU) The report also states that the reason the CAFTA-DR 
debate has become so polarized is the perception that the 
negotiations proceeded without proper political control over 
the Costa Rican negotiators.  Thus, according to the report, 
&At the end of the negotiations, only two options were 
presented to the President ) to either agree to what they 
had already negotiated or not be part of the agreement at 
all, to either send the document they negotiated to the 
Assembly or not, and to eventually either approve their 
document or not.  That is to say that the opponents to 
CAFTA-DR feel that there was no possibility to introduce 
modifications to what was negotiated by the Costa Rican 
negotiating team.  Faced with this choice, it is logical that 
the citizenry and several business sectors tended to align 
themselves as either in favor of or against CAFTA-DR.8 
 
----------- 
Asymmetries 
----------- 
 
8.  (SBU) The Commission,s report points out that the 
population of Central American countries (CA) is only 11.7% 
that of the U.S.; that CA GDP is 0.5% of that of the U.S., 
and that Agriculture in CA is 17% of GDP and only 2% in the 
U.S., etc.  The Commission report addressed asymmetries in 
the negotiations and in the agreement.  It notes that Costa 
Rica was forced to &cave8 on all of its &non-negotiable8 
items but that the U.S. did not cede on any of its 
&non-negotiable8 items.  For instance, the report points 
out that the U.S. was successful in keeping agricultural 
subsidies out of the negotiations, while Costa Rica was not 
successful in excluding the opening of the telecommunications 
or insurance markets. 
 
9.  (SBU) The report states that implementing CAFTA-DR in the 
U.S. requires no substantial institutional changes, while 
Costa Rica must make significant changes to implement the 
agreement.  In answering its own question, &Does CAFTA-DR 
provide satisfactory safeguards or compensation to offset 
this asymmetry?8, the report states that CAFTA-DR does not 
include any program, mechanism, or cooperation resources for 
Costa Rica from the U.S.  (Note: The report draws a 
comparison to the compensation given to the poorer countries 
adhering to the EU.) 
 
10.  (SBU) The Commission,s report is heavy on the need to 
not just talk about things that &should be done8 to prepare 
for CAFTA-DR, but to take action.  &If CAFTA-DR doesn,t 
address the problem of asymmetries and its possible benefits 
and few disadvantages depend on factors which are not in 
CAFTA-DR, the country should prepare itself to enter the game 
under its rules.  Consequently, the best thing to do is to 
take responsible political action to start your engines, 
steer a straight course, and determine where we want to go, 
what type and how much cargo to carry.8 
 
------------------------ 
SMALL AND MEDIUM FARMERS 
------------------------ 
 
11.  (SBU) The report recognizes the unique agricultural 
history of Costa Rica and the still-strong connection to 
agriculture, even among those who live in San Jose.  &The 
negotiation of CAFTA-DR in this arena does not cause major 
changes in the conditions of existing market access because 
there is already access to the markets.8  The Commission 
also states that, &In this particular aspect of the treaty, 
Costa Rica is strong because its exports are essentially 
tropical and are not produced in the U.S.8  They recognize 
that two sensitive products, onions and potatoes, were given 
special protections by allowing only a small amount of these 
products to enter from the U.S. as requested by Costa Rican 
negotiators. 
 
12.  (SBU) One atypically positive view of U.S. subsidies was 
given in the report:  &U.S. subsidies can be seen as 
positive for Costa Rica as much as for consumers as for 
companies that use these subsidized goods in their production 
processes (such as wheat, yellow corn and soy), because these 
crops are not produced in Costa Rica and could then be 
acquired at better prices in the U.S. market.8 
 
---------------------------- 
INTELLECTUAL PROPERTY RIGHTS 
---------------------------- 
 
13.  (SBU) The report repeats the claims of CAFTA-DR 
opponents that the U.S. obtained IPR protections in CAFTA-DR 
that exceed international norms: &The chapter on IPR is a 
clear example of following U.S. policy.  The U.S. is 
implementing requirements via bilateral trade agreements that 
are currently being discussed contentiously at the WTO. 
Proceeding this way, the U.S. can gain more concessions in 
bilateral trade agreements than it could on a multilateral 
scale.8 
14.  (SBU) The Commission uses the following statistics to 
shore up their contention that Costa Rica is not a producer 
of intellectual property and therefore will benefit less from 
the IPR requirements of CAFTA-DR:  &The negotiation of this 
chapter again shows important asymmetries.  The number of 
patents awarded in Costa Rica to citizens in 2002, 2003, and 
2004 was respectively, 4, 3, and 2; While the U.S. awarded 
84,271 patents in 2004.8  The report contends that this 
statistic along with the fact that the national investment in 
science and technology is only 0.4% of GDP in science and 
technology reveals that Costa Rica, at this time, is far from 
being a producer of patents and is more of a consumer and 
user of foreign innovation. 
 
------------------ 
TELECOMMUNICATIONS 
------------------ 
 
15.  (SBU) Universality and solidarity are oft-used words in 
this section.  The report basically says that there are two 
steps that must be taken as part of implementation of 
CAFTA-DR: (1) strengthen the Costa Rican Institute of 
Electricity (ICE), and (2) create a strong regulatory 
authority to ensure universality and solidarity (meaning 
equality in the provision of telecommunications services). 
(Note: Consistent with the Commission,s stance on the 
choosing of fixed dates for implementation of various aspects 
of CAFTA-DR conditions, the Commission takes issue with the 
requirement for the GOCR to pass a law to strengthen ICE by 
December 31, 2004.  The report states that this 
implementation date was &strangely established.8  End Note) 
 
--------- 
INSURANCE 
--------- 
 
16.  (SBU) With regard to the Costa Rican insurance monopoly, 
the report notes:  &The timeframes established are short, 
and if we add to that fact that we are reaching the 
implementation dates quickly for Costa Rica, the Commission 
feels that the pressure is strong and inconvenient.8  The 
Commission also recognizes the need to have a strong 
regulator in the insurance industry. 
 
17.  (SBU) The report also expressed the Commission,s worry 
that an evaluation of the financial impacts of opening the 
insurance market on INS was not completed.  Evaluations were 
also not completed regarding the impacts on employment in 
this sector, on foreign direct investment, or on the economy 
as a whole. 
 
---------------------------------------- 
COMPLEMENTARY AND IMPLEMENTATION AGENDAS 
---------------------------------------- 
 
18.  (SBU) The Commission said that CAFTA-DR has already had 
effects in Costa Rica and that it has precipitated the 
discussion and debate of essential national agendas to 
prepare for a future with or without CAFTA-DR. 
 
19.  (U) According to the report, the implementation agenda 
should include: (1) the Telecommunications Act which should 
meet the requirements of CAFTA-DR in the gradual opening of 
telecommunications services, (2) the proposed law to 
strengthen the Costa Rican Institute of Electricity (ICE) 
which should give ICE the autonomy to operate in a 
deregulated telecommunications industry, (3) the insurance 
industry law which will comply with the requirements of 
CAFTA-DR regarding the gradual opening of the insurance 
market, and (4) other bills associated with increasing trade 
capacity, e.g., to improve customs capabilities.  The 
Commission reiterated its worry about the failure of the 
Mixed Commission to Strengthen ICE. 
 
20.  (U) The Commission recommends that the complementary 
agenda should, at the very least, include projects in the 
following additional areas: 
 
-education, emphasizing science, technology, and languages, 
creativity, culture, and ethics; 
-strengthening of small and medium businesses; 
-improving infrastructure; 
-strengthening the office of intellectual property rights 
protection and developing capabilities in this area; 
-creation of an office of trade agreement matters; 
-administrative political reform, modernizing the government 
and simplifying processes; and 
-improvement, rationalizing, and harmonization of laws. 
 
--------------------------------- 
THE REPORT,S FINAL CONSIDERATIONS 
--------------------------------- 
 
21.  (U) The report,s final considerations section was a 
general summary of the Commission,s work.  It included a 
fire hydrant metaphor that was repeated by Commission 
Chairman Chang during the September 20 press conference in 
which he stated that &implementing CAFTA-DR as negotiated 
would be like connecting a garden house to the overpowering 
flow of an open fire hydrant.8  The report states that &It 
is not that the hydrant is bad.  In fact the opposite is true 
) it supplies ample and much needed water ) but we should 
find a bigger hose and include regulating valves to ensure 
the best use of the source.  The complementary agenda 
proposed by this Commission is the big fire hose and valves. 
The agenda currently proposed by the GOCR is the garden hose. 
 It is in the complementary agenda that the Commission has 
found one of the greatest deficiencies and the need for 
urgent action.8 
 
22.  (U) In its report, the Commission recommended caution to 
the decision-makers and warned that &a major diversion of 
trade may occur because of the preferences given by the U.S. 
to the countries that have already approved CAFTA-DR, and 
because there is no certainty that the current benefits that 
Costa Rica realizes through the unilateral Caribbean Basin 
Initiative (CBI) will continue if Costa Rica does not approve 
CAFTA-DR.8 
 
23.  (U) The Commission writes that not approving CAFTA-DR 
would result in diminished trade with the U.S., diminished 
FDI, loss of confidence by third countries who would not 
invest in Costa Rica except to export to the U.S., and the 
U.S. poaching the Central American market from Costa Rica. 
 
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COMMENT 
------- 
 
24.  (SBU) The members of the Commission of Eminent Persons 
managed to deliver a report that pleased almost no one and 
resolved absolutely nothing.  It is hard to say what it will 
contribute to the ratification debate or whether it will 
influence the President,s decision to send the treaty to the 
Legislative Assembly.  The Commission members studiously 
tried to appear even-handed but could not resist casting 
Costa Rica/Central America throughout the Report as a David 
up against a U.S. Goliath, but without a sling to defend 
itself.  Perhaps the most helpful observation by the 
Commission members was the acknowledgment that the 
consequences of not approving the treaty, which they admit 
can no longer be changed, would be harmful for Costa Rica 
economically. 
FRISBIE