US embassy cable - 05SANJOSE2601

C O N F I D E N T I A L SECTION 01 OF 03 SAN JOSE 002601 
 
SIPDIS 
 
WHA/CEN 
EB FOR WCRAFT, BLAMPRON 
EB/CIP FOR WAYALA 
WHA FOR WMIELE 
WHA/EPSC FOR KURS, LGUMBINER 
H FOR JHAGAN 
STATE PASS TO USTR FOR RVARGO, NMOORJANI, AMALITO 
 
E.O. 12958: DECL: 11/04/2015 
TAGS: ETRD, ECPS, ECON, PREL, PGOV, SOCI, CS 
SUBJECT: MEETING WITH COSTA RICAN MINISTER OF ECONOMY 
 
REF: SAN JOSE 02460 
 
Classified By: Charge Russell Frisbie for Reasons 1.4 (b) and (d) 
 
1.  (C) Summary.  On October 26, 2005, Charge met with 
Minister of Economy, Industry, and Commerce Gilberto 
Barrantes.  Minister Barrantes commented on the status of the 
United States-Central American-Dominican Republic Free Trade 
Agreement (CAFTA-DR) and related legislation including the 
proposed law to strengthen the Costa Rican Institute of 
Electricity (ICE).  Barrantes stated that the bills that will 
implement the changes needed to comply with CAFTA-DR 
requirements in the areas of telecommunications, insurance, 
and protection of intellectual property rights would be sent 
to the Legislative Assembly sometime between now and January 
2006.  The conversation with Barrantes supports post,s view 
that it is unlikely the Legislative Assembly will be able to 
complete the first of two votes on CAFTA-DR prior to the 
upcoming Presidential and Assembly elections on February 5, 
2006, and perhaps not even by May 8, 2006 when the new 
President and entire Legislative Assembly members (deputies) 
will take office.  Full approval and implementation of 
CAFTA-DR including all necessary changes needed to comply 
with the agreement will likely be left to the next 
Administration.  End Summary. 
 
---------------------------- 
STATUS OF REVIEW OF CAFTA-DR 
---------------------------- 
 
2.  (U)  During the October 26, 2005 meeting with the Charge, 
Barrantes who also heads President Pacheco's Economic Council 
said that Costa Rica is moving forward on CAFTA-DR and the 
proof was President Pacheco's sending the trade agreement to 
the Assembly on October, 21, 2005 to start the relatively 
long ratification process.  Barrantes stated that Rolando 
Lacle, a deputy from the ruling Social Christian Unity Party 
(PUSC) and chair of the Assembly's International Relations 
Committee that has the responsibility for reviewing the 
agreement said that he will hold committee sessions four or 
five times a week to discuss CAFTA-DR.  (Note:  As required 
by law, the legislative project requesting approval of 
CAFTA-DR was formally introduced into the Assembly.  The 
Assembly in principle had five days from October 21 to 
discuss and refer the agreement to the International 
Relations Committee.  However, formal hearings cannot begin 
until the entire agreement is published in the Costa Rican 
Official Gazette, which could be several more weeks.  Further 
restricting the window of opportunity, the Assembly likely 
will not be in session from approximately December 15 through 
the week after the elections, approximately February 13, 
2006.  End Note.) 
 
3.  (U)  Many Costa Rican political experts believe the 
International Relations Committee will require at least three 
months to (1) review the legislation including the agreement 
and associated reports which total more than 3000 pages, (2) 
hold discussions with various groups in favor of and against 
CAFTA-DR, and (3) send it to the Assembly floor with 
recommendations and for a first vote.  If passed in the first 
vote, the constitutional court will review the agreement and 
the legislative procedure used to approve it and offer its 
findings.  This will take at least one month.  (Note: One of 
the issues the Constitutional Court will review is the number 
of votes required to pass CAFTA-DR.  Although most experts 
believe only a simple majority is required, some experts 
believe that a two-thirds majority is necessary to pass 
CAFTA-DR.  End Note.)  CAFTA-DR will then be sent back to the 
Assembly where, if there were no significant findings by the 
Constitutional Court, there would be a second vote.  In the 
case that the Constitutional Court were to have significant 
findings, the Assembly would then have to address the Court's 
comments accordingly.  Even after a successful second vote, 
there may still be up to a month for (1) the President to 
sign the approving legislation and (2) to publish the 
approval in the Official Gazette before the agreement is 
considered ratified in Costa Rica.  At best, the process will 
probably take at least six months. 
 
---------------------------- 
CAFTA-DR-RELATED LEGISLATION 
---------------------------- 
 
4.  (C)  Barrantes also said that in November, he, Vice 
President Lineth Saborio, Gerardo Gonzalez a PUSC deputy and 
President of the Legislative Assembly, and Liliana Salas, 
chief of the PUSC party faction in the Assembly, will meet to 
discuss the legislative priorities for the Assembly's 
extraordinary session that lasts from December 1 through 
April 30.  They will then send the priority list to President 
Pacheco for his review.  (Note:  During the extraordinary 
session, President Pacheco sets the legislative priorities, 
as opposed to the ordinary session in which the President of 
the Assembly does so.  End Note.)  Barrantes said that he 
believes the list will include the following legislative 
initiatives (although he failed to give them any specific 
relative priority):  (1) CAFTA-DR, (2) a law to implement the 
CAFTA-DR requirements regarding the telecommunications 
market, (3) a law to implement the CAFTA-DR requirements 
regarding the insurance market, (4) legislation approving 
loans that would fund CAFTA-DR's corollary complementary 
agenda, (5) legislation forming a Costa Rican development 
bank to assist development of businesses under CAFTA-DR, and 
(6) legislation that would ensure compliance with the 
intellectual property rights provisions of CAFTA-DR. (Note: 
The only legislation that has been submitted to date are 
CAFTA-DR and the complementary agenda funding.  End Note.) 
 
5.  (C)  One notable absence on Barrante,s list was that of 
the government,s fiscal reform bill.  When asked about the 
status of this tax bill, Barrantes said that he was not sure 
what would happen - that a lot depended on the strategy to be 
adopted by Gerardo Gonzalez, the President of the Assembly. 
 
6.  (C)  Barrantes also talked about the proposed law to 
strengthen ICE that was sent to the Legislative Assembly on 
October 18, 2005, three days prior to sending CAFTA-DR.  He 
stated that the President chose to proceed this way and to 
insist on the Assembly passing the law to strengthen ICE 
prior to passing CAFTA-DR to win good will from members of 
some of the many labor unions that have voiced opposition to 
CAFTA-DR.  The bill is supposed to give ICE the financial and 
administrative autonomy necessary to compete in a gradually 
opened telecommunication industry as required by CAFTA-DR. 
Barrantes acknowledged that from a CAFTA-DR compliance point 
of view, this proposed law was problematic since it exempts 
ICE from having to pay any taxes and gives concessions for 
use of most of the telecommunications spectrum. (Note:  Annex 
13 to Chapter 13 of CAFTA-DR basically requires a strong 
regulator of the telecommunications market that ensures equal 
treatment and access for all competitors be they publicly- or 
privately-owned.  End Note.) 
 
7.  (C)  Barrantes said that the issues noted above would be 
fixed in the Telecommunications Act that is currently under 
review by the Administration and ICE, and that may be 
submitted to the Assembly in as early as a few weeks or as 
late as January 2006.  Barrantes said that perhaps the GOCR 
would wait until December or January to lessen the likelihood 
that anti-CAFTA forces could marshal university and high 
school student support for protests. 
 
8.  (C)  Barrantes said that a significant issue under 
discussion regarding the Telecommunications Act was how to 
regulate the telecommunications spectrum.  He referred to a 
World Bank study that is not publicly available that, he 
stated, confirms there is enough available telecommunications 
spectrum to allow sufficient competition, i.e., it would not 
be necessary to take any spectrum away that ICE currently has 
the rights to use.  At the same time, he also said that the 
Telecommunications Act would "clean up" the spectrum. 
Barrantes said that President Pacheco personally intervened 
over the objections of some ministers and to make the 
decision not to address spectrum issues in the proposed law 
to strengthen ICE.  Barrantes said Pacheco wants to avoid 
confrontation with the labor unions at this time by not 
appearing to take anything away from ICE in that bill. 
 
9.  (C)  Barrantes stated that the proposed bill to 
strengthen ICE would be sent for review by a special 
deputies-only committee which would consist of three PUSC 
deputies, three deputies from the opposition National 
Liberation Party (PLN) and probably one to three deputies 
from other parties.  He said most of the deputies that will 
be on this committee will have served on the now-defunct 
special mixed committee to review ICE that reviewed the 
previously proposed law to strengthen ICE. 
 
10.  (C)  Barrantes also said that a new and independent 
regulatory body would be formed and would be named the 
Superintendent of Telecommunications.  He admitted that the 
Regulatory Authority of Public Services (ARASEP), which had 
been rumored to be the responsible regulatory agency, is not 
qualified to do the job.  Barrantes recognized the difficult 
task of building such an organization from the ground up 
including finding properly trained and experienced personnel 
and generating regulations and defining procedures for an 
open telecommunications market.  He did say that the 
Administration was working with several international 
consultants on these issues. 
 
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COMMENT 
------- 
 
11.  (C)  Barrantes,s comments served to underline the 
significant barriers to rapid movement toward CAFTA-DR 
ratification that remain, and which complicate passage in 
2006.  President Pacheco's insistence that the Assembly pass 
the newly introduced law to strengthen ICE which contains 
articles, which go against CAFTA-DR commitments, further 
muddies the waters.  Moreover, Barrantes,s comments about 
the possibility of not "freeing up" telecommunications 
frequencies highlights a key potential CAFTA-DR compliance 
issue.  In short, for the GOCR negotiating the agreement may 
well have been the easy part, ratifying CAFTA-DR more 
difficult, and passing the necessary legislation to comply 
with its commitments could well constitute the biggest 
challenge. 
LANGDALE